Canadian homebuyers are returning to fixed-rate mortgages amid recession fears

Canada's homebuyers are moving tofixed rate mortgages at the fastest pace of the year . Rate hikes by the central bank are poised to keep inflation in check, even though these mortgage costs remain close to their highest level since 2009.

Borrowers are also increasingly to prevent the Bank of Canada's rapid rate hike from pushing the economy into recession and potentially leading to another round of easing, with the common five-year fixed A cycle that avoids mortgage terms and favors 2- or 3-year loans.

Since July 2021, more than half of Canadian homebuyers have opted for variable rate mortgages. This is because these have become cheaper compared to fixed rates.

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Now it's reversed and back to historical standards. Fixed-rate mortgages accounted for 49% of all mortgages in May, up from 43% in March, according to the latest data from the Bank of Canada, after the bank began tracking data in 2013. It is the lowest percentage since then.

James Laird, co-founder of mortgage rate comparison site Ratehub.ca, says the trend continues. fixed-rate mortgages account for more than half of mortgages. All new mortgages in July.

"If [current economic conditions] are keeping you up at night, the best thing to do is get a fixed-rate mortgage and forget about it," said Laird.

Borrowers are increasingly opting for this certainty, even though fixed rates are just below their 13-year peak in mid-July. This means that if interest rates fall in the next two to three years, we may face an increase in payments. Refinancing can be a slightly more expensive option.

 The highest discounted 5-year fixed rate is 4.24% compared to 3.5% for floating rates, the narrowest gap since September and more borrowers. is another factor driving the former.

Variable Loan Tracks Bank of Canada's Benchmark Rates, He's Up 2.25% Since March . Fixed rates have moved with long-term bond yields below short-term yields, a sign the market fears a recession.

Michael Driscoll, Head of North American Financial Institutions at DBRS Morningstar, said that if aggressive rate hikes push the economy into recession, fixed-rate borrowers even with variable rates said it would be pegged to the higher payment. 86} rates will drop, putting pressure on spending elsewhere.

Driscoll added that even with interest rates rising rapidly, the financial system is unlikely to take a hit given the considerable capital backing these mortgages.

Unpaid and uninsured mortgages from a large Canadian bank make up the bulk of its portfolio, representing about 50% of the value of bank-backed homes, according to its latest financial statements. Loan-to-value ratios for new originations are below 70%. Uninsured mortgages require at least a 20% down payment.

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Short-term, fixed-rate mortgages, which are generally considered riskier, also expose borrowers to higher interest rates when they expire. I'm considering it more and more, but it's more appealing in the current environment.

Bank of Canada data show that mortgages under five years rose from 51% in January to 53% in May.

"January was 'offer your lowest rate and stick with it for as long as possible,'" said Marc Ostrand, Director of Mobile Experiences at Meridian Credit Union. But now, “we have a lot of conversations, and … there is definitely a shorter duration of that conversation.”

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