On our website, since 2014, most Canadians have gone with a variable-rate mortgage. That changed last month.
Ahead of the Bank of Canada’s Sept. 6 rate decision, more Canadians rushed to lock in their mortgage rates.
Looking at all mortgage applications since January 2014, fixed-rate terms accounted for 43.44% of the applications on LR.ca, but things changed after July’s rate hike. In August 2017, 59.31% of mortgage product applications at LowestRates.ca were for fixed rate mortgages.
It’s clear that the Bank of Canada’s recent rate hikes are causing Canadians to worry about rising rates.
The Bank of Canada raised its benchmark interest rate by 25 basis points on July 12, and followed that up with a surprise rate hike on Sept. 6.
Most analysts didn’t see the rate hike coming. This has also pushed up variable-rate mortgages by nearly 50 basis points in the past few months. In July, the spread between variable and fixed was 69 basis points. As you can see, the bank has already hiked enough to nearly close the spread.
Going with a variable-rate mortgage can save you money — as long as interest rates don’t rise. Variable-rate mortgages are prone to move with the market. If interest rates go up, they do too.
Locking in, depending on your term, can allow you to hold your mortgage rate at a fixed level.
There are arguments to be made for going variable, however. Mortgage rates in Canada have been trending down in the past 30 years. We’ve seen rate hikes before — such as in 2010 — which eventually were frozen and then cut once again.
It’s possible that rates may rise more quickly this time than in the past. But if history is any guide, take the recent rate hikes with a grain of salt.