As the Bank of Canada pauses rate hikes, mortgage rates in Canada creep downward
As the Bank of Canada pauses rate hikes, mortgage rates in Canada creep downward
As inflation continues to soften, the Bank of Canada announced on Wednesday it would be holding its interest rate at 4.5 per cent for a second time in a row.
The bank announced no plans to cut rates in the near future but despite this, mortgage rates in Canada have been on a downward trend.
According to Ratehub.ca, the lowest five-year fixed rate mortgage available in Canada is 4.29 per cent, down from 4.59 per cent on March 1. The lowest five-year variable rate is available for 5.55 per cent, down from 6.10 per cent. Three-year fixed rates have also come down to 4.34 per cent, from 4.79 per cent at the start of March.
Part of this has to do with the fact that bond yields in Canada have fallen, a sign that the market is anticipating a rate cut on the horizon. James Laird, co-CEO of Ratehub.ca and president of CanWise Financial, says bond yields are "a key input" when it comes to determining mortgage rates.
On top of that, he says banks and lenders have started to offer more spring promotions as the weather gets warmer and the housing market starts to heats up.
"That's when the lenders and banks start competing with each other more aggressively. That's when you'll see promotions and banks and lenders are willing to take thinner margins in order to win volume," he told CTVNews.ca on Thursday over the phone. "So, a combination of lower economic costs to fund these mortgages plus spring promotions means rates have come down."
SHOULD YOU GET A FIXED-RATE OR VARIABLE RATE MORTGAGE?
Jackie Porter, a certified financial planner and talent partner at Carte Wealth Management, notes that we also find ourselves in the rare situation where variable rates are more expensive than fixed rates.
"For the first time in a long time, fixed rates are actually lower than being in a variable rate mortgage, which is crazy. So that's a really good indication that rates will come down," she told CTVNews.ca in a phone interview on Thursday.
Canadians who are entering the housing market or about to renew their mortgage are currently faced with a dilemma: should they take a more expensive variable rate with the anticipation that interest rates will fall, or lock in a cheaper fixed rate?
"I'm having conversations with my clients, where they don't want to take a five-year because they expect to see five-year rates come down in the near term. It's just that we just don't know what the near term really means when there's so many different factors that we have to consider," Porter said.
Laird said many consumers are taking a middle-ground approach: opting for a two- or three-year fixed rate mortgage. The rates on these mortgages are a little more expensive than a five-year fixed rate, but they offer more flexibility than five-year rates and are currently cheaper than variable rates."
"The short term fixed rates are as popular now as they've ever been," Laird said. "People are anticipating rates being lower in, say, two or three years, which is why they want the renewal to happen in two or three years as opposed to the traditional five-year fixed rate."
It remains unclear if and when the Bank of Canada will lower interest rates. Bank of Canada Governor Tiff Macklem said rate cuts in the near future "don't look like the most likely scenario to us," and he didn't rule out a possible rate hike to get inflation fully down to two per cent.
Meanwhile, economists say a rate cut could happen either by the end of this year or in early 2024, pointing to concerns over a possible mild recession on the horizon, as well as the fact that several banks in Europe and the U.S. have run into trouble. And even if a rate cut happens, its possible size is also unclear and could depend on whether we enter a deep or shallow recession.
"These are conversations I certainly am having with my clients and it's a really important conversation for consumers to be having with their professional advisers to kind of get a sense of what their specific situation is," Porter said. "It really kind of depends on their overall financial circumstances, what makes the best sense for them."
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