Why are variable-rate mortgages growing in popularity?

Variable-rate mortgages were at the height of popularity during the peak of the pandemic. However, since then interest has waned in the product, largely due to rising rates and concerns over steep mortgage payments. The Bank of Canada’s actions over the last couple of years have driven down variable-rate product popularity. Now, we are seeing a resurgence of interest in this mortgage type. What’s behind this new trend, and is a variable-rate mortgage something to consider now?

Why did variable rate popularity decline?

As you no doubt remember, variable-rate mortgages were all the rage throughout the pandemic. Record-low interest rates pushed tons of people into the market, hoping to buy a property at ground level mortgage rates. Of course, as the economy slowly began its recovery and the Bank of Canada started raising rates once again, interest in variable-rate products simultaneously began to decline. Our current overnight rate is five per cent, a huge leap from the 0.25 per cent we were working with when the bank started raising rates in early 2022. According to RATESDOTCA, 57 per cent of mortgage quotes in Canada were variable-rate in July 2022, but that number dropped to 26 per cent in December 2022, and 10 per cent this past June.

Why is it regaining momentum?

Interest rates are currently at a 22-year high, and the Bank of Canada has introduced 10 rate hikes in less than two years. Most experts agree that the bank is likely done raising rates for the time being, and the next rate change will be a decrease. With this theory, many borrowers are reconsidering a variable-rate product as a potential option. This means that when interest rates decrease, those borrowers will enjoy lower rates on their mortgages. For borrowers who have been experiencing increasingly steep mortgage payments, this possibility comes as a big relief.

What should you do?

Although many borrowers are excited at the prospect of lower interest rates in the future, it will likely be a while before we actually see those rates in action. The Bank of Canada will probably hold the current overnight rate for some time, until it feels confident that it can safely lower rates. Most economists are predicting that rates will start to decline in late 2024. 

So, what should you do if you’re a current home owner? The decision to go with a fixed or variable rate will not be the same for everyone. Certain products fit people better than others, so don’t automatically assume you should opt for one over the other! Get in contact with a mortgage broker to start discussing your options if you are considering a switch. We can walk you through interest rate trends and expectations, and how your unique situation fits in. 

The decision to refinance to a variable-rate product is becoming increasingly popular, but make sure to consult a professional first! It’s important to ensure you have explored all of your options, and taken the guidance of an experienced mortgage broker. This way, you will be certain you are making the decision that is right for you.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.