Fear of rising interest rates is causing more Canadians to opt for fixed-rate mortgages over variable-rate alternatives that could save them thousands of dollars in payments, according to a leading expert.
Justin Thouin, CEO and co-founder of LowestRates.ca, is calling for consumers to base their mortgage decisions on 30 years of downward trending rates, rather than locking in on a guess about what the Bank of Canada will do during the life of a mortgage.
“Canadians have become more concerned about not being able to pay their mortgage. They want to lock their mortgage rate in so they know the amount they have to pay in interest,” he told CTVNews.ca. “It’s a fear-based response.”
The Bank of Canada cautiously held its key interest rate at 1.25 per cent on Wednesday, citing trade uncertainty and weaker than expected GDP growth in the final months of 2017. However, the bank’s references to slowing household credit growth, firmer wages, and inflation running close to its two per cent target suggest hikes may be on the horizon.
The Bank of Canada’s overnight lending rate influences the interest rate at which financial institutions lend money to their clients. It’s the rate major financial institutions borrow and lend one-day, or “overnight,” funds to one another. It climbed to its current level in January after reaching a record low of 0.25 per cent in April 2009, in reaction to the global recession.
Mortgage shoppers who visited LowestRates.ca in the first two months 2018 are reversing a long-standing trend with their preference for borrowing at a fixed rate.
Between January and February, 60.9 per cent of applicants who used the comparison site chose a fixed-rate mortgage over a variable rate. Since January 2014, 56.6 per cent of applicants have chosen variable rate mortgages.
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