Most of Canada’s uninsured mortgage borrowers bet against rising rates


Canada’s central bank has warned real estate buyers to prepare for higher interest rates. It seems that buyers are calling their bluff, opting for low rate protection on loans. Bank of Canada BoC data shows the share of new variable rate mortgages doubled in October. Interest charges on most new uninsured mortgages will rise with rates, as borrowers bet they can’t go up by much.

Most new uninsured mortgage debt in Canada has variable rates

Uninsured mortgages represent the lion’s share of mortgage debt in Canada. These are mortgages where the owner has enough equity in the home but tends to incur higher costs. In October, there was $ 34.3 billion in new uninsured mortgage debt, of which 58% was variable rate. Around the same time last year, the share was less than half the size as interest rates fell.

The most recent data show a slight decrease in the share of variable rate debt. October’s share was about one point below the peak reached in August. Borrowers with substantial equity are certainly not afraid of higher interest charges.

The share of variable rates on insured mortgages has doubled

Insured mortgage debt, required for mortgages with equity less than 20%, is increasing. In October, $ 7.3 billion of insured mortgage debt was borrowed, of which 34.7% at variable rate. That’s a smaller share than uninsured mortgages, but still double the share from last year.

Again, this is a slight drop from the peak seen earlier this year. The share of variable rate mortgages in October fell 0.4% from their peak in August. Still, it’s well above all normal levels for insured mortgages.

More Canadians Opt for Variable Rate Mortgages

The share of new Canadian mortgage debt issued at variable interest rates.

Source: Bank of Canada; Better accommodation.

Canadian homebuyers bet against steep rate hike

Some mortgage experts have said the central bank’s ability to raise rates will be limited. There are many variable rate debts, which creates vulnerability for households. Rising interest costs will crush variable rate borrowers if rates rise, is a common argument. Ironically, borrowers understand this risk, creating moral hazard. People go for cheaper variable rate mortgages because they don’t think the BoC can raise rates enough to affect them.

Politically, it is unpopular to ignore the size of variable mortgages when rates increase. However, the risk is probably overestimated. Since 2017, Canada’s banking regulator has created the mortgage stress test for this specific scenario. Most borrowers have now been tested to make sure they can afford much higher interest charges.


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