Canadians Turning Towards Fixed Rates
A recent poll conducted by Harris/Decima has shown that 50 per cent of all Canadians would choose a fixed rate mortgage if they had to decide today, this is up from 39 per cent in 2011; whereas only 32 per cent would choose a variable rate mortgage, no change from last year. The other 18 per cent aren’t sure which product would be right for them which is much less than the 30 per cent from last year. Likely the shift in preferences from variable to fixed is due to the fact that the majority (86 per cent) of Canadians believe that mortgage rates will either stay the same or increase within the next year.
This poll suggests that more and more Canadians are looking to lock in at the current low fixed interest rates in order to pay off their debt sooner and protect themselves from rising interest rates. As a rule, fixed rate mortgages are normally the product of choice amongst first time home buyers as many are working to establish themselves financially and are attracted to the fact that their rate and payments will not change over the term of their mortgage.
Extra! Extra! Read All About It: Fixed Rates on the Rise
Scotia Bank somewhat slipped under the radar when they withdrew their 4 year promo fixed rates last week and returned to the 4.39 per cent level. This is a little shocking, seeing as it is a huge 140 basis point jump up from the short lived 2.99 per cent rate.
RBC and TD both published a press release earlier this week announcing a number of changes to their pricing strategy, all effective yesterday – Thursday March 29th:
- Both increased their posted 5 year closed fixed rate by 20 basis points to sit at 5.44 per cent
- Both also increased their 5 year closed variable rate by 10 bps to sit at Prime + 0.20 per cent (effectively 3.20 per cent)
- And both have ended the 4 year special closed fixed rate of 2.99 per cent and returned it to 3.49 per cent (only a 50 bps increase vs. Scotia’s 140 bps increase last week).
Low Interest Rate Environment Paired with High Canadian Debt Levels – What is Canada Doing to Prevent a “Crash”?
With interest rates at an all-time low, house prices on an increase, concerns of consumer debt levels and a slowing growth rate in income levels there have been fears of the housing “bubble” bursting. Policy makers and governing bodies alike are consistently revising regulations and even implementing new ones in order to protect Canada from following in the footsteps of our American neighbours.
Most recently, OSFI (Office of the Superintendent of Financial Institutions) has started tightening the underwriting process and lending guidelines for institutions, making it increasingly difficult to obtain financing. Canada generally has stricter guidelines than the States when it comes to qualifying an applicant for a mortgage. The States have a larger number of mortgages funded through a stated income program (vs. Canada who will verify income levels with paystubs, letters from an employer, NOAs etc.), no minimum down payment (Canada requires a minimum of 5%) and lenient debt servicing ratios (Gross Debt Servicing Ratios cannot exceed the 32% mark in Canada).
There has also been a continuing trend away from the ‘riskier’ HELOCs toward termed debt. CMHC no longer provides insurance on the revolving HELOC product (therefore only making them available to home owners on a maximum 80 per cent loan to value basis). HELOCs are generally more difficult to qualify for based on their flexible features like interest only payments and revolving credit limits. And don’t forget that last year the maximum amortization for new high ratio mortgages decreased from 35 years down to 30 years.
Bottom line, the burst of the American housing bubble should have come to no surprise after reviewing the lenient underwriting guidelines they had in place which made it way too easy for Americans to qualify for a mortgage. Something big would need to happen in order for Canada to experience a similar crash.
RateSupermarket.ca Week in Review
Small changes in rates over the last week to the best mortgage rates available on RateSupermarket.ca; the only increase was in the 1 year fixed rate which currently sits at 2.44 percent, up from 2.39 per cent. Although you would expect to see more movement following the major bank’s rate hikes/promotional rate expiry (namely the 4 and 5 year fixed closed rates and the 5 year variable rates), other mortgage professionals are still able to compete and offer their customers preferable rates.
With all of the promotional advertising and exposure that the 2.99 per cent 5 year fixed received, it is no surprise that the 5 year fixed mortgage rate was the most popular product over the last week, with 45.8 per cent of visitors searching for this rate. A close second was the 5 year variable closed rate (38.47 per cent), 10 year fixed closed rate (4.5 per cent) and the 4 year fixed rate (4.2 per cent).