Canadian real estate owners are seeking the security (& discount) of fixed rate mortgages. Bank of Canada (BoC) data shows the share of new mortgage loans with variable interest continued to shrink in February. Just one year ago, the majority of new loans were attached to variable rate mortgages. Now the share is back to pre-pandemic levels, as fast rising interest rates spook the market.
Canadian Variable Interest Mortgage Loans Down 87%
Canadians aren’t interested in mortgage debt with variable interest rates right now. Variable rate loans contracted by 31% in February, representing just $2.38 billion in new loans. This represents a decline of 87% when compared to the same month last year. It was the lowest volume for the segment since February 2020—before the low rate credit frenzy began.
Variable Rate Mortgages Went From The Majority of Loans To Just A Tiny Fraction
Mortgage borrowing is pulling back in general, but not as fast as variable rate loans. The segment saw its market share contract 6 points to 11% of new mortgages in February. Most (55%) new loans this time last year had variable interest, a month prior to the BoC rate hikes. The most recent numbers represent the smallest share of lending since February 2020.
Canadian Variable Rate Mortgages Fall To Lowest Market Share Since Pre-Pandemic
The share of total new mortgage credit issued with variable interest costs.
Source: Bank of Canada; Better Dwelling.
Falling back to pre-pandemic levels is far from a coincidence. Prior to March 2020, interest rates were climbing—albeit at a much slower pace than we’ve seen. Borrowers back then locked in protection against even higher interest rates. Payment predictability is an attractive feature with the media filled with stories of people being caught off guard.
The current market also has the added risk of falling fixed rates and moral hazard. While variable interest mortgages haven’t seen rates budge, fixed rate products have fallen. Falling rates at this level, well above the stress test floor, also adds additional leverage. Real estate investors are likely looking for more leverage, after seeing minimal risk and loosening market conditions after just a few months of price drops.
Wouldn’t now make the most sense to go for a variable rate mortgage if you expect rates to fall?
Short answer: Yes.
Longer answer: Short-term fixed rate loans provide decent value right now. My guess is a lot of these are 1-3 year terms, and they’re hoping to renew next year.
Keep in mind the news highlighted a handful of people that were stress tested for the amount (or close to), they just played victim because they didn’t want to pay it.
There’s basically two journalists that keep playing the variable rate risk up, and if you scroll through their timeline you’ll see they just bought a house in 2021. LMAO
Hopefully the variable rate borrowers knew this was coming and opted for them to appreciate the *SUBSIDIZED INCENTIVE* from the Bank of Canada.
Collecting other people’s money is a great thing. Just remember that the low rates were a gift, not what you deserve. The bill passed to taxpayers isn’t fun to pay.
In before a Realtor demonstrates you don’t need even basic reading comprehension to get a license in Canada.
Just because Tiff has paused rate hikes doesn’t mean he won’t have to hike further if inflation gets stubborn. Which the second half of getting to 2% will certainly be. Today’s fixed rates might not look so bad in hindsight later.
Hiking at this point would be a follow me approach to what Jerome is doing. Yes, we import alot of goods from the US and if interest rates are not congruent across the board inflation may ba a result of not matching rates. What is un nerving is reports are frequent that mortgage defaults are at an all time low. Wonder why that is? Simple if you rewind 3 years and evaluate how the game changed and what People actually believe.
Ok, variable rates increased after Tiff Macklem said rates will remain historically low, we had over asking in every neighborhood, then after the hook is set he pulls the rug out. Saying rates that were raised will remain static for the remainder of the year and that people renewing during this time will and I quote, ” feel the pinch”. Sure they will. Because they trusted an institution that wilfully misled (disinformation?😆) Printed money with no regard because, and I quote,, ” the budget will balance itself”. Seriously there is an influx of migrants that our system was never prepared for. There is a dramatic housing shortage and 30% of new migrants have said and are moving to return to their own country because our taxes are far too exorbitant.
Hiking at this point would be a follow me approach to what Jerome is doing. Yes, we import alot of goods from the US and if interest rates are not congruent across the board inflation may ba a result of not matching rates. What is un nerving is reports are frequent that mortgage defaults are at an all time low. Wonder why that is? Simple if you rewind 3 years and evaluate how the game changed and what People actually believe.