Canadian Real Estate Owners Prefer Fixed Rate Mortgages as Variable Rates Fall


The Canadian real estate market is seeing a shift in mortgage borrowing preferences, with homeowners seeking the security of fixed-rate mortgages amid rising interest rates. According to Bank of Canada (BoC) data, new mortgage loans with variable interest continued to shrink in February, with just $2.38 billion in new loans, representing a decline of 87% compared to the same month last year.

Variable rate loans were once the majority of new loans, representing 55% of new mortgages just one year ago. However, the market share of variable rate loans has since fallen to just 11% in February, the smallest share of lending since February 2020, before the pandemic.

The decline in variable rate mortgages is not a coincidence, as borrowers are seeking protection against higher interest rates. Payment predictability is an attractive feature, particularly given the media stories of people caught off guard by rising rates.

Bank of Canada front view

The current market also has the added risk of falling fixed rates and moral hazard. Falling rates at a level above the stress test floor adds additional leverage, with real estate investors seeking more leverage after seeing minimal risk and loosening market conditions after just a few months of price drops.

In summary, Canadians are currently not interested in mortgage debt with variable interest rates, with variable rate loans contracting at a much faster pace than mortgage borrowing in general. The shrinking share of variable rate mortgages in the market is a reflection of the current state of the Canadian real estate market, with homeowners seeking the security and discount of fixed-rate mortgages amid rising interest rates.

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