When Will Canada Mortgage Rates Go Up?

Real estate advice wallyfakhreddine 3 min read
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If gravity laws state that what goes up must come down, can the opposite be said about mortgage rates in Canada? It is inevitable that mortgage rates, which remain at historic lows, will eventually go up, but the big question is when will Canada mortgage rates go up? And by how much?

Across the country, including Edmonton, real estate has been buoyed by incredibly low mortgage rates, which are particularly attractive to first-time home buyers and move-up buyers looking for larger homes in the suburbs or acreages. While the pandemic has people eager to spread out and looking for more space to work and fully function from home, it’s the lowest mortgage rates in Canada’s history driving strong home sales across the country.

Just how low are those low mortgage rates?

To put it in perspective, a competitive five-year fixed mortgage rate right now is about 1.69%. Around this time last year (early 2020) five-year fixed mortgage rates were around 2.5%. On a $500,000 home, with 10% down over 25 years, monthly mortgage payments today are $1,896 compared to $2,078 a year ago. That’s a difference of $182 per month. It’s easy to see why home buyers are jumping on these great rates!

While locking into an incredibly low five-year fixed mortgage rate makes perfect sense right now, homebuyers will want to give some thought to the longer term and consider how they might manage a rate increase at renewal time.

Return to normal life and what it means for mortgage rates

With the vaccine rollout ramping up and ambitious projections that a semblance of normal life could be happening as soon as this fall, there is some anticipation of what’s in store for the economy and for inflation rates.

With an economy on high-dose supplements (mainly via high levels of federal government spending as a means of weathering the pandemic) there are concerns that inflation could be more of an issue than it has been previously — specifically compared to when we were digging our way out of the financial crisis of 2008-2009. Higher inflation typically means higher rates.

And while those rates might not reach 1990’s levels of 10%, it’s still worth considering how much a few interest points will affect your bottom line five to 10 years from now. That extra $182 in your pocket right now won’t likely be available when you go to renew your mortgage in five years!

So how much time do we have?

Initial predictions suggested it would take the Canadian economy a couple of years to recover from COVID-19 and the Bank of Canada committed to holding interest rates into 2023 while they predicted inflation would remain below their 2% target over that time.

However, with some experts predicting Canada’s economy will post a comeback in Q4 there are some experts questioning if the Bank of Canada will need to rein in inflation sooner than expected.

According to David Larock of Integrated Mortgage Planners Inc: “If the BoC believes that our economic recovery has reached a more sustainable footing, it will begin to taper its (Quantitative Easing) purchases (of bonds), and when that happens, it is expected that our government bond yields, and the fixed mortgage rates that are priced on them, will rise in response.”

So while we may not know precisely when will Canada mortgage rates go up, there is a possibility that interest rates may increase earlier than the 2023 timeframe that the Bank of Canada has previously stated. And while changes in the BoC’s outlook generally impact fixed mortgage rates long before variable rates, homebuyers will want to consider the risks involved before choosing either option.

Make sure you can afford your new normal — now and later

While we’re all longing for a return to something — anything! — that resembles normal life pre-COVID, we need to steel ourselves for a return to normal mortgage rates and make sure that we’re setting ourselves up for a sustainable lifestyle now and for the future.

As a seasoned Edmonton Realtor®, Wally knows some amazing Edmonton mortgage brokers who have helped his clients realize their real estate dreams over the years!
Need an expert Edmonton mortgage broker? Text/Call Wally at 780-238-7384 for a referral today!