In the face of significant economic uncertainty, Canadian borrowers are showing a strong preference for floating mortgage rates, according to mortgage strategist Robert McLister. This trend persists even as economists anticipate a stagnant GDP report for Canada, with growth potentially hitting zero, a scenario that underscores the fragility of the current economic outlook.
Economic Backdrop and Rate Preferences
With U.S. trade threats looming over Canada, the macroeconomic environment remains cautious. Despite this, markets still indicate a two-in-three probability that the Bank of Canada will refrain from further rate cuts this year. This expectation has made variable rates particularly appealing to many borrowers, who are drawn to their lower initial costs and more flexible terms compared to fixed-rate mortgages.
Key Advantages of Variable Rates
Borrowers opting for floating rates cite several benefits:
- They anticipate that the prime rate will remain stable for several quarters, reducing the risk of immediate increases.
- Variable rates typically come with lower prepayment penalties, offering greater flexibility for those who might need to adjust their mortgage terms.
- These rates start off cheaper than fixed alternatives, providing immediate savings on monthly payments.
Currently, the most competitive nationally advertised deals show variable rates leading by 20 to 22 basis points over fixed rates, whether the mortgage is insured or uninsured. This gap highlights the cost advantage that floating rates can offer in today's market.
Recent Rate Movements and Lender Activity
This week has seen several rate adjustments among national lenders. For instance, Nesto reduced its insured five-year fixed rate by five basis points to 3.64 percent. However, the most significant changes are occurring at regional lenders, where Ontario-based Ratebuzz has slashed its lowest insured fixed rate to 3.48 percent and its variable rate to a nation-leading 3.29 percent.
This aggressive pricing by smaller online mortgage shops serves as a reminder that these institutions often compete more vigorously, offering better deals to attract customers. As McLister notes, these lenders tend to try harder, providing borrowers with more options in a competitive landscape.
Expert Insights and Recommendations
Robert McLister, a mortgage strategist and editor of MortgageLogic.news, emphasizes that while economic indicators may be weak, the appeal of variable rates remains strong due to their financial benefits. He advises borrowers to carefully consider their options, especially in light of potential rate fluctuations.
For those looking to save on their mortgage, staying informed about the latest rate offerings is crucial. By monitoring updates from both national and regional lenders, borrowers can secure the best possible terms tailored to their financial situations.
