Most of Canada’s Uninsured Mortgage Borrowers Are Betting Against Rising Rates

Canada’s central bank warned real estate buyers to prepare for higher interest rates. It appears buyers are calling their bluff, opting for little rate protection on loans. Bank of Canada (BoC) data shows the share of new mortgages with variable rates doubled in October. Interest costs on most new uninsured mortgages will rise with rates, as borrowers bet they can’t climb by much.

Most New Uninsured Mortgage Debt In Canada Has Variable Rates

Uninsured mortgages represent the lion’s share of mortgage debt in Canada. These are mortgages where the owner has sufficient equity in the home, but tends to carry higher costs. In October, there was $34.3 billion of new uninsured mortgage debt, with 58% being variable rate. This time last year, the share was less than half the size while interest rates were falling.

The most recent data shows a minor decline in the share of variable rate debt. October’s share was about one point lower than the peak hit in August. Borrowers with substantial equity definitely aren’t scared of higher interest costs. 

The Share of Variable Rates On Insured Mortgages Has Doubled

Insured mortgage debt, required for mortgages with less than 20% equity, is climbing. In October, $7.3 billion of insured mortgage debt was borrowed, with 34.7% being variable rate. It’s a smaller share than uninsured mortgages, but still double the share of last year.

Once again, this is down slightly from the peak seen earlier this year. October’s share of variable rate mortgages fell 0.4% from the peak hit in August. Still, this is way above any normal levels for insured mortgages. 

More Canadians Are Opting For Variable Rate Mortgages

The share of new Canadian mortgage debt issued with variable interest rates.

Source: Bank of Canada; Better Dwelling.

Canadian Home Buyers Are Betting Against Rates Rising Sharply

Some mortgage experts have said the central bank’s ability to raise rates will be limited. A lot of variable rate debt exists, creating a vulnerability for households. Rising interest costs will crush variable rate borrowers if rates rise, is a common argument. Ironically, borrowers understand this risk, creating moral hazard. People are opting for cheaper variable rate mortgages since they don’t believe the BoC can raise rates sharply enough to impact them. 

Politically it’s unpopular to ignore the size of variable mortgages when raising rates. The risk is most likely overstated, though. Since 2017, Canada’s bank regulator created the mortgage stress-test for this exact scenario. Most borrowers have now been tested to ensure they can pay much higher interest costs.



We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Stalin 2 years ago

    go watch the new Netflix movie, Don’t Look Up, and you will find this housing problem and current covid disaster are so much like in the problem in the movie. Rich people are playing fire just because they want to squeeze the last penny from the people, and, most importantly, they will be harm-free even if the things go south. What a pethetic world we are living in.

  • Jared 2 years ago

    A) Bank of Canada committed to low-for-long interest rates just over a year ago

    B) With current levels of debt (both government and personal – mostly mortgage), a rise in interest rates would impact economic growth in a major way

    Therefore… what makes someone think that the BofC would ever raise rates significantly?? Interest rates are going to be pinned as close to 0 as possible for the foreseeable future. “Full employment” or “climate change” will be the justification. Don’t believe me just watch

    • Mortgage Guy 2 years ago

      If Canada can’t raise interest rates to the neutral, you don’t want real estate. You wouldn’t touch anything denominated in Canadian dollars with a 10-ft pole.

      The immigration narrative also makes less sense with high inflation, which ironically puts locals in poverty faster than just raising rates.

      If you’re right, the country is toast. Maybe 2-3 more years of rising home prices, but then literally anywhere in the world becomes a better performing place to live. If you’re wrong, long-term property values are retained.

      • Jared 2 years ago

        Sure, but neutral is 1.5% now (which is super low). The only way Canada ever needs to raise rates is if the rest of the western world does. Do you see Europe, USA, Australia, Japan having fed rates >2% anytime soon? They are all in the same boat. Remember, inflation is only a bad thing for the non-asset holding proportion if a population. That is the minority. It is totally possible to sustain 5-10% inflation rate over time. Hyperinflation is a different beast than high inflation. I believe we are in for high inflation in the foreseeable future

        • Alex 2 years ago

          You have a very simplistic view of inflation if you think 5-10% is sustainable for prolonged periods of time. Such a rate of inflation would essentially double the cost of living every 7-10 years, which would spell inevitable doom for the economy. Even if we rates rise marginally i.e to 1.5%, we have such high debt to our productivity level that it would ultimately be a rug pull on the credit markets. Japan didn’t raise rates prior to their economy, and subsequently real estate markets crashing. In fact, the BoJ was aggressively pushing their commercial banks to lend to people, but the bubble got so large that virtually no amount of capital could keep it afloat. I have said this once and will say it again on this platform, inflation is and never will be a solution. Our real estate will likely see a 50% valuation compression within 3-5 years. Good luck.

          • Jared 2 years ago

            Alex – I see what you are saying but I think you are missing the bigger economic picture. Inflation is just wealth redistribution, it can mean an increased cost of living for some but doesn’t have to. Essentially inflation is a tool of those who control money supply to skew the valuation of assets and influenc economic activity (e.g. discourage saving, encourage spending and debt). A society with 5-10% inflation doesn’t necessarily mean that cost of living increases. If prices 3x it doesn’t make them 3x more expensive for the consumer, because it depends on their wealth and wages, which also inflate. It’s entirely possible that cost of living DECREASES with 10% inflation. In my opinion the Canadian government actually desires high inflation because of their current debt levels. Without high inflations and deep negative interest rates, they have no way to manage that debt load. I think you will see:

            Rising wages
            Increasing inflation
            Asset prices skyrocketing

            This will increase the wealth gap, favoring asset holders, but the politicians see that as a benefit and not a drawback. This provides opportunity for social programs (e.g. CERB, Child care benefit, first time homebuyer grants, etc.) addressed to the non asset holders that will result in votes, and the asset holders will obviously be motivate to vote for the politicians who are inflating the prices of their assets. Its win – win – win

        • Thoughts 2 years ago

          im replying to your last comment.. that sounds like a nightmare. rich get richer and the poor get to watch it. no thanks

  • Brian M 2 years ago

    Brian M….
    Be aware of what your trigger point is.

    Variable interest rate mortgages can exceed their trigger rate until they reach what is known as a balance called the Trigger Point. When this happens, you will be required to adjust your payments, make a prepayment, or pay off the balance of the mortgage.
    A trigger rate is the rate, that if surpassed, requires a variable-rate borrower to increase his/her payment. Trigger rates are linked to prime rate. They ensure that variable-rate borrowers with fixed payments always cover at least the interest due to a lender is fast rising rate environments. confirm more details with your mortgage person.

  • Rene Albert 2 years ago

    Myself, and a whole lot of people around me, are fast losing confidence in the Canadian economy. All built on hype right now. Price of housing ridiculously high, inflation out of control, and stock markets unprecedentedly high…sorta reminds one of what happened just before the last Great Depression doesn’t it!!! Certainly hope not, cause it would get really ugly…

Comments are closed.