According to a Ratehub.ca poll, the Bank of Canada’s recent aggressive interest rate increases are increasing demand for short-term fixed-rate mortgages.
According to the study, Canadians who are considering getting a mortgage are interested in short-term fixed rates as a way to lock in somewhat cheaper rates and create short-term certainty.
On the Ratehub.ca website, inquiries for fixed mortgage rates increased from 66 percent in 2018 to 70% in 2023. This represents a significant shift from the epidemic period, when variable-rate mortgages made for one-third of all outstanding mortgage debt, up 20% from the end of 2019.
The statistics in particular revealed a rise in borrowers looking into short-term fixed rates, which are now available for 4.29 percent. A variable-rate mortgage is currently 5.55 percent, in contrast.
Consumers are currently more interested in short-term fixed rates than typical because many experts believe that rates will decline in the upcoming years, according to a news release issued on Monday by James Laird, co-chief executive officer of Ratehub.ca and president of CanWise mortgage lender.
According to him, borrowers have been pushed in this manner by the high-interest rate environment and a general increase in mortgage rates.
A realtor vouches that this trend is escalating.
Many consumers are reluctant to commit to a full five-year term at the current rates since interest rates are so high. As they anticipate rates to be lower than they are currently when it comes time to renew, they believe it is better to lock in a two to a three-year fixed mortgage, according to John Pasalis, president and broker of Realosophy Realty.
He continued that the switch from variable-rate mortgages to short-term mortgages is also desired for mortgage qualification grounds.
People switched to variable rates at the beginning of 2022 because they helped them qualify and were less expensive than long-term rates. But as of right now, that’s not the situation,” he stated.
According to Davelle Morrison, a broker at Bosley Real Estate Ltd., the shift towards short-term fixed-rate mortgages is calculated but not without risk.
Although she and many other analysts think that interest rates won’t likely continue this high, borrowers who sign up for a fixed-rate mortgage still incur the danger of being in a climate with higher interest rates after their term.
People are attempting to provide themselves with a small amount of insurance, but interest rates historically aren’t that high at the moment, she added.
