Canadians still prefer fixed rates

by |
Brokers may be touting the advantages of variable-rate mortgages but more and more Canadians believe fixed-rate options are preferable in the current environment.

"Even though we've had a relatively stable rate environment for a number of years, Canadians are being prudent when it comes to mortgage planning and are factoring in the possibility of higher rates in the near future," Barry Gollom, vice-president, secured lending and product olicy at CIBC said in an official relase. "With fixed rates near historic lows, Canadians see an opportunity to lock in for a number of years in order to reduce the risk of expected higher interest costs."

CIBC conducted a Nielsen Consumer Insights survey of 1,005 Canadians between February 6-10. The survey found that 48 per cent of Canadians would choose a fixed rate mortgage if they had to make the decision today, compared to 31 per cent who would choose variable. 19 per cent were undecided.

"For those that have recently taken out a mortgage, and may have additional expenses or hold other debt, the predictability of a fixed mortgage rate may be more appealing," Gollom said.  "However those who have paid off a sizeable portion of their mortgage are likely less sensitive to rate changes."

The survey also found that 47 per cent of Canadians believe rates will increase in the next 12 months, up from 38 per cent from last year.

"The poll also revealed that younger Canadians were even more likely to choose a fixed mortgage, with 56 per cent of Canadians aged 25-34 saying they would lock in to a fixed rate today, a number that has been steadily increasing over the last four years,” the release states. “In contrast, more established homeowners (aged 45-54) were among those less likely to lean towards a fixed rate (43 percent).”
 
  • Omer Quenneville on 2014-04-21 2:39:55 PM

    Clearly Canadians are either misinformed or they are trusting the advice of a banker that has the banks best interest at heart. Variable mortgages have been the best bet since 1975 (MBN).

  • Daniel McKay on 2014-04-22 5:31:50 PM

    Variable rates have been best option looking back with 20/20 hindsight about 80% of the time historically, there is no doubt about it. However, in most cases when the variable netted out over the fixed, there are two typical conditions that existed at the time, that don't exist right now: 1. Relatively high prime lending rates, meaning that if any movement in prime lending rates are likely to be downward vs. upward. Well, Prime lending rates are pretty much as low as they possibly could be, and will almost certainly stay flat, before increasing once inflation gets back closer to the 3% mark. The only reason that prime lending rates have stayed so low so long is that the global economy has been sluggish in it's recovery. It's not at all the case that prime lending rates won't rise in the next 5 years, it's just a question of when. 2. significant discounts on the "variable to prime" and over the corresponding fixed rate for the same term. Right now, it's about -0.55% for both on the 5yr. Given the fact that rising Prime rates are almost certain in the next 5yrs, I would like to see those spreads at closer to, or even above -0.8% mark before I will start touting variable rates over fixed again. 2009-2011 Both conditions were a lot more favorable for variable rates than they are now, and I recommended clients to go that route. Right now that is just not the case and given rate conditions -0.55% to -0.65% is just too thin a margin to recommend variable over fixed in my opinion. I firmly believe that the next 5yrs will fall into the 20% minority where fixed outperforms variable.

  • OkanaganBroker on 2014-04-24 11:48:09 AM

    Variable rates historically do provide savings compared to fixed rates, but Canadians ARE NOT misinformed like Omer says. 99% of my clients still want & require the security of a fixed rate even when presented with the savings of a variable rate...Its an informed decision that suits most Canadians lifestyle & income situation perfectly.

  • OkanaganBroker on 2014-04-24 11:48:10 AM

    Variable rates historically do provide savings compared to fixed rates, but Canadians ARE NOT misinformed like Omer says. 99% of my clients still want & require the security of a fixed rate even when presented with the savings of a variable rate...Its an informed decision that suits most Canadians lifestyle & income situation perfectly.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions