Mortgage 101 – Why More Homebuyers Are Choosing Variable Rates This Spring

Clinton Wilkins and Dan Ahlstrand break down why more homebuyers are choosing variable-rate mortgages this spring, exploring rate volatility, inflation pressures, and how to match mortgage strategy with risk tolerance.

Dan Ahlstrand
Well, it’s that time again. Welcome back to Mortgage 101, hope you’re having a wonderful spring. I’m Dan Ahlstrand, and in the studio with me today, as he always is when we do Mortgage 101, that’s Clinton Wilkins. Clinton, how are you?

Clinton Wilkins
I’m doing great, Dan. How are you doing?

Dan Ahlstrand
It’s spring. The snow is finally behind us. I hope?

Clinton Wilkins
I think so, you know, we’re recording this show midweek, and we had a little bit of snow today. It’s Wednesday. I hope it’s all done, but I’m looking forward to that forecast. It’s not looking very spring-like yet.

Dan Ahlstrand
No, and we know that spring is an important time for your business, for those who are looking to buy their houses. So I hope that Mother Nature gets this stuff sorted out.

Clinton Wilkins
I think as soon as the temperature gets a little warmer, I think we’re gonna see more mortgage transactions. But here’s a little spoiler. I can tell you, we’ve been seeing more already. It’s been getting really busy here.

Dan Ahlstrand
That’s good news.

Clinton Wilkins
I mean, it’s great for me, and I think it’s great for anybody who’s buying a home, and anyone who has a home that’s listed for sale, they want to sell it. So come on, giddy up. Now’s the time.

Dan Ahlstrand
Now I’ve been sitting in this chair for a couple of months in Todd Veinotte’s stead, of course, while he was off, and we know that,

Clinton Wilkins
and last year as well,

Dan Ahlstrand
And last year, we know that Todd had his final, final show at the end of last month, and is retiring now. So you’re stuck with me, pal.

Clinton Wilkins
Well, welcome. So now it’s Mortgage 101, with Clinton Wilkins and Dan Ahlstrand, yeah. So I think all our listeners can start, you know, celebrating.

Dan Ahlstrand
It’s for real, like, I’ve got my name in lights. It’s on the marquee out in front of the building now.

Clinton Wilkins
That’s pretty cool.

Dan Ahlstrand
We’ve had professional photographs done, and pretty soon I’m gonna have my own parking space.

Clinton Wilkins
Okay? I like it. We’ll make sure we have a parking space for you right outside our office. You know, anytime that you want to come, come over, you know, you’re welcome.

Dan Ahlstrand
All right, Clinton, we know there’s lots of talk, holy smokes. There’s lots to talk about that’s going on out there that’s impacting the mortgage rates and

Clinton Wilkins
And this news cycle. I mean, busy.

Dan Ahlstrand
It just it never ends. So we know that the war in Iran, you know, we don’t necessarily think about mortgage rates when you’re talking about world events, but I mean, it’s impacting you. It’s impacting me when we go to the pump, right dollar 87 or later, earlier this week, with gasoline prices and diesel prices even higher than that, but it’s also impacting the market, which, in turn, can impact the mortgage market as well, right?

Clinton Wilkins
100% let me tell you the uncertainty that the clients are feeling right now. It is wild. I can tell you, we’re seeing it from a mortgage industry standpoint, really around what’s going on with the fixed rates. You know, they’ve really been shooting up the last few weeks

Dan Ahlstrand
Because we’re in the bond market, right?

Clinton Wilkins
It’s certainly 100% tied to what’s going on in the bond market. The bond market’s been up. It’s been down, like, literally within the same day. We’re seeing, like, you know, several point changes within, you know, just one day due to, sometimes just news announcements, what’s going on, what’s going on in the markets. So, a lot of volatility when it comes to fixed rates, but they’re up. So I know everyone’s like, okay, the rates are up across the board. No, not all the rates are up, but fixed rates in general are up to the tune of about 30 basis points, even over the last couple of weeks. And that’s significant. And we’re always telling customers when we’re doing a pre-approval, when we’re talking to them about their renewal or refinance earlier is better. We can always get a rate held 120 days prior. And I think sometimes customers are like, Well, I’m gonna wait to the very last minute. But you know, if the rates go down, we will always float the rate down and give the customer the lower rate. We will always, always do that, Dan, and then that’s one commitment that we have to our customers. We want to provide these customers with the best advice, and we want our customers to come back to us, but it’s a lot easier when customers come to see us earlier in the process. It’s challenging when it’s 30 days out from renewal, or they, you know, they need to refinance, and they get it done all in 30 days. There are a lot of moving parts to a mortgage transaction. There are a lot of hands in that pot trying to get that transaction to be able to fund, so sooner is definitely better.

Dan Ahlstrand
And it’s also important that you you involve your mortgage professional at the at the outset of when you’re planning to do this, because it would be awful if you decided, well, you know, we’re going to go buy a new house, or our first house, and you go out into the market and you find something that you completely fall in love with. It’s the perfect house, and then you can’t get the mortgage to back it up.

Clinton Wilkins
Well And sometimes that’s very driven by the rates and qualifying based on the stress test. You know, just to give a little bit of an idea, we were seeing many mortgage rates sub 4% here a couple of weeks ago, but now most mortgages are above 4% again. So you know, what’s the difference between, you know, for example, 4.1 and 3.9 in the grand scheme of things? That’s only 20 basis points. But from an optics standpoint, it always looks better when it starts with a three. You know what I mean? And, you know, I think that’s where consumers are, you know, feeling that uncertainty, because we’re kind of seeing the rates go up and down, up and down, but we’re not seeing a huge shift. 30 basis points increase. You know, as an average is not that much more, and it’s not, you’re not going to pay that much more monthly, but obviously, it is a little bit, and every little bit makes a difference. And we always want to make sure that our customers are paying the least. We’re not always going to be the cheapest. Someone will always do it cheaper. You know, think about that adage like Picasso or someone doing a painting, and be like, ah, can you do it? Be cheaper, and someone draws a stick animal. Yes, someone will always do it for less. But we’re in line with the marketplace, and I can tell you, you know, our goal is that we’re providing our customers with the best level of advice, and we want to be in it, and we want to be in a relationship with these customers for the next 25 years.

Dan Ahlstrand
Clinton, we talked about the fixed mortgage market. What about the variable rate mortgage? We know that everybody kind of focuses on what’s happening with the Bank of Canada, but in times of concern and of indecision and of volatility, there certainly is a lot of concern out there in that mortgage market as well.

Clinton Wilkins
Definitely. So yes, Bank of Canada, big, you know, thing that we’re watching every single day, we’re watching inflation. We’re watching, you know, the job numbers we’re watching, GDP. These are things that are going to impact the decision that the Bank of Canada makes, but for someone getting a new variable rate mortgage today, also, what’s going on in the bond market is impacting them, because the spreads that these banks are offering, the discounts from prime are shifting as well. So we’re not seeing a 30 basis point change, maybe in a variable rate mortgage, but maybe a variable rate mortgage today is 10 basis points more than it was a week or two ago, just because the cost of funds is more. And these banks are hedging their bets on these variable-rate mortgages. And you know, they need to make their, you know, educated decisions on how they’re going to price them, to make sure that they’re going to have the funds available, and to make sure that they’re not going to be underwater from a pricing perspective over that five-year term. So variable rate mortgages are up maybe a little bit, but not as much as what the fixed rate mortgages have been up over the last couple of weeks. And I can tell you, we’ve seen a big shift in customers choosing to do a variable rate mortgage. I was just talking before we started recording our show here last year, we were just talking about three year fixed. You know, 50 plus percent of our customers were taking a three year fixed year last year, but this year, I can tell you, there’s been a big shift in consumers taking a five year variable rate mortgage, because I think customers are willing to take that risk with the hopes that the bank Canada will keep the Q overnight rate the same or potentially lower, if we really do get into a recession situation. You know, the one variable, again, you talked about it. It’s the war in Iran and the cost of oil, and what’s going on with the, you know, cost of a barrel of oil right now. And you know, that’s one thing that we cannot control. Inflation. Overall, Canada has been on this downward trend. We’ve done very well with Canadians on suppressing what’s going on with inflation, but we can’t control what’s going on with the war. We can’t control, you know, really, what’s going on.

Dan Ahlstrand
And it only makes sense, right? One of the biggest things that contributes to inflation is the price of groceries and the price of fuel. They’re two big contributors into that number and and we know that everything that comes into the grocery store comes on the back of a truck, which, of course, usually fueled by diesel fuel, and when it’s in these these really insane levels for cost per liter, then, I mean, I think everybody can kind of figure out how the inflation rate is going to go.

Clinton Wilkins
Yeah, definitely. And, you know, we as Canadians want inflation to be going down. We want the cost of fuel to be lower. We want the cost of food to be lower. We want our mortgage interest rates, really. We want them to be less as well. But it’s about managing expectations and people’s cash flow. You know, we need to make educated decisions here and right now. A fixed rate compared to a variable rate, there can be as many, maybe it’s like 50 basis points in the difference. So fixed rates are much more expensive, pretty much across the board, compared to a variable rate. So you know, I think customers need to really think about what the risk tolerance is going to be. And there certainly are a lot of upsides to what’s going on with a variable rate mortgage. You don’t always convert it into a fixed rate, but one of the biggest upsides of the variable is that you can always break your mortgage early with a cost of only three months’ interest, where, if you break a fixed rate early, you could pay a much higher penalty, like an interest rate differential. And I’ve seen penalties over the years be 5, 10, 20, plus $1,000, depending on how long is left on the term and what your current rate is compared to what the rates are of the day. I’m not saying that the rates are going to go to 2% again, but we didn’t think COVID was going to happen. We didn’t think, you know, rates were going to go basically to the floor. We didn’t think rates were going to go to the ceiling. So I think it’s about expecting the unexpected, and I think it’s about taking an educated risk and getting good advice. You know that. And I think that really comes back to, you know, why should someone come to a mortgage broker versus going to the branch here in Halifax, we have hundreds of mortgage brokers. Other regions of the country don’t have as many. So, Moncton, for example, we have an office there, and I can name maybe 10 mortgage brokers, many, many fewer mortgage brokers per capita in Moncton. And I think it’s around education. You know, consumers here, by and large, are using mortgage brokers, because, you know, we’re experts in that field, and we’re this is the only widget that we’re doing.

Dan Ahlstrand
And it makes sense, right? Because if you go to the bank, you’re only going to get the bank’s rate and the bank’s raft of mortgage products, whereas if you go to somebody like Clinton or to a mortgage broker, then. You’ve got him and his crew working for you to try to find the best fit for you.

Clinton Wilkins
And maybe 40 different lenders. But to be frank, Dan, the top lenders that we are doing business with are bank lenders. It’s TD Bank, it’s Scotia Bank, it’s Bank of Montreal. I’ll give them shout-outs on the show. We’re not exclusively using these lenders, but the bulk of the business that we are doing here in Halifax, Nova Scotia, is with those lenders.

Dan Ahlstrand
We’re going to take our first break here on Mortgage 101, but stick around. We’ve got a whole hour’s worth of programming. We’re going to dig into spring and dig into what the market’s going to look like. And there are a few surprises in today’s show as well. You’re listening to Mortgage 101, he’s Clinton Wilkins. I’m Dan Ahlstrand, and we are back in minutes.