The trend is happening as homebuyers look to find a balance between predictability and the ability to respond to hopefully lower rates in the years ahead, say experts.It's a sharp reversal from the variable rates most were opting for at the beginning of last year. But after 10 interest-rate hikes in less than a year and a half, the latest this Wednesday, most are shying away from being vulnerable to more rate hikes.
By January this year, variable-rate mortgages had already fallen to 16.7 per cent, while fixed-rate mortgages with terms of more than one year but less than five years made up a 64 per cent of new and renewed mortgages, showing a continued upward trend. Five per cent is also a lot higher than the central bank's rate pre-pandemic, which was at 1.75 per cent heading into March 2020.
When those mortgages come up for renewal, lenders will likely look to bring the amortization period back closer to the original contract, said Tran, significantly increasing the monthly payments for the mortgage holder. Cooper doesn’t expect a big increase in mortgage defaults, noting that credit card debt is where cracks are really starting to emerge. However, she said there will be more pressure at the edges of the mortgage market too.
But rates aren’t likely to go back to recent low levels, said Cooper, and will probably remain elevated in the near term.
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