Canadian Real Estate Buyers Opt For Fixed Terms After Variable Shock

Overstimulated Canadian real estate buyers are no longer opting for variable rate mortgages. Bank of Canada (BoC) data shows mortgage borrowers preferred fixed rates in October. Most new borrowers had been opting for variable terms at the start of the year. That trend is rapidly shifting as rates normalize and fixed rates become cheaper.

Canadian Mortgage Borrowers Ease On Variable Rate Loans

Canadian households are no longer opting for variable rate mortgages as rates rise. Just 29.7% of new uninsured mortgage credit in October had variable interest terms. That’s down sharply from the 40.1% reported a month before, and the 60.1% when rates peaked in January 2022. Variable rates were most popular with uninsured debt, but there was an insured boom too.

Share of Canadian Mortgage Credit Issued With Variable Interest

New mortgage credit with variable interest rates as a share of total mortgage credit issued.

Source: Bank of Canada; Better Dwelling.

Insured mortgage credit saw a similar boom and bust for variable rate market share. About 24.1% of new insured mortgage debt in October had variable costs. It’s down from 34.1% a month prior, and the 39.3% during the market share’s peak in January 2022. That’s a very big shift for such a short time, and it has to do with costs.

Canadian Borrowers Have Been Paying More For Variable Loans

Canadian mortgage borrowers shifted preferences with the cost of borrowing. Uninsured loans with variable terms had an average interest rate of 5.53% in October. It was a substantial premium over the 5.18% average for all loans. In other words, mortgages with fixed rates brought the average down.

Canadian Mortgages With Variable Rates No Longer Providing A Discount

The difference between the average variable and total interest rates for new uninsured mortgage loans issued. 

Source: Bank of Canada; Better Dwelling.

This wasn’t the case back in January, when the market share had peaked. Uninsured variable rate mortgages averaged 1.45% in January 2022, compared to 1.89% for the total. That can translate into a lot of saved cash if your variable rate mortgage doesn’t suddenly surge.

A similar shift was observed with insured loans. Variable loans averaged 5.53% interest in October, compared to 5.18% for the total of all mortgages. Back in January, variable loans averaged 1.51%, nearly 50 basis points (bps) lower than the total. Borrowers appear to be opting for the cheapest loan without future consideration. It makes more sense when you realize short-term investors were a big share of the market.

Most Canadian households traditionally opt for fixed term repayment schedules. They might cost a little more, but they reduce risk and provide peace of mind. It’s a surprisingly responsible thing to do, but that isn’t what happened over the past two years. 

Low rate stimulus from the BoC drove a big discount for variable rate loans. The gap was amplified as central banks failed to keep up with the market. They actively ignored rising bond yields and inflation, as well as tight employment. Such a large discount proved to be too tempting to not embrace, but it might seem like a trap in hindsight. Especially since the central bank made the unusual move of promising households low rates until next year. Whoops.



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  • Mortgage Guy 1 year ago

    Who picked a variable rate mortgage loan when it was 1.5% and fixed rates were 4.5%? They would have to be nuts, since the odds are in favor of it rising A LOT.

    • Whiskey Foxtrot 1 year ago

      People betting the economy will collapse but home prices will remain unscathed?

  • Trader Jim 1 year ago

    Salient point that should be touched on is the surge in variable rate mortgage debt related to investors? Most people on social media (Saretsky comes to mind) that were saying get a variable rate loan were real estate investors with extremely short term outlooks for these purchases.

  • Omar 1 year ago

    Tiff is reckless and shouldn’t have communicated that rates wouldn’t rise. I know you’ve made this point many times, but it can’t be emphasized enough that’s not how central banks operate. They are supposed to respond to conditions, but Tiff (and even Poloz) are trying to create them.

    • Ramesh 1 year ago

      This is exactly the reason many fell for variable rates.

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