Residential Market Commentary - 5 year terms & variable rates fall from favour

The latest look at the residential mortgage industry by Canada Mortgage and Housing Corporation shows some marked changes in the market over the last year or so.

Notable shifts include a move away from variable rate mortgages and a growing preference for shorter terms.

At the beginning of the year more than 70% of all fixed-rate mortgages, initiated or refinanced, had 4 or 5 year terms. Just 11% had shorter terms. However, by July 28% had 2 to 3 year terms, with 45% at 4 or 5 years. Newer figures from Statistics Canada show that for new, fixed-rate mortgages originated as of September, by Canada’s chartered banks, just 16% had a 5-year term, while 40% had terms of 1 to 4 years.

The CMHC report shows that back in January nearly 60% of new mortgage borrowers chose a variable rate. By August that number had fallen to about 44%. The more current StatsCan numbers show that by September the share of variable-rate mortgages had dropped to 39%. Not surprisingly the change coincides with the interest rate hikes started by the Bank of Canada in March.

Given the well-known slowdown in the housing market and the declines in home prices across the country it is also not surprising that the growth of mortgage debt is slowing. CMHC says that, as of August, Canadians held a total of $2.05 trillion in mortgage debt, up 8.8% from a year earlier. That is down from the peak growth rate of 10.8% hit in February, again, just before the BoC began boosting interest rates.