Your variable payment just went up. Fixed rates might be about to fall.
If you're on a variable rate or you're carrying a line of credit, you felt it this week. Prime moved up and your payment moved with it.
The part almost nobody noticed: the five-year government cost that lenders borrow against to fund fixed mortgages dropped to 3.47% this week, down about a tenth of a percent in five days. So the same week variable climbed, the engine behind fixed rates was cooling off.
That split is the whole story right now. Variable moves with the Bank. Fixed moves with what it costs lenders to borrow for five years. This week they pulled in opposite directions.
If you're holding a pre-approval or you're deciding between fixed and variable on an offer going in this week, that split tells you a lot about where your rate lands. Keep reading.
The people setting fixed rates are betting on fewer hikes than the Bank says
So why would the thing behind fixed rates fall right after a hike? Because the hike was fully expected, and now everyone's arguing about what comes next.
The people setting rates are betting on roughly four more quarter-point increases by the end of next year. My read is that's too aggressive.
The hike was called a preventative move, insurance against high gas prices spreading into everything else. They're acting on a forecast, not on what's actually showing up in your grocery bill yet.
That gap, a worried central bank versus a cooling economy, is why fixed rates are leaning lower. One more hike looks near-certain. Beyond that, I'd want to see much worse inflation numbers before I believed it. And if the market's right, the fixed rates lenders quote should start drifting down with a lag.
The economy just got hiked into is barely growing
Pull back from the rate decision and look at the ground it's standing on. The economy was essentially flat in August, the second flat month in a row, and the early read on September points slightly negative.
That matters for you because a slowing economy is the single best argument against the aggressive hike path the market was betting on. A central bank hiking into weak growth is using a blunt tool for a delicate job, and the longer growth stays soft, the harder it is to justify going much higher.
The next real test comes Friday with October's jobs numbers. September shed 68,000 jobs, mostly in the public sector. A soft report Friday strengthens the case that we're done after one more, and keeps the pressure on fixed rates to ease. A hot one does the opposite.
Either way, it's the number I'm watching. If you're deciding on a term this week, so should you.
My take
Here's where I land. The market is betting on four more hikes. I think we see at most one or two over the next year, and my own call has the Bank holding in December, nudging up in January, and again in the spring, then sitting still. That's a far cry from the path being bet on. I don't buy the panic. Inflation below target, the economy's barely moving, and a trade shock is still working through the system. Hiking hard into that is overcorrecting. If I'm wrong, it's because gas prices stay high long enough that businesses start passing them through to wages, and we'd see that in the data first. Until then, I'd still bet variable has the better shot over a full term, even as I completely get why so many people want the certainty of fixed right now.
Insider tip
If tight debt ratios are what's holding your approval back, ask which lender counts the actual payment on your line of credit rather than a percentage of the balance. On a $40,000 balance, that single difference can swing your qualifying amount by tens of thousands. With prime now higher, that calculation changed this week, so it's worth re-running before you shop.
Go deeper: How to Buy a Home Without Saving a Down Payment: Flex Down Mortgages Explained
Rates eased. Let's make sure you get the benefit.
Fifteen minutes on the phone with me. If there's a better number out there for you, we'll find it. If there isn't, you'll sleep fine.
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