There is a historical appeal to variable-rate mortgages due to their low initial costs, but this trend is not evident in 2025. Canadians have instead shifted their focus to fixed-rate mortgages, but why? With the economy rapidly changing, Canadians have grown to prefer predictable monthly payments through fixed-rate mortgages.
There are many elements behind this change. Past trends, economic conditions, and borrower sentiments are all significant factors that have influenced the preference for home loans. Understanding these factors would help give the key decision the homeowner has regarding aligning with their goals in times of economic uncertainty.
Introduction: The 2025 Mortgage Shift in Numbers
According to data released by the Bank of Canada, there has been an increased preference for fixed-rate mortgages in recent years. Nowadays, 65% of mortgages in Canada are fixed. But in prior periods, the majority of mortgages were variable, moving above 80% at one point.
The Bank of Canada’s chart illustrates how fixed-rate borrowing has increased in tandem with rising interest rates. During the low-interest regime, borrowers can opt to use variable-rate mortgages. Now, borrowers want predictability in their finances, specifically the ability to plan for a stable monthly cash outflow. This should be understood in the light of how the macro environment affects monthly mortgage decisions.
Interest Rate Trends: Fixed vs. Variable
Term interest rates have risen fast with no sign of slowing down. These high rates were intended to address inflationary pressures on the economy. The Bank of Canada raised benchmark rates to curb inflation, which did affect the borrowing costs for variable-rate mortgages. This warped the once-safe mortgage into a riskier investment. Now, borrowers are seeking fixed-rate mortgages to ward off ongoing rate hikes and to protect themselves in financial uncertainty.
This shift is well noted, as lenders are introducing more options for consumers, including shorter, fixed terms and hybrid terms. In other words, consumer preferences in the market have shifted from options that provide potential savings over the long term to options that offer certainty. Financial advisors have moved in a similar cautious direction, developing a balance between consumers’ present affordability and long-term sustainability. Since interest rates are at a temporary peak and may eventually rise again, fixed-rate mortgages remain the industry’s favoured option.
Historical Context: Lessons from Past Mortgage Trends
Mortgage trends from past years tell a story about borrowers’ preferences. Back in the day, variable-rate mortgages held sway during times of low inflation and economic growth. Between 2010 and 2020, most borrowers would choose a variable rate, driven by fiscal conservatism, which expected interest rates to remain low or even decrease.
In some ways, in a great, almost opposite sense, economic instability, such as during a recession, was the reason for an increase in the desire for fixed rates among spenders. Interest rates saw a big jump during the early 80s and 90s. Even though these rates used to be very expensive, being fixed, the homeowners considered their payments to be predictable.
Economic Indicators Influencing the Shift
Economic indicators in 2025 have changed borrowers’ opinions of fixed-rate mortgages. Inflation is becoming a growing concern, and annual interest rates have not dropped below 2% despite policy interventions. Higher inflation often leads to higher central bank benchmark results. The result is catastrophic when it comes to increased monthly payments.
The Canadian housing affordability crisis is another significant indicator. Following a surge in home prices in major cities and suburban areas, it has become increasingly challenging for young Canadians to realize their dream of owning a property. Throughout these uncertain times, fixed-rate mortgage holders have grown in number, as they protect themselves from further rate hikes.
Consumer Behaviour: The Psychology Behind Locking In
This is undoubtedly a psychological consideration in the growing preference for fixed-rate mortgages. Borrowers become more cautious as interest rates rise and financial stress increases, preferring a higher but stable payment rather than a variable monthly payment that could fluctuate and that they cannot plan for during uncertain times.
Homeowners want to feel in control of their financial situation. Behavioural economics confirms that when homeowners feel anxious about taking risks, their preference leans towards fixed-rate mortgages. This becomes even more prevalent in turbulent markets.
Future Outlook: What Borrowers Can Expect
Inflation and economic turbulence are expected to persist, and the Bank of Canada is likely to raise interest rates or implement further increases. Fixed-rate mortgages are projected to remain the preferred option, helping borrowers preserve their interest rates and providing predictable costs.
However, borrowers should keep a close eye on other economic indicators. Some suggest that interest rates will increase and that the housing bubble will not burst. If borrowers want to maintain long-term flexibility, they should be fully aware of the prepayment penalties, contract terms, and opportunities for future refinancing when choosing a fixed-rate mortgage.
Mortgage preferences are driven by economic uncertainty, increased interest, and a demand for financial predictability. In the past, during times of economic stress, fixed-rate mortgages provided buyers with stability and reduced risk. However, in 2025, fixed-rate mortgages are trending ever higher, with inflation and a housing crisis looming nearby. When aware of these trends, Canadian borrowers can carve out an added shield toward protecting their financial future during uncertain economic times.
