Homeowners locking in fixed rates

Despite the latest Bank of Canada call, almost half of Canadians surveyed expect higher rates next year, shows a CIBC survey.

Homeowners are increasingly focused on moving to fixed-rate mortgages.

Key findings:

• 47% of Canadians think mortgage rates will increase in the next year, up from 38% who felt that way last year;
• 48% would choose a fixed-rate mortgage if they had to make that decision today, the fourth year in a row that fixed mortgages have been the choice of Canadians;
• 31% would choose a variable rate mortgage today; and
• 19% were undecided as to which type of mortgage they would choose.

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“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,” says Barry Gollom, vice-president, secured lending and product policy at CIBC. “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.”

With the interest rate as low as it is, homeowners can take advantage of the opportunity to accelerate their mortgage payments. For example, one strategy is to set your mortgage payment at the amount it would be if rates were 1% or 2% higher. This helps pay down the principal faster, and it prepares you for future rate increases, says Gollom.

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New homeowners looking for greater predictability

The poll also revealed that younger Canadians were even more likely to choose a fixed mortgage, with 56% 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.

In contrast, more established homeowners (aged 45-54) were among those less likely to lean towards a fixed rate (43%).

“However those who have paid off a sizeable portion of their mortgage are likely less sensitive to rate changes,” says Gollom.

“As part of any long-term mortgage strategy, homeowners at all stages should consider their tolerance for fluctuating rates when deciding on whether to choose a fixed or variable rate—as both have their place,” he adds.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.