Variable-rate mortgages amid the new BoC rate-hike regime

"You're not qualifying based on the Bank of Canada's overnight rate. You're qualifying based on a stress test"

Variable-rate mortgages amid the new BoC rate-hike regime

With the Bank of Canada raising its benchmark interest rate for the first time in nearly two years, the lead-up to the announcement saw fears of hikes creeping into Canadians’ ability to borrow – but industry players have offered assurances that variable-rate mortgage offerings will likely remain unscathed for the most part.

Leah Zlatkin, expert and broker, told Canadian Mortgage Professional that those who had taken on variable-rate loans will be in an enviably strong position for the foreseeable future.

“Many of those who already have a variable rate mortgage secured a variable rate that is a very nice spread away from where fixed rates are right now,” Zlatkin said. “With those clients, they’ve already been benefitting from several years of reduced payments compared to those that they would have been paying with a fixed rate.”

“Anybody who’s actually in the market understands that you’re not qualifying based on the Bank of Canada’s overnight rate. You’re qualifying based on a stress test,” Zlatkin added. “This doesn’t change people’s budgets – it just changes how much the payment amount is going to be.”

Read more: Variable rates in 2022: what’s in store?

Bruno Valko, vice president of national sales at RMG Mortgages, said that the discussion surrounding the fixed-rate/variable-rate dichotomy will remain heated this year since the mortgage sector as a whole could expect vibrant performance for much of 2022.

“I think purchases will continue to be strong as the supply issue relative to demand will continue to be a challenge,” Valko said. “With strong demand, we’ll hopefully see another strong year on the purchase and sale side.”

One thing to watch out for is the narrowing of the difference between best fixed and variable rates, should fixed rates not increase at the same pace as other products, Valko said.