Low lending rates changing Canadians’ mortgage habits
by Lydia McNutt
by Lydia McNutt
Canadians have been sitting, very comfortably, in an ultra-low mortgage interest rate environment for years now. Just when we thought rates couldn’t go any lower, they did, as the Bank of Canada dropped its key lending rate to 0.75 per cent in January, and the big banks followed suit. At the BoC’s latest rate announcement on May 27, that rate stayed put.
Twenty years ago, the lending rate for a five-year, fixed-rate mortgage was 10.75 per cent. Back in 1981, it was 20.25 per cent! (source: RateHub.ca) Today’s numbers in the two-per-cent range are hard to believe, and they’re changing how Canadians handle their debt load.
Canadians are doing everything they can to make the most of these low lending rates, according to the 2015 Mortgage Consumer Survey by conducted Canada Mortgage and Housing Corp. (CMHC).
According to CMHC, 60 per cent of mortgage renewers did so before their mortgage term expired, and 55 per cent of them did it to avoid a rise in rates in the future.
Furthermore, mortgage renewers reported taking action to pay off their mortgage sooner. Forty-nine per cent set their mortgage payment higher than the minimum required, while 32 per cent made either lump-sum payments, increased their regular payment, or both.
CMHC also investigated the share of mortgage consumers who used the services of a mortgage broker. The survey found that broker market share is on the rise, having increased from 32 per cent in 2012 to 42 per cent in 2015. Almost twice as many homebuyers (both first-time and repeat) used a broker (49 per cent), versus existing homeowners who were refinancing their mortgage (24 per cent).
When it comes to loyalty, first-time homebuyers were flightier than their repeat-buyer counterparts. Renewers were more likely to stay with their current lender (86 per cent) whereas only 47 per cent of first-timers stuck with the financial institution they deal with regularly.
Interest rates were the main reason for consumers to jump ship to another lender, at 63 per cent.
Lydia McNutt is an award-winning writer and editor with a love of architecture, interior design and the written word. Email her at Lydia.McNutt@ypnexthome.ca, and follow her on Twitter @LydiasTweets