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As 2022 rolls into view, the ever-evolving tug of war between fixed and variable mortgage rates, shows little sign of slowing down.

While the Bank of Canada’s recent announcement that rate hikes are on the way in the coming months, also indicated that the pandemic-era days of record-low rates are nearing an end. There’s still plenty of debate over what trajectory the fixed-vs-variable debate is likely to take.

Mortgage Professionals confirmed that recent weeks had seen variable rate products begin to tick higher – not because of the prospect of changes to the Bank’s overnight rate, but rather lenders were beginning to reduce their discount spreads to the Prime rate.

Over the last few months, with bond yields spiking, fixed rates started increasing quite significantly, while variable rates stayed put. The lenders were therefore starting to look at reducing the gap.

The fact that interest rates are still comparatively low by historical standards, means that Canadians are continuing to take advantage for now.

The question is, how long is this likely to continue? Much will depend on how the Bank of Canada approaches growing concerns over the Omnicron variant, which has thrown a curveball into the prospect of global recovery.

Inflation also remains resolute, hovering just below the 5% mark, with the Bank noting once again in its last announcement, that it was keeping a close eye on that phenomenon moving into 2022.

The Bank faced a difficult decision on that front, with the massive flooding that has recently taken place in BC also representing cause for concern. BoC will look at what’s going to happen over the next few months before deciding whether the rates will go up in April 2022, or wait towards the second half of the year.

Interest rate changes in 2022 are likely to be modest hikes, with the Bank wary of introducing increases that are so drastic or sudden, as to potentially derail the Canadian economy.

Making modest increases versus something that is too aggressive or overwhelming, is much easier for consumers to adjust to. If the rate hikes are too aggressive, it can cause defaults for a lot of consumers – not just for mortgages. With that in mind the question of whether customers will gravitate for towards fixed or variable rates, is one that’s likely to remain prominent throughout 2022.

While both have their advantages, the choice ultimately depends on the personal preference of the client and their appetite to embrace risk.

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