Fixed Rate Popularity Grows, Not Surprising

Mortgage-Rates-3Interest in fixed-rate mortgages has increased for the first time in four years, according to RBC’s recently-published Homeownership Poll.

The survey found 42% of prospective homebuyers plan to select a fixed-rate mortgage compared to just 21% who prefer a variable rate. (Note: This poll was done in January. We’re not sure why RBC waited this long to publish the data.)

RBC’s survey suggests the balance (37%) would choose a combination of fixed and variable rates. In practice, a lot of those people are probably undecided. Only 8% of people actually select combination mortgages, according to CAAMP data.

The study follows a similar poll by CIBC in March that found 50% of Canadians would choose a fixed-rate mortgage over variable.

“What you’re currently seeing is a small margin of difference between fixed and variable interest rate offers, so many Canadians are opting for the peace of mind that comes with a fixed rate,” said Claude DeMone, director of strategy for home-equity financing, RBC.

Few expect the popularity of variable rates to grow soon, for three reasons: (a) variable discounts remain chintzy, (b) the spread between fixed and variable rates remains narrow, and (c) people perceive higher rates on the horizon.

Here are some other notable findings from the poll:

  • 55% said they don’t believe an interest rate increase would cause them financial difficulty (up from 49% in 2011)
  • 62% of mortgagors said they are taking advantage of the current low-rate environment by paying down more principal on their mortgages (up from 57% last year)
  • The biggest determining factors for Canadian mortgage holders when choosing a lender were (respondents could choose all that apply):
    • 56%:  Getting the “best rate”
    • 43%:  Loyalty and trust in their lender
    • 33%:  Convenience
    • 29%:  Service
    • 20%:  Advice provided
    • 11%:  Product features
    • 8%:   Other

Study Details: The RBC Homeownership poll was conducted online by Ipsos Reid between January 24 and 30, 2012. A total of 2,006 people were surveyed, with a margin of error estimated at +/- 2 percentage points, 19 times out of 20.

Steve Huebl & Rob McLister, CMT

  1. “Loyalty and trust in their lender”
    Ya right. Let’s all trust our lender because they’re always looking out for our best interest.

  2. Hi Dale, Any guess is just a guess but it’s highly unlikely the Bank of Canada would lift rates 2% in the same year. Therefore, if rate increases start by next year (as most ball-gazers expect), it could take a couple years after that. Reason being, you have to assume a pause somewhere along the line, and a delay for the U.S. economy to catch up. As usual, there are a ton of upside and downside risk factors on the horizon, so these opinions could change in 30 days. I know that’s not worth much, as rate call rarely are. :)

  3. If your in Alberta, ATB already has P-.25% on 5yr variable.
    P-.50% in the next year does not seem unreasonable but what Prime will be is the million $ question?

  4. You have no idea how good you have it in Canada where banking/borrowing is concerned. I’m from BC now living in Australia and dealing with banks Down Under is just that……like going Down Under and straight to HELL!!!!! The arrogance of the banks and their defiance to RBA (Reserve Bank of Australia) cash rate sets is infuriating. The unjustifiable and excessive exit fees they charge (yes, even on open variable mortgages) not to mention the fees charged on every possible inane banking act one engages in is dumbfounding. Things are out of control in this country and people are outraged. Just last week, the RBA announced a .5% rate cut with banks responding immediately with said cut on all bank deposits but not so with their lending rates. Some have cut nothing while others only a small portion. It’s just disgusting and the criminality of it all should have been FULLY addressed by the Gillard government long ago. Yes, Gillard’s ALP claims to have dealt with the problem but much too little has been done to protect the hard-working Australian families caught up in this sorry state of affairs. Greed reigns supreme on this isolated continent so rest assured you’ve got it pretty “skookum” up in Canada!!

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