More Canadians opting for fixed-rate mortgages


Four-in-10 prospective home buyers in Canada plan to choose a fixed-rate mortgage, which is twice the number of those who intend to take out a variable-rate mortgage, according to the 19th annual RBC Homeownership Poll.
For the first time in four years, interest in fixed-rate mortgages, the typical choice for the majority of Canadians, has edged higher to 42 per cent, climbing by two percentage points from 2011, as many homeowners look to maximize their cash flow. 
This preference declined from 49 per cent in 2008, as variable rate and combination mortgages were in higher demand.
“The popularity of fixed-rate mortgages had been declining over the past few years, but the trend is shifting,” said Claude DeMone, director of strategy for home-equity financing at RBC. “Canadians are now looking to lock in at historically low interest rates”
“What you're currently seeing is a small margin of difference between fixed and variable interest rate offers, so many Canadians are opting for the peace of mind that comes with a fixed rate,” he added.
According to the survey, six-in-10 Canadian mortgage holders said they are taking advantage of low interest rates to pay down more principal on their mortgages (up from 57 per cent last year). The study also found that 55 per cent of mortgage holders  do not think interest rate increases will cause them financial difficulty, which is up from 49 per cent a year ago.
Getting the “best rate” was the No. 1 reason Canadian mortgage holders chose their mortgage at 56 per cent, followed by four-in-10 Canadians who said loyalty and trust in their lender are important. One-third put convenience as an important consideration when selecting their mortgage.
“There is more to a mortgage than simply a low interest rate,” said DeMone. “Homeowners should make sure their mortgage fits in with their overall financial plan and provides maximum payment flexibility. Life happens, and when it does, you want to be able to be nimble and adjust as easily as possible.”
DeMone offers the following advice to help Canadians choose the right mortgage and to pay it down faster:
• Look beyond the interest rate. Many closed mortgages allow for double-up payments or for a lump sum to be applied to a mortgage annually without prepayment charges. Prepayments are applied directly to the principal balance, helping to save thousands of dollars in interest costs over the life of the mortgage.
• “Stress test” for rate increases. With the help of a mortgage specialist and an on-line calculator, you can determine how much each mortgage payment may increase with a one- to three-per-cent rise in interest rates. This will give greater peace of mind about affordability down the road, knowing that your new home is affordable both today and in a few years, when rates might be higher.
• Take advantage of early renewal options. Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.