A change in borrowing costs is leading more buyers to explore a new mortgage option
Homebuyers in Canada are increasingly gravitating toward variable-rate mortgages following the Bank of Canada’s recent interest rate cuts.
Since June, when the central bank began lowering its benchmark rate, a noticeable shift has been observed in the mortgage market. Statistics Canada data shows that by November, 25% of new bank mortgages were variable-rate products, up from 19% in October and just 5% in July. Despite the recent surge, demand still lags behind the peak levels of the pandemic real estate boom, when more than half of new mortgages had floating rates, a report from the Globe and Mail noted.
Dan Eisner, CEO of True North Mortgage, a Calgary-based lender, told the Globe and Mail the negative reputation surrounding variable-rate mortgages has significantly diminished. “Variable has already shed its bad rap,” he said, acknowledging the market’s recovery from the volatile borrowing costs experienced in 2022 and 2023.
A renewed reputation
Historically, variable-rate mortgages, which adjust with the Bank of Canada’s benchmark interest rate, had a tarnished image during the central bank’s aggressive rate hikes aimed at controlling inflation. The rapid rise in borrowing costs left many mortgage holders grappling with increased payments and growing loan balances, as monthly payments failed to cover the rising interest owed. In some instances, variable-rate loans became more expensive than fixed-rate mortgages.
However, as of January 2025, the gap between fixed and variable rates has narrowed. The average five-year variable-rate mortgage now stands at 4.55%, compared to 4.29% for fixed-rate loans, according to data from Mortgagelogic.news.
The rate cuts appear to have revived interest in variable-rate products. Eisner reported that 75% of his clients are now opting for variable-rate mortgages, a significant jump from 15% in June. Similarly, Victor Tran, a mortgage broker with Ratesdotca, revealed that around 50% of his clients are choosing variable rates, up from just 10% in June. Despite the slightly higher cost of variable-rate products, Tran’s clients are optimistic, hoping for long-term savings should rates continue to decrease.
Market outlook
While demand for mortgages is climbing, experts caution that the overall market remains subdued. Eisner pointed out that many potential buyers are waiting to see how ongoing economic developments, such as the threat of a trade war with the US, will unfold. The Bank of Canada has warned that any escalation in trade tensions could result in major economic damage, potentially triggering further rate cuts.
Phil Soper, president of Royal LePage, stressed the importance of rates in impacting real estate. “The sector is so interest-rate-sensitive,” he said, underlining how changes in borrowing costs can dramatically impact market activity.
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