Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Isn’t it very interesting to study that a fixed rate mortgage is so close to variable rate? Historically, Variable rates were below fixed rate by at least one or more percentage point. Now the gap is so narrow that often it is very hard to explain a buyer about why variable rates are historically a better choice.

The reason for this non-traditional gap between rates is not one hundred percent attempt of profiteering by the lenders. Prople tend to think that a lender does not want more borrowers to take variable rate mortgages as they make less profit from it.

Actually there are multiple factors playing into this other than just profit making.

If you pay close attention to the chart then you shall see that the early indicator pointing to this phase was in March this year – when the variable rate discount started to disappear slowly. The one of the major event at that time was Japan disaster. (From our March edition of Weekly Dose of Vitamin M)

The next indication to that was again in April. Remember Scotia chief said that the new banking regulation may bring trouble to banking industry? They were talking about higher cash reserve ratio. That talk is now taking very serious shape. More the lenders are pushed to raise their reserve ratio – they will have less chance to play with short term lending.

Fixed loans can be securitized (partially) but securitizing a short term VIRM is getting harder and harder due to new restrictions and lack of appetite from the investors who are still weary of those due to what happened in past.

It is not very likely that this situation will resolve very soon but such low level of fixed rate may start moving higher as the strong GDP data coming out is indicating towards positive future.


There are still some lenders offering higher discounts in variable rate mortgages but they are extremely rare and there are conditions to be met.