However, holders of these mortgages should be aware of various near-future risks, observers say
Fixed-rate mortgages accounted for 49% of all home loans in May, up from the 43% share in March, according to data from the Bank of Canada.
Mortgages with terms shorter than five years accounted for 53% of fixed-rate home loans in May, up from 51% in January. As of press time, the best discounted five-year fixed rate is 4.24%, while the best variable rate is 3.5%. This represents the lowest difference between the two product types since September 2021, Reuters reported.
However, Michael Driscoll, of DBRS Morningstar, warned of the volatile mix of this trend and the threat of recession brought about by outsized rate hikes. He noted that fixed-rate borrowers will be especially at risk, since, in a recessionary environment, they will have to pay higher fees even when variable rates go down.
Read more: What the future holds for variable rates
Tania Bourassa-Ochoa, senior specialist of housing research at Canada Mortgage and Housing Corporation, recently told Canadian Mortgage Professional that the current rate-hike regime has the unfortunate effect of locking in consumers – particularly those with alternative mortgages – to their current loans.
“What we’re seeing in the past few years [is that] all of the tightening regulations on the conventional side are probably one of the reasons that it’s harder for some of the borrowers to go back to the conventional lending space,” she said.
“So it’s going to be interesting to see… in the context of interest rates rising, maybe it may be a little bit more difficult in the future for some of these borrowers to get back into the conventional lending space.”
