CIBC mortgage borrowers face choice between fixed and variable rates

CIBC's prime rate, the basis for its variable-rate mortgages and other loans, is currently 4.45 percent. This rate moves in lockstep with the Bank of Canada's policy rate, directly affecting the cost of borrowing for customers. The bank is a major player in Canada's residential mortgage market, with a portfolio valued at $263 billion last year. Borrowers can choose between fixed- and variable-rate mortgages, each with distinct risks and benefits.

With a fixed-rate mortgage, the interest rate remains unchanged for the entire term, providing predictable monthly payments. If a borrower secured a five-year fixed rate of 4.25 percent, for example, that rate would not change until renewal in five years. The downside is that borrowers cannot benefit from falling rates during their term without breaking the mortgage contract, which can trigger steep prepayment penalties. Variable mortgage rates, tied to CIBC's prime rate, can rise or fall many times during a term. When the rate rises, more of a monthly payment goes toward interest, and when it falls, more goes toward the principal. However, during periods of high inflation, rapid increases to prime rates can put significant pressure on household finances.

From March 2022 to July 2023, homeowners with variable-rate mortgages saw their rates increase by 475 basis points, or 4.75 percentage points. This meant a borrower with a rate of 2.25 percent in early 2022 could have been paying 7 percent by mid-2023. While not common, such a scenario highlights the risk of a variable-rate mortgage during economic uncertainty. Borrowers must also decide between an open or closed mortgage structure. An open mortgage allows for increased payments or full repayment at any time without penalty but typically comes with a much higher interest rate. A closed mortgage imposes annual limits on prepayments but offers a lower rate. CIBC also offers a six-month convertible mortgage, which can be extended to a longer term without penalty, an option for those expecting rates to fall soon.

READ MORE: CIBC's prime rate holds at 4.45% as mortgage borrowers weigh options

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When comparing rates, experts advise using the annual percentage rate, or APR, which includes additional fees, rather than just the interest rate. This provides a more accurate picture of the total borrowing cost. CIBC, as a federally regulated lender, follows strict guidelines, and securing the best rate may require effort from the borrower. Strategies include raising one's credit score, making a larger down payment and lowering debt service ratios to present less risk to the bank. Shopping around and negotiating are also crucial. Borrowers are encouraged to let the bank know they are consulting other lenders.

CIBC typically presents two sets of mortgage rates: posted rates and special, discounted rates. Posted rates are often much higher, with the expectation that borrowers will negotiate them down. Special rates are discounted from the posted rates and are more aligned with what most borrowers are offered. Yadude Books reported in October that CIBC's prime rate was holding steady at 4.45 percent as mortgage borrowers weighed their options.

With files from NerdWallet