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Only half of mortgage applicants would choose a fixed-rate loan: poll

Even as central bank hikes variable rates, fewer Canadians say they would choose certainty of fixed rates

Despite the Bank of Canada raising its benchmark rate today (July 11) – which in turn pushes up variable mortgage rates – fewer Canadians are saying they would choose the certainty of a fixed rate, according to a CIBC poll.

Of a group of 1,509 Canadians looking for a mortgage over the next year, 72 per cent correctly predicted that interest rates would climb over the next 12 months. However, only 54 per cent of respondents said they would choose a fixed-rate mortgage if taking out a mortgage today.

The results are in stark contrast with the make-up of existing mortgages, with 77 per cent of homeowners polled saying they currently have a fixed-rate mortgage, with 23 per cent on a variable-rate loan.

Still, the proportion of those who said they would choose a variable-rate mortgage today remained low, at just 19 per cent, with 26 per cent undecided on which would be the better choice.

This is despite 83 per cent of poll respondents saying they “prefer predictability and stability over risk” when making financial decisions.

Tracy Best, senior vice-president, mobile advice, CIBC, said, “Choosing a variable rate mortgage can make a lot of sense for those with a smaller balance on their mortgage or on the cusp of being mortgage-free. But if you're a homeowner with other debts linked to variable rates, you could be more sensitive to rate fluctuations, and may want to look at locking in for greater predictability on this part of your financial portfolio.”

Rate hike effect on existing mortgages

Across Canada, homeowners are carrying on average about $170,000 on their mortgage, according to the poll. CIBC said that average balance jumps to $252,000 among households with an income of more than $100,000 a year.

The bank did not break down average mortgage debt between provinces and cities, but an August 2017 report by the Canada Mortgage and Housing Corporation, the average value of a new mortgage loan taken out in Metro Vancouver in 2016 was $438,716.

In response to last July’s interest rate hike, B.C. mortgage expert Dustan Woodhouse said, “A quarter-point interest rate movement represents $13 per month, per $100,000 mortgage, for the average [variable-rate] mortgage holder. So that’s $52 bucks a month extra on the average $400,000 mortgage balance.”

Multiplied by four rate hikes in the past year, and that’s an extra $208 per month for those with a $400K mortgage.

However, Woodhouse also pointed out at the time that the majority of local homeowners won’t be affected by the rate rise, as 50 per cent of homeowners are mortgage-free, and around 80 per cent of the remaining mortgage payers are on fixed rates.