The Canadian mortgage market is experiencing a significant shift as borrowers increasingly prefer shorter-term fixed-rate contracts over variable-rate mortgages. This change is primarily driven by the rise in interest rates, which has led borrowers to prioritize predictability and protection against future rate hikes.
At the beginning of last year, variable-rate mortgages were popular, representing a significant portion of new and renewed mortgages. However, with 10 interest rate hikes in a relatively short span, borrowers have become more cautious. As a result, the preference for variable-rate mortgages has dwindled, and fixed-rate mortgages with terms of less than five years have gained prominence. Homebuyers are opting for shorter terms, typically around three years, as it allows them to strike a balance between stability and the potential for lower rates in the future. This flexibility enables borrowers to respond to changes in the market effectively.
The shift towards shorter fixed-term contracts indicates a desire for predictability while anticipating a potential decline in interest rates. However, experts caution that interest rates are unlikely to return to recent lows in the near future. Despite this, borrowers are opting for shorter fixed-rate contracts as a means of mitigating risks associated with rising interest rates.
Overall, the Canadian mortgage market is adjusting to the changing interest rate landscape, with borrowers favoring shorter-term fixed-rate contracts. By doing so, they seek to secure their financial stability while remaining open to potential opportunities for lower rates.