Variable mortgage rates were the product of choice for a majority of new borrowers in 2021 and into 2022, according to new data from the Canada Mortgage and Housing Corporation (CMHC).

Over 53% of new borrowers chose a variable rate in the second half of 2021, up from 34% in the first half of the year, CMHC said in its Residential Mortgage Industry Report. That percentage continued to rise in January 2022, with 56.9% of new mortgages being floating-rate products.

“While this trend has continued into the first couple of months of 2022, it seems to have plateaued in response to the recent increases in mortgage interest rates,” CMHC noted.

Variable mortgage rates are priced off of a bank’s prime rate, which typically rises and falls when the Bank of Canada adjusts its overnight target rate.

Since March, the Bank of Canada has raised its benchmark rate by 1.25 percentage points, to 1.50%, in order to control elevated inflation. The Bank is widely expected to hike rates another 50 to 75 bps in July, which will continue to increase interest costs for existing variable-rate mortgage holders.

Generally, a 50-bps increase in rates translates into about $25 more in interest per month per $100,000 of mortgage debt, based on a 25-year amortization.

Here are some of the additional findings from the report…

Mortgage debt grows at record pace

Mortgage debt also continued to climb at the end of 2021 and into this year, the data shows. Residential mortgage debt rose by 9% in 2021 compared to the previous year, while the annual growth rate topped 10.6% in early 2022.

The largest increases were seen in uninsured mortgages, meaning those with down payments of more than 20%, and for both purchases and refinances.

In total, chartered banks added more than $400 billion worth of residential mortgages to their books in 2021, a 43% increase over 2020 volumes. Credit unions added $54 billion in new mortgages

Loan-to-values trending down

CMHC reports that loan-to-values for uninsured mortgages continued to trend downward in 2021, meaning borrowers were less leveraged than they were in 2020.

In 2021, new originations with an average LTV under 65% rose to 38.2% (from 37.1% in 2020), while those with a higher LTV of 75- 80% fell to 44.2% (from 45%).

Arrears rate continued to fall

Mortgage arrears, meaning those where borrowers were 90+ days behind on their payments, continued to fall throughout 2021 for all lender types.

The arrears rate for chartered banks fell to 0.17%, down from a high of 0.25% in the third quarter of 2020. In practical terms, this translates into 17 borrowers out of every 10,000 who are more than 90 days late on their mortgage payments. Credit unions saw their average arrears rate fall to 0.10%, down from 0.15%, while other non-bank lenders, such as mortgage finance companies and trusts, saw arrears fall to 0.23% from 0.26%.


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