The majority of Canadians who bought a home or renewed a mortgage preferred the lower initial cost of a variable rate over the peace of mind of a fixed loan in the second half of 2021, according to a new report released Wednesday.
Canada Mortgage and Housing Corp. (CMHC) said in its semi-annual report on the country’s mortgage industry that 53 percent of homebuyers and renovators chose an adjustable-rate mortgage over a fixed-rate in the last six months of last year. Just over a third (34 percent) had opted for variable in the first half of 2021.
CMHC pointed out that the greater spread between the rates offered for fixed and variable mortgages in the second half of the year drove the change in preferences.
But he noted that as the Bank of Canada began rapidly raising its benchmark interest rate during the first half of 2022 and adjustable rate mortgages get more expensive by the month, that trend “seems to have stalled.”
Variable mortgage rates are offered at a lender’s prime rate minus a discount and react immediately to Bank of Canada rate increases, while fixed rates remain stable for the duration of the term.
Read more:
Fixed or variable? How to choose a mortgage as interest rates rise
The CMHC report also showed information on the alternative lending market and homeownership rates among black, indigenous and racialized Canadians.
The agency notes that alternative lenders — mortgage providers outside of the traditional banking or credit union sector — were gaining popularity in the run-up to the pandemic as a “short-term alternative” to the “conventional” lending space.
CMHC said the majority of alternative mortgage applicants (72 percent) were able to achieve a successful “exit” in 2020. This means an alternative mortgage was converted to a conventional loan at the end of the original term, or the property was sold. without being executed or the borrower in default.
This figure has decreased since the period between 2006 and 2015, the CMHC noted, when 80 percent of alternative lenders achieved such an exit.
Read more:
1 in 4 homeowners say rising mortgage rates could push them to sell: survey
The report also found that homeownership rates were lower than the national average for Black, Indigenous, Latin American and Arab Canadians, based on 2016 census data.
Property values for this segment, as well as for Filipino Canadians, were also lower than the average for all of Canada. This value gap has only widened since the 2006 census, the CMHC noted.
Recent immigrants (those who arrived in the last seven years) also showed lower homeownership rates than the Canadian average. The CMHC said this suggests that newcomers have difficulty accessing the financial system after arriving in Canada.
More to come.
© 2022 Global News, a division of Corus Entertainment Inc.