Canadians’ interest in variable rate mortgages has dropped significantly from last year, a result of the aggressive rate hikes by the Bank of Canada between March last year and January this year..According to mortgage rate comparison website, Ratehub.ca, of consumers looking for a new mortgage, or were renewing, only 5% inquired about a five-year variable rate since Jan. 1 this year, down from 26% in the same time frame last year..Consumers’ appetites for a five-year fixed mortgage jumped to 79% this year from 66% last year..Fixed-rate mortgages have traditionally been the most popular option in Canada, with a market share floating around 80%, but the pandemic and the bank changed that, almost overnight, as the bank cut the rate to .25% three years ago and kept it there until March 2022. . MortgagesMortgages .The result was some of the lowest floating rates in history, sending the variable rate share to one-third of all outstanding mortgage debt..And while fixed rates declined as well, the spread between the two made Canadians take a longer look at and sign onto a variable rate, says James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender..“During the pandemic, mortgage rates reached historic lows, dropping as low as .85% for a five-year variable rate and 1.39% for a five-year fixed rate,” says Laird. “Variable rates became more popular than usual, accounting for over 20% of Ratehub.ca mortgage rate inquiries.” .Soaring inflation, which hit a 40-year high of 8.1% in June last year, put the brakes on that when the bank began its series of increases, taking its rate to 4.5%, where most market watchers expect it to stay for the foreseeable future..Today’s best five-year variable rate is 5.55%, says Laird, pointing out fixed rates have edged down recently because of volatility in bond markets, with lowest five-year fixed now at 4.29%..The spread of 126 basis points and the stability of a fixed rate have seen Canadians go back to fixed, says Laird..“With the Bank of Canada rate hikes and overall rise in mortgage rates, consumers have switched back to fixed rates, with 95% of rate inquiries to Ratehub.ca in 2023 being for fixed rates,” he says. .Ratehub.ca’s data collection highlights another trend, that of increased interest for shorter-term fixed rates, as borrowers look to lock in, but leave their options open for a potentially lower rate environment in the short term, says Laird..“Consumers are currently more interested than usual in short-term fixed rates because many experts are predicting that rates will drop in the coming years,” he says. “Getting a short-term fixed rate allows borrowers to take advantage of future lower rates sooner.”.At its last rate announcement in April, The Bank of Canada held its overnight rate steady at 4.5%, hinting broadly that increases were likely off the table for the balance of 2023, although it offered no guarantee it wouldn’t implement an increase, if required..Until inflation comes within the bank’s target rate of between 2% and 3% (it was 4.3% in March), the bank will not even give consideration to cutting its rate and more Canadians are not likely to give consideration to a variable rate mortgage..“We expect demand for variable rates to stay depressed and interest in short-term fixed rates to remain elevated until the Bank of Canada cuts the target for the overnight rate from its current level,” says Laird.
