More Canadian homeowners are considering switching from fixed-rate to adjustable-rate mortgages after an unusually large cut by the central bank on Wednesday, mortgage brokers said.
The Bank of Canada cut its key interest rate by 50 basis points to 3.75%, providing some relief to homeowners after mortgage payments have risen in recent years and the overall cost of living has risen.
Higher lending rates helped fuel the housing price crisis, which has been exacerbated by record numbers of immigrants and insufficient housing, hurting the Prime Minister’s popularity Justin Trudeau.
Most mortgages in Canada renew every three to five years and are paid off over 20 or 25 years, giving Canadians exposure to rising interest rates. In the United States, homeowners can get a fixed interest rate for the life of a 15 or 30 year mortgage.
Canadians have either fixed rate mortgages, which are affected by bond prices, or variable rate mortgages, which benefit from falling interest rates.
Andy Hill, a Vancouver mortgage broker and founder of the EveryRate.ca website, which compares mortgage rates, said more than a dozen customers had come forward in the past week. wants to change from fixed to variable mortgages, as the largest interest rate in Canada. as the COVID-19 pandemic was widely anticipated.
His calculations show that on a C$400,000 mortgage, a change would save an average of C$4,500 (,252), even if you had to pay a penalty of up to C$4,800 for the mortgage to break and change.
While six major banks control most of the approximately C$2 trillion mortgage market in Canada, there are other players such as mortgage companies. Credit unions are also competing for a piece of the pie.
Mortgage brokers are finding that competition for their customers is increasing as upcoming policy changes give consumers more flexibility to switch lenders.
Variable rate mortgages gained popularity earlier this year after the central bank began cutting interest rates in June.
In the first quarter, 12.9% of new mortgage borrowers chose an adjustable-rate mortgage, down from a low of 4.2% in the third quarter of 2023, according to the latest data from the Bank of Canada.
Vancouver-based mortgage broker Johnny Hoang said risk-averse buyers will opt for a short-term, variable-rate mortgage and consider switching to a fixed rate if rates continue to fall.
Another Toronto mortgage broker, Andrew Galea, said that out of 10 clients on his list, half were new buyers or renovating their homes, a third were looking to move an upcoming renovation and 20% were looking for better rates.
THE BEST FOR THE PEOPLE
While major banks cut their prime interest rates to 5.95% on Wednesday, their lowest in about two years, many buyers are still waiting for deeper cuts to buy a home.
A survey by EveryRate.ca found that 74% of Canadians considering a purchase or refinance are waiting for the prime rate to fall below 3% before taking action.
“With current trends, interest rates may not fall below 3% until the end of 2025, so many buyers and refinances will be waiting,” said Hill, the Vancouver-based broker.
Penelope Graham, mortgage expert at Ratehub.ca, expects activity to pick up in the new year as the federal government introduces new mortgage policy reforms that will make it easier for borrowers to out to buy home mortgage insurance.
($1 = 1.3839 Canadian dollars)
2024-10-24 10:13:00
#Homeowners #Canada #switching #adjustablerate #mortgages #big #cut
