Our updated client's rates:*
1-Year fixed: 2.44%
2-year fixed: 1.84%
3-year fixed: 1.79%
4-year fixed: 1.84%
5-year fixed: 1.89%
5 year variable: Prime – 1.30% (effectively 1.15%)
Example of client rates based on a scenario of $500,000 mortgage, owner-occupied, 25 year amortization, 80% loan-to-value, completing within the next 90 days:
Variable rate mortgages have never been more popular
According to Bank of Canada data, more than half of new mortgages made by banks (new purchases, renewals and refinances) were at variable rates in July. As of September 2021, this is the first in at least five years that fixed-rate mortgages have lost their lead.
One reason for this is a widening spread between fixed and variable rates. For a conventional loan with a 5-year term in July, there was a 76-bps spread in favour of variable rates, the highest spread since June 2018. By choosing a floating rate over a fixed rate, homebuyers increase their purchasing power by a sizable 9% for the same monthly payment.
Does this make the Canadian economy more vulnerable to a payment shock should interest rates rise?
Yes, but the impact is less than one might think. First, although most new mortgages are now variable rate, the share of this product in outstanding mortgages remains very low at 23%. Second, almost 40% of variable rate mortgages in Canada have fixed payments.
In other words, when the interest rate rises, the total mortgage payment stays the same and the capital-repayment portion decreases. Thus with such loans, as for fixed-rate mortgages, a rise of interest rates may be felt only gradually, as the loan matures.
*These rates are for information-only and are not guaranteed until an application has been submitted to the bank. Rates are subject to change at any time without notice.
- Your Creed Capital Management Team