Which mortgage type are Canadians choosing in the current environment?

The BoC's rate hikes over most of 2022 played a major role in shifting market dynamics

Which mortgage type are Canadians choosing in the current environment?

In general, loan product interest among Canadians has shifted back from variable-rate to fixed-rate mortgages, according to Ratehub.ca.

A major driver of this shift was the unprecedented upward surge in the central bank’s policy rate over most of 2022.

“Demand for variable-rate mortgages has plummeted over the past year – thanks to a series of rapid rate hikes from the Bank of Canada – as borrowers return to the fixed-rate space for slightly lower pricing and overall stability,” Ratehub said in a new analysis.

Ratehub said that five-year variable-rate mortgage inquiries represented only 5% of all rate inquiries made through its platform so far this year. This was a significant plunge from the 26% share seen in 2022.

Find out the types of home loans does the prime rate impact here.

At the same time, inquiries on five-year fixed-rate mortgages spiked from 66% in 2022 to 79% so far in 2023. Inquiries on fixed mortgages with one-to-four-year terms also went up from 6% to 14% of all Ratehub inquiries.

“During the pandemic, mortgage rates reached historic lows, dropping as low as 0.85% for a 5-year variable rate and 1.39% for a 5-year fixed rate,” said James Laird, co-CEO of Ratehub.ca. “Variable rates became more popular than usual, accounting for over 20% of Ratehub.ca mortgage rate inquiries.”

Find out what was the cheapest mortgage rates in history in this article.

“With the Bank of Canada rate hikes and overall rise in mortgage rates, consumers have switched back to fixed rates, with 95% of rate inquiries to Ratehub.ca in 2023 being for fixed rates. 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. Getting a short-term fixed rate allows borrowers to take advantage of future lower rates sooner.”

Ratehub is anticipating this trend to sustain itself for the foreseeable future.

“We expect demand for variable rates to stay depressed and interest in short-term fixed rates to remain elevated until the Bank of Canada cuts the target for the overnight rate from its current level,” Laird said.