May 17, 2023
Demand grows in Canada for short-term fixed-rate mortgages
Housing prices increase
A string of aggressive interest rate hikes from the Bank of Canada is driving short-term fixed-rate mortgage demand higher, a survey from Ratehub.ca revealed.
Canadians who are looking to take on a mortgage are showing interest in short-term fixed rates as a strategy to lock in slightly lower rates and establish temporary predictability, the survey showed.
Inquiries made for fixed mortgage rates on the Ratehub.ca site jumped to 70 per cent in 2023, marking a rise from 66 per cent last year. This is a large reversal from the trends seen during the pandemic when variable-rate mortgages accounted for one-third of all outstanding mortgage debt, a 20 per cent rise from the end of 2019.
In particular, the data showed a surge in borrowers considering short-term fixed rates, with a current rate of 4.29 per cent. In comparison, a variable-rate mortgage stands now at 5.55 per cent.
“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,” James Laird, co-chief executive officer of Ratehub.ca and president of CanWise mortgage lender, said in a press release on Monday.
The high interest rate environment and overall rise in mortgage rates has pushed borrowers in this direction, he added.
One realtor confirms that this trend is in fact on the rise.
“Interest rates are quite high right now, so a lot of people don’t want to lock into a full five-year term at these rates. They think its better to lock into a two- to three-year fixed mortgage as they anticipate rates will be lower than they are now when it comes time to renew,” John Pasalis, president and broker of Realosophy Realty, said.
The reversal from variable-rate mortgages to short term is also being sought after for mortgage qualification purposes, he added.
“In early 2022 people were going to variable rates because it was helping them qualify, as it was lower than long-term rates. But now, that’s no longer the case,” he said.
The move towards short-term fixed-rate mortgages is a calculated one, but not one without risk, Davelle Morrison, broker at Bosley Real Estate Ltd, said.
While she, like many experts, also believes that interest rates are unlikely to stay this elevated, borrowers signing up to a fixed-rate mortgage still run the risk of ending up in a higher interest rate environment at the end of their term.
"People are trying to give themselves a bit of an insurance policy, but there is still the consideration that historically interest rates really aren't crazy high right now," she said.