Homebuyers are increasingly turning to variable rate mortgages, a trend expected to continue as the Bank of Canada continues to lower its key interest rates.

The proportion of new borrowers opting for a variable rate mortgage reached 12.9% in the first quarter, according to Bank of Canada data. This marks a rise from the low of 4.2% recorded in the third quarter of 2023, although it remains well below the peak of nearly 57% seen during the pandemic, when most variable rates were lower than fixed rates.

A variable rate mortgage features an interest rate that fluctuates over time, typically linked to the Bank of Canada's overnight rate.

Recent data reveals an interesting trend. While the popularity of variable rate mortgages dipped slightly approaching spring — just before the Bank of Canada's quarter-point rate cut in June — their share in new loans increased by 50% compared to the previous year. Ben Rabidoux of Edge Realty Analytics notes that "variable rate mortgages represented only 9% of total new loans in April."

Nevertheless, variable rate mortgages are expected to gain a larger share of initial loans in the coming months. "I anticipate a significant increase in variable rate loans over the next few months, once it becomes clear that the Bank of Canada is genuinely committed to a rate-cutting cycle," Rabidoux wrote in his newsletter.

Meanwhile, shorter fixed-rate mortgages remain a popular choice for today’s borrowers, balancing short terms with competitive rates. Over 50% of new mortgage borrowers opted for a fixed term of 3 or 4 years in April.

The Bank of Canada’s figures also showed that mortgage credit growth hit its lowest level in 24 years, at only 3.4% in the month.

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New VP at SafeBridge Financial Group: SafeBridge Financial Group has appointed Ryan Sadler as Vice President of Strategic Partnerships. Sadler will focus on enhancing value for current SafeBridge mortgage agents, forming new partnerships, and optimizing the client experience through the company's private wealth management services.

Higher Inflation and Future Rate Cuts: Canada's overall inflation rate rose from 2.7% in April to 2.9% in May, exceeding economists' expectations. This adds uncertainty to the Bank of Canada's timeline for future rate cuts. Housing costs remain a significant factor, with rent inflation accelerating to 8.9%.