Article author:
Reuters
Nikola Saminacer
Betting on more rate hikes coming from central banks, they are moving to fixed-rate mortgages at the fastest pace of the year. 2009.
Borrowers are increasingly avoiding his typical five-year fixed mortgage term to guard against the possibility of a rapid interest rate decline for the Bank of Canada, instead of two or three years. They prefer annual loans. A rate hike would push the economy into recession, ushering in another easing cycle.
Since July 2021, more than half of Canadian homebuyers have opted for variable rate mortgages.
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 Bank of Canada data, 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, said the trend is continuing, with fixed-rate mortgages making up more than half of all new mortgages in July.
"If you can't sleep at night (due to the current economic climate), one way is to get a fixed-rate mortgage and forget about it." It's my turn," 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 2-3 years, we may face an increase in payments. Refinancing can be a somewhat expensive option.
The discounted five-year fixed rate was 4.24% and the floating rate was 3.5%, the difference since September.
Floating loans track the Bank of Canada's benchmark interest rate, up 2.25 percentage points from 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 will pay even higher. said he would be forced to Lower floating rates will squeeze spending elsewhere.
A rapid rise in interest rates would inevitably lead to higher delinquency rates and associated losses, but given the considerable capital backing these mortgages, the financial system could suffer. Low sex, he added Driscoll.
Canada's largest bank's unpaid and uninsured mortgages 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.
Borrowers are also encouraged to consider short-term, fixed-rate mortgages, which have generally been viewed as riskier, as they are exposed to higher interest rates once they expire. However, the current environment makes it possible and more attractive.
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 you can,'" 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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