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Mortgage Rates Canada

 Mortgage rates in Canada are a dynamic subject, influenced by factors such as the Bank of Canada’s (BoC) monetary policy, inflation, economic growth, and global economic trends. In 2024, mortgage rates in Canada have experienced shifts as the BoC has taken measures to bring down inflation, which spiked to its highest levels in recent history in 2022. This comprehensive overview will cover the factors impacting mortgage rates, the current rates, types of mortgages available, and what homebuyers and homeowners can expect in the future.

1. Understanding Mortgage Rates in Canada

In Canada, mortgage rates are heavily influenced by the BoC’s interest rate decisions. The central bank sets the overnight rate, which is the benchmark for interest rates across the economy. Banks use this rate as a reference to determine the prime rate, which in turn affects variable mortgage rates. When the BoC raises or lowers its policy rate, mortgage rates typically follow suit.

In recent years, inflation has been a central focus for the BoC. In response to rising inflation, the BoC raised its overnight rate multiple times between 2022 and 2023, eventually reaching a peak of 5% by mid-2023. However, as inflation started to cool down, the BoC has since reduced its policy rate to 4.25% as of late 2024​

2. Current Mortgage Rates in Canada

As of November 2024, mortgage rates in Canada vary based on the term length and whether the mortgage is fixed or variable. The current average rates are as follows:

  • 5-Year Fixed Rate: Approximately 4.82%
  • 5-Year Variable Rate: Around 5.55%
  • 3-Year Fixed Rate: About 5.37%
  • 3-Year Variable Rate: Approximately 6.4%

These rates are averages from major Canadian banks and are influenced by the bond market and lending rates. Fixed mortgage rates are often tied to Canadian government bond yields. When bond yields rise, fixed mortgage rates generally follow, and when they fall, mortgage rates tend to decrease as well​

3. Fixed vs. Variable Mortgage Rates

In Canada, borrowers have the option to choose between fixed-rate and variable-rate mortgages. Both have distinct features and risks, making them suitable for different types of borrowers:

  • Fixed-Rate Mortgages: These loans lock in the interest rate for a set term, usually 5 years, which is popular in Canada. Fixed rates provide stability and predictability, as borrowers know exactly what their payments will be throughout the term. This is advantageous in a rising-rate environment but may not be as beneficial if rates decrease during the term.

  • Variable-Rate Mortgages: With variable rates, the interest rate fluctuates with changes in the prime rate, which is directly influenced by the BoC’s policy rate. Variable rates can be lower than fixed rates initially, but they carry the risk of rate increases. Many Canadians choose variable rates when they anticipate rate cuts, as they can save money if rates decrease​

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4. Factors Influencing Mortgage Rates in Canada

There are several factors that impact mortgage rates in Canada:

  • Bank of Canada’s Policy Rate: The BoC’s overnight rate is the primary determinant for the prime rate, affecting variable mortgage rates across Canadian banks.

  • Inflation: Inflation drives the BoC’s interest rate policy. When inflation is high, the BoC raises rates to cool spending and borrowing, which affects mortgage rates.

  • Global Economic Conditions: Canadian mortgage rates can also be influenced by global economic events. For example, shifts in the U.S. Federal Reserve’s policies can affect Canadian bond yields, thereby impacting fixed-rate mortgages.

  • Canadian Bond Yields: Fixed mortgage rates are typically tied to the yield on Canadian government bonds. As bond yields rise and fall, so do fixed mortgage rates.

5. Mortgage Rate Trends for 2024 and Beyond

The mortgage landscape in Canada is likely to remain volatile over the next few years. According to forecasts, the BoC is expected to continue adjusting rates in response to inflation, with potential cuts in 2025 if inflation continues to stabilize around the 2% target. Mortgage Professionals Canada anticipates that the average 5-year fixed rate will decrease slightly, reaching around 5.4% by 2027. Many homeowners, especially those with upcoming renewals, may feel the impact as they renew at higher rates compared to the low rates secured in 2020-2021​

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6. Types of Mortgages Available in Canada

Canada offers various mortgage types to suit different financial needs:

  • Conventional Mortgages: These require at least a 20% down payment and do not require mortgage insurance.

  • High-Ratio Mortgages: For down payments below 20%, mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC) is required, and rates may be slightly different.

  • Open vs. Closed Mortgages: Open mortgages allow for early repayment without penalty but have higher interest rates. Closed mortgages restrict early repayment but offer lower rates.

7. Impact of Rising Rates on Homeowners

The recent hikes have significantly impacted homeowners, especially those with variable rates or renewing fixed rates. The increase in monthly payments has caused some to extend their mortgage amortizations to keep payments manageable. For example, in the first quarter of 2024, nearly 9% of Canadian homeowners with renewed mortgages faced payment increases of over $500 monthly​

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8. Strategies for Managing Higher Mortgage Rates

Borrowers facing high mortgage rates can consider these strategies:

  • Opt for Shorter Terms: Some experts recommend choosing shorter mortgage terms (e.g., 1- or 2-year terms) if they anticipate further rate cuts, allowing them to renew sooner at a potentially lower rate.

  • Lump-Sum Payments: Making lump-sum payments when possible reduces the mortgage principal, lowering the overall interest cost over the term.

  • Rate Shopping: Comparing mortgage rates across lenders can yield savings. Various online tools, such as those from Nesto and WOWA, can help Canadians find competitive rates​


9. Resources for Finding Competitive Mortgage Rates

Several online platforms help Canadians compare mortgage rates:

  • Nesto: Known for offering competitive rates, Nesto provides calculators and tools to help borrowers understand their options.

  • WOWA: This site aggregates rates from major banks and mortgage providers, helping borrowers make informed decisions.

These resources are valuable as they allow users to compare rates and terms across lenders, ensuring they get the best deal possible.

10. Future Considerations for Canadian Homebuyers

In the coming years, as rates stabilize or decline, the real estate market may see a resurgence in buyer activity, especially if rates fall closer to pre-pandemic levels. However, for now, prospective buyers should remain cautious, consider their financial situation, and consult with mortgage professionals before making commitments.

Conclusion

Mortgage rates in Canada are currently high but may trend downward as inflation stabilizes and the BoC potentially cuts rates in the future. Understanding the different types of mortgages, staying informed about the BoC's monetary policy, and using comparison tools are crucial for Canadian homebuyers and homeowners looking to manage or secure favorable mortgage rates. For more details on today’s mortgage rates, resources like WOWA, Nesto, and Rates.ca offer updated information and helpful calculators.