Borrowers are opting for shorter-term fixed-rate contracts due to skyrocketing interest rates. Homebuyers are looking for a flexible solution to being able to respond to hopefully lower rates in the coming years while being able to afford a home.

There has been a complete reversal from variable rates since just last year. In January 2022, variable-rate mortgages made up 56.9% of mortgages. January 2023 saw a decrease of variable-rate mortgages to 16.7%.

On the other hand, fixed-rate mortgages with terms more than one year but less than five made up 64% of mortgages and continues to rise.

three year terms are a sweet spot

Before the rise of rates, many opted for variable rates because they were more attractive. Canadians weren’t expecting such a significant rate increase so anyone with a variable-rate mortgage is now feeling the pressure. Those who have locked in their fixed-rate mortgage will also be under pressure when it comes time for renewal. Though, they will be able to prepare for what’s to come.

Many people are choosing fixed rates but not opting for the full five-year because they are expecting interest rates to decline soon. While this is wishful thinking, the Bank of Canada stated that they don’t expect inflation to return to its target until 2025.