With borrowing costs on the decline, variable-rate mortgages have been gaining popularity amongst homeowners, Royal LePage reports in its most recent mortgage survey.
Over the course of 2025, around 1.5 million mortgages will come up for renewal, the "vast majority" of which will face higher lending rates than when they locked in, even after the Bank of Canada's (BoC) aggressive rate cutting cycle in 2024. This is because "hundreds of thousands" of these mortgages were signed when the key lending rate was at or below 1%, explains Royal LePage.
Reflecting the changed lending environment, the survey found that only 66% of Canadians now want to obtain a fixed-rate loan upon renewal, down from the 75% who currently hold fixed-rate mortgages. On top of that, the percentage of those who say they want to switch to a variable-rate loan has reached 29%, up from the 24% who currently hold variable-rate mortgages.
As well, 37% of respondents said they plan to obtain a five-year mortgage term upon renewal, with another 19% planning to take on a three-year term.
Quebec saw the largest shift in this regard, with 31% saying they will choose a variable-rate mortgage, up from the current 21%, followed by Ontario and BC (where 31% and 29%, respectively, say they plan to opt for variable-rate). Saskatchewan and Manitoba saw the least demand for variable rate mortgages, with 19% of respondents saying they would choose a variable-rate mortgage, compared to the 20% that currently have one.
But overall, Canadians are leaning increasingly towards shorter-term, more flexible mortgage terms, which Royal Lepage explains has to do with interest rate decline over the course of 2024.
“Since last summer, the Bank of Canada has made several cuts to its overnight lending rate amounting to a decline of 200 basis points thus far, driving variable mortgage rates down in tandem," says President and CEO of Royal LePage Phil Soper in the report. "For homeowners looking to reduce their monthly payments or pay down their principal faster, variable-rate mortgages have become an increasingly attractive option in light of today’s declining rate environment and the likelihood of further cuts this year."
The survey also polled Canadians on if they think their monthly mortgage payments will increase upon renewal and whether or not that increase would put a strain on finances. More than half (57%) of respondents said they expect their payments to increase upon renewal, while 25% expect their payments will remain the same. A lucky few (15%) said they expect their monthly payment to decrease upon renewal.
“When it comes to post-pandemic mortgage renewals, many Canadians have avoided the worst-case scenario of having to sell their homes due to the inability to cover the cost of their mortgage, thanks to solid employment trends and declining interest rates,” says Soper.
Still, a substantial 81% of those who expect their payments to go up say the increase will put financial strain on their household, with 47% expecting a slight strain and 34% expecting a significant strain. While many respondents in this category say they will respond by cutting back on discretionary spending, travel, saving, investing, gas, groceries, and such, 23% say they will have to obtain a second job or find another source of income.
But Soper says that despite the financial strain many could face, delinquency rates remain low.
“Even in challenging financial times, Canadians continue to prioritize home ownership and paying down their mortgages – cutting back on other spending, and even savings, if absolutely necessary,” he says. “Delinquency rates in Canada remain extremely low, arguably the lowest among advanced economies worldwide, despite the rising cost of living and household debt. For example, the rate of mortgage default in the U.S. is more than fifteen times higher."
But as is the case with most reports these days, the tariff threats from the U.S. adds increased uncertainty into the equation. The BoC has stated it will prioritize economic growth over controlling inflation, meaning if the Canadian economy is hit hard by tariffs on goods, including steel and aluminum, the BoC would likely respond by further cutting rates to prop up the economy.
“While a trade war with our southern neighbour offers little economic benefit, new homebuyers and those renewing a mortgage this year may find a silver lining: lower borrowing rates," says Soper. "If the Bank of Canada is forced to take measures to bolster a weakening economy, we could see faster and deeper rate cuts, at least in the short term."
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