Canadian Homeowners Shift from Variable-Rate to Fixed-Rate

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As interest rates continue to rise in Canada, an increasing number of homeowners are opting for fixed-rate mortgages over variable-rate options. The dwindling popularity of variable mortgages reflects a shifting landscape in borrowing preferences, driven by recent rate hikes and the overall increase in mortgage rates. In this article, we explore the latest data from Statistics Canada, industry insights, and expert opinions to understand the factors behind this trend and its potential implications for Canadian homeowners.

According to Statistics Canada, the share of variable mortgages issued by chartered banks has been steadily decreasing for the past thirteen months. In April, the percentage of variable mortgages dropped to around eight percent, significantly lower than the peak of over 56 percent in January 2022. The total value of advanced variable-rate mortgages has also declined, reaching less than $2 billion compared to $23 billion a year earlier.

James Laird, co-CEO of and president of CanWise Mortgage Lender, suggests that the preference for fixed-rate mortgages is a result of changing borrowing trends. During the pandemic, historically low mortgage rates made variable rates popular, accounting for over 20 percent of mortgage rate inquiries. However, with the Bank of Canada’s rate hikes and the overall rise in mortgage rates, consumers have shifted back to fixed rates. Laird notes that 95 percent of rate inquiries in 2023 will be for fixed-rate mortgages.

The declining popularity of variable-rate mortgages is accompanied by a decrease in overall mortgage borrowing. The total funds advanced by chartered banks in April amounted to $24.3 billion, down from the peak of $58.4 billion in June 2021, when interest rates were at 0.25 percent. The Canadian Mortgage and Housing Corp. (CMHC) reports a decrease in loans extended by chartered banks, suggesting a broader impact on the mortgage market.

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While fixed-rate mortgages with shorter terms have gained popularity, experts anticipate a potential reversal of the trend in the future. Mortgage strategist Robert McLister believes that if the Bank of Canada hints at a future rate cut, variable-rate mortgages may regain popularity. However, McLister emphasizes the importance of monitoring the probability of a rate cut, as a significant chance of a cut in the next meeting could lead to increased demand for variable-rate mortgages.

As interest rates rise in Canada, homeowners are increasingly favoring fixed-rate mortgages over variable-rate options. The decline in popularity of variable mortgages reflects shifting borrowing preferences driven by recent rate hikes. While the current trend favors fixed-rate mortgages, industry experts anticipate a potential shift in the future based on economic indicators and Bank of Canada decisions. It is essential for homeowners to carefully evaluate their options and consider their long-term financial goals before making mortgage decisions in a changing interest rate environment.

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