The rush into short-term mortgages is reversing as higher-rate reality sets in, says CMHC

Canadian consumers are increasingly forgoing mortgages with terms of less than three years, a shift the Canada Mortgage and Housing Corp. (CMHC) sees as a sign of waning optimism that interest rates will decline quickly.

Data from the CMHC’s Residential Mortgage Industry report, released on Nov. 9, shows borrowers have started to prefer fixed-rate mortgages with terms between three and five years. Fixed-rate mortgages with terms between one and three years, meanwhile, are losing popularity.

The change marks a reversal of a recent trend that saw consumers flock to shorter-term mortgages in the belief that interest rates might soon return to the ultra-low levels seen during the pandemic.

CMHC data shows that in August 2022, fixed-rate mortgages with terms of three to five years constituted 14 per cent of the residential market. By August 2023, the segment accounted for 51 per cent.

The percentage of mortgages with terms ranging from one to three years has also risen in that time frame — to 21 per cent from 19 per cent — but has plunged significantly from its recent peak of 36 per cent in February 2023.

Variable-rate mortgages, meanwhile, also became less prevalent, plummeting from a 45 per cent market share to a mere six per cent over the same period.

“This preference is driven by a noteworthy discount offered by fixed-rate mortgages relative to variable-rate mortgages and concerns about further rate hikes,” the CMHC said.

Since March 2022, the Bank of Canada has raised its overnight interest rate 10 times. As a result, mortgage renewals during this period have faced substantially higher rates.

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