Appetite for variable-rate mortgages keeps growing, depending on where you get your financing.
Government data is hopelessly lagging, so I tend to check my real-time proxy for variable-rate demand: DLCG Mortgage Group (Dominion Lending Centres Inc.). They’re the nation’s largest mortgage company and close roughly one in 10 mortgages.
Through mid-June, DLCG numbers show 56.8 per cent of prime applicants opting for floating-rate mortgages.
Not only is that up from 35.9 per cent in March, but it’s more than double the 25 per cent long-term bank average, according to Bank of Canada figures .
And notice I specified “long-term bank average” above.
Banks have a reputation for not selling variable mortgages as frequently as brokers, at least according to available anecdotal evidence.
As of late, that trend seems to be continuing, particularly for creditworthy prime borrowers.
In 10 out of the last 12 months, for example, DLCG brokers arranged a higher proportion of variables than banks for prime customers.
And compared to DLCG’s 49.8 per cent prime variable-rate share in April, the latest bank data (also from April) showed that just 29 per cent of new bank mortgages were variable.
Now, as I mentioned, the fact that brokers favour variables more than banks is not new information, nor is it isolated to one particular brokerage.
For well-qualified borrowers, brokers lean more towards variables for multiple reasons.
Rates
When consumers shop around today, they see banks advertising variable rates like 3.95 per cent, whereas a quick check of a rate comparison website will highlight broker rates as low as 3.74 per cent.
And while a single bank may not have leading rates at the moment, brokers have dozens of lenders to pick from, maximizing the chances they’ll beat the average bank.
Side note: Past research finds that most people get better deals at brokers, but banks have been catching up, particularly on renewals or when well-qualified borrowers negotiate. At any given time, there may be a few banks that sell for less to well-qualified borrowers on a discretionary basis; the challenge is in finding them.
In any case, many rate-sensitive shoppers choose brokers for floating-rate mortgages because they perceive them as more competitive. And that may skew their variable market share.
Qualification ease
Brokers are the go-to source for harder-to-approve borrowers. They know which lenders are more likely to approve deals, and they understand that the rate you choose can affect your odds of success.
Blame the design of the government’s mortgage stress test, which adds at least two percentage points onto your actual rate when a lender calculates your debt ratios.
The result is that variable rates — which are usually lower — are more often easier to qualify for.
In fact, that is precisely the case today, with floating rates running 55 basis points below fixed. On identical income, that qualifies people for roughly five per cent more mortgage, which in a market this affordability-squeezed is no small feat.
Penalty avoidance
Few people are more aware of costly fixed-rate prepayment penalties than mortgage brokers.
They know the math and understand that variable mortgages carry smaller break fees — typically three months’ interest rather than the frightful big bank “interest-rate-differential” (IRD) calculation.
Brokers routinely recommend variable-rate products as a defensive strategy to shield risk-exposed, mobile, or younger clients from bank IRD penalties.
And, in full disclosure, variables also make breaking or switching lenders before maturity cheaper, and the easier switching happens to suit brokers nicely.
Education
Banks have been chipping away at the knowledge gap that exists between them and their independent rivals, but brokers simply have more incentive than most bankers to be mortgage experts.
Brokers typically:
- Get no salary
- Have little else to sell besides mortgages
- Have to generate their own leads, with no branch referrals dropping into their lap
- Subscribe to independent mortgage intelligence sources far more than bankers, which I know because I sell such intelligence and have a decent read on my competitors’ subscriber breakdowns
- Can freely present any data they see fit to help clients make better decisions (most are trained to present historical data and studies as empirical justification for floating)
- Depend on matching borrowers to the best fit from a wide lender menu rather than peddling one institution’s offerings
All of this typically points to variables as a more borrower-friendly long-term option for clients suited to the risk, although much depends on the rate cycle, available fixed vs. floating discounts, client particulars, and so on.
All of which means one should expect brokers to push variable rates harder than banks. Most of the time it works, and some of the time (e.g., 2021/2022) it doesn’t.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister .
Looking to save on your mortgage?
For the best national insured and uninsured mortgage rates, updated daily, please visit our mortgage rate page here .