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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