The business of mortgage borrowing may have ended 2022 on a tepid note, but a new report shows that sidelined borrowers are finally biting the bullet.

On Thursday, insurance comparison platform RATESDOTCA revealed that, in January, mortgage renewal quotes were up by 107% and purchase quotes by close to 92% month over month. Year over year, renewal and purchase quotes were up 49% and 48%, respectively.

The monthly spike is “to be expected after a slow season of home sales,” says the report. The annual metric is much more notable.

“For mortgage quotes to surpass that of early 2022, when the market was still hot, indicates a new wave of interested buyers. Seeing more interest in renewals doesn’t come as a surprise, as rates are much higher than they were five years ago, incentivizing Canadians to shop around for better deals.”

“The Hope of Rate Stability”

While renewing with a different lender may allow borrowers to secure a lower rate, the report cautions that passing the mortgage stress test requires qualifying at almost 7% interest. “Despite this hurdle, an increase in quotes for both mortgage renewals and purchases indicates a willingness to make financial adjustments to enter -- or remain in -- the housing market this spring.”

It adds that buyers may be motivated by the belief that home prices have finally bottomed out.

Although some experts caution that we haven’t seen the last of interest rate hikes -- inflation clocked in at a still-lofty 5.9% in January, a ways from the Bank of Canada’s 2% target -- the report notes that “the hope of rate stability” may be enough to tempt buyers to make their moves in the coming months.

Borrowers Leaning Towards Fixed-Rate

According to RATESDOTCA’s mortgage quoter data, fixed-rate quote volumes have been 75% higher than variable-rate quote volumes over the past four months. Compared to a year prior, fixed-rate quotes were up 121% in January, while variable quotes rose only 46%.

“This preference is a far cry from the influx of interest in variable rates spurred by the ultra-low interest rate environment prior to March 2022,” says the report. “After the long series of hikes that made variable mortgage rates exceed fixed since then, fixed interest rates have once again become the more favourable option.”

In addition, down payment amounts fell 7% year over year in January. The report attributes this, in part, to softening home prices.

“As home prices fall below the $1M mark, particularly in expensive cities like Toronto and Vancouver, buyers can choose to put less than 20% down (and opt for an insured mortgage), which often allows for lower interest rates than an uninsured mortgage. Plus, the cost to insure the mortgage is spread throughout the term, rather than one lump sum, making monthly payments more manageable, despite putting less down upfront.”

Mortgage Quotes Leading to Action

Mortgage quotes for primary and investment properties were also up in January, rising 92% and 106% month over month, and 45% and 78% year over year. According to RATESDOTCA mortgage expert Victor Tran, quotes will lead to action.

“Recently, there has been a substantial uptick in mortgage pre-approvals following the Bank of Canada's indication that it would hit pause on raising rates,” says Tran. “People that were waiting on the sidelines over the past several months for the market to stabilize are now taking advantage of this window of opportunity.”

It’s worth noting that a spike in quotes in January is a seasonal norm. Still, potential revisions to loan-to-income threshold guidelines -- which could limit buyers to lower mortgage loans by Q3 or Q4 of this year -- and the threat of further interest rate increases could also be driving the uptick in applications.