Where the Smart Money Goes: RBC Poll Shows Twice as Many Canadians Opting for a Fixed-Rate Mortgage
More paying down principal, not worrying about rate increases in the short-term
TORONTO, April 25, 2012 Four-in-10 prospective homebuyers in Canada (42 per cent) plan to choose a fixed-rate mortgage, twice as many as those who intend to take out a variable-rate mortgage (21 per cent), 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 (up two percentage points from 2011), as many homeowners look to maximize their cash flow. This preference had 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. Canadians are now looking to lock in at historically low interest rates," said Claude DeMone, director of strategy for home-equity financing, RBC. "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."
Six-in-10 Canadian mortgage holders (62 per cent) say 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 more than half of mortgage holders (55 per cent) do not think interest rate increases will cause them financial difficulty (up from 49 per cent a year ago).
Getting the "best rate" was the number one reason Canadian mortgage holders chose their mortgage (56 per cent), followed by four-in-10 Canadians (43 per cent) who say loyalty and trust in their lender are important. One-third (33 per cent) put convenience as an important consideration when selecting their mortgage.
"There is more to a mortgage than simply a low interest rate," added 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 that will help Canadians choose the right mortgage to fit their individual needs 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 online 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.
Canadians can visit the RBC Advice Centre, a free online resource to help Canadians understand all facets of homeownership. Through advice videos, articles, and online calculators, Canadians can learn about buying their first home, planning their next move, or renovating. With the guidance of RBC mortgage specialists, Canadians have access to free, no-obligation professional advice about RBC mortgage products and services.
About the RBC 19th Annual Homeownership Poll
RBC is the largest residential mortgage lender in Canada. As the country's number one source of financial advice on homeownership, RBC conducts consumer surveys as one way to provide insight to Canadians about the marketplace in which they live. The RBC 19th Annual Homeownership Poll was conducted by Ipsos Reid between January 24 - 30, 2012. The results are based on a sample where quota sampling and weighting are employed to balance demographics and ensure that the sample's composition reflects that of the actual Canadian population according to Census data. Quota samples with weighting from the Ipsos online panel provide results that are intended to approximate a probability sample. An unweighted probability sample of 2,006 adult Canadians, with 100 per cent response rate would have an estimated margin of error of ±2 percentage points, 19 times out of 20. The margin of error will be larger within regions and for other sub-groupings of the survey population.
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For more information, please contact:
Matt Gierasimczuk, RBC Corporate Communications, 416-974-2124
Ka Yan Ng, RBC Corporate Communications, 416-974-1794