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Canadian homeowners consider switch to variable rate mortgages after big rate cut - REUTERS
By Nivedita Balu
TORONTO (Reuters) - More Canadian homeowners are considering switching to variable rate from fixed rate mortgages after an unusually large interest rate cut by the central bank on Wednesday, mortgage brokers said.
The Bank of Canada cut its benchmark policy interest rate by 50 basis points to 3.75%, giving some relief to homeowners after mortgage payments shot up in recent years and increased overall living costs.
Higher borrowing rates helped fuel a housing affordability crisis that has been exacerbated by a record influx of immigrants and not enough homes for them, hurting Prime Minister Justin Trudeau's popularity.
Most mortgages in Canada renew every three or five years and amortize over 20 or 25 years, exposing Canadians to rising rates. In the United States, homeowners can enjoy a fixed rate for the entire life of a 15-year or 30-year mortgage.
Canadians predominantly have either fixed-rate mortgages, which are influenced by bond prices, or variable-rate mortgages, which benefit as policy rates decline.
Andy Hill, a mortgage broker in Vancouver and founder of mortgage rate comparison website EveryRate.ca, said more than a dozen clients reached out in the past week looking to make a switch from fixed to variable mortgages, as Canada's largest rate cut since the COVID-19 pandemic was widely expected.
His calculations show switching would save on average C$4,500 ($3,252) for a mortgage of C$400,000, even after fines of up to C$4,800 to break the mortgage and switch.
