Variable mortgages were the top choice for most Canadians by end of 2021: CMHC
Global News
More than half of Canadians taking out or renewing mortgages in the second half of 2021 went the variable route, though that trend has started to plateau, the CMHC says.
A majority of Canadians buying a home or renewing a mortgage preferred the lower upfront cost of a variable rate rather than the peace of mind of a fixed loan in the second half of 2021, according to a new report released Wednesday.
The Canada Mortgage and Housing Corp. (CMHC) said in its bi-annual report on the country’s mortgage industry that 53 per cent of home buyers and loan renewers chose a variable rate mortgage over a fixed one in the final six months of last year. Just over a third (34 per cent) had opted for variable in the first half of 2021.
CMHC pointed to the wider spread between rates offered for fixed and variable mortgages in the latter half of the year as fueling the shift in preferences.
But it noted that as the Bank of Canada has started to rapidly raise its benchmark interest rate through the first half of 2022 and variable mortgages get more costly by the month, that trend “seems to have plateaued.”
Variable mortgage rates are offered at a lender’s prime rate minus a discount and react immediately to the Bank of Canada’s rate hikes, while fixed rates hold steady through the length of the term.
The CMHC report also showed insights into the alternative lending market and rates of homeownership among Black, Indigenous and racialized Canadians.
The agency notes that alternative lenders — mortgage providers outside the traditional banking or credit union sector — were growing in popularity in the run up to the pandemic as a “short-term alternative” to the “conventional” lending space.
CMHC said that the majority of alternative mortgage takers (72 per cent) were able to achieve a successful “exit” in 2020. This means an alternative mortgage was transitioned to a conventional loan at the end of the original term, or the property was sold without being foreclosed or the borrower defaulting.
