Variable-rate mortgages becoming more important to the market
The gap between the number of borrowers going for fixed and variable rates has become larger recently, pointing to the increasingly important role that variable-rate mortgages are playing in the Canadian housing market.
In a recent study, RateHub revealed that while the spread between fixed and variable offerings has shrunk to 0.2 per cent of a percentage point in 2016, movement in the two product types has demonstrated a larger divergence in the past few months.
The best five-year variable rates available in Toronto since November 1 is at 1.83 per cent, while the lowest available fixed-rate product climbed slightly by 0.35 per cent, up to 2.44 per cent.
“We’ve seen increased interest in variable rates,” RateHub co-founder and CanWise Financial president James Laird told Global News.
Laird explained that the rise in bond yields will trigger increases in fixed-rate payments, while the BoC’s benchmark interest rate (which influences variable-rate products) is expected to remain stable for most of the year.
Also, the stricter stress test implemented by the federal government late last year will make variable-rate mortgages—which would end up being the relatively inexpensive options—more enticing.
Laird emphasized, however, that these are just predictions, and there is no assurance that the trend in the spread between fixed and variable rates will sustain itself all year. Would-be borrowers who should ensure they can manage a rate increase before they go with variable-rate mortgages, he added.
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