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Mortgage Rate Outlook Panel

Our panel of mortgage experts share their views on Canadian mortgage rate trends each month by answering this question: What is your outlook for Canadian mortgage rates over the next 30-45 days?

August 2016 Overall Summary

The Canadian economy has seen uneven growth so far this year. While there was improvement in the first quarter, the economic impact of the Alberta wildfires, volatile trade flows and uneven consumer spending brought about a contraction in the April through June period. With the Bank of Canada holding the overnight rate at 0.5% at its July 13 meeting and lowering its economic expectations for the rest of the year, our panel of economists agree that this means there will be little change in Canada's mortgage market for the next four to six weeks. They don't foresee any overnight rate change for at least the next few months, which means the low rates that Canadians have seen over the past year will be sticking around for an even longer period of time.

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With bond yields seeing minimal fluctuations, there's been little change in rates for fixed rate mortgages and our experts agree they are likely to stay under the 3.0% mark for the foreseeable future. At the current time, the main influencing factor – besides Brexit – is what happens in the U.S. counting down to election day. Now that Donald Trump and Hilary Clinton are confirmed as the Republican and Democratic candidates respectively, this could lead to some volatility on Wall Street, and indirectly within Canadian markets, depending on how the election campaigns play out. Bond yields may go up – as they tend to do during times of uncertainty – and stock markets could take a dip.

No change in the country's overnight rate means that there won't be much change in variable rate mortgages. Right now, the Bank of Canada is balancing the lag in economic growth with the growth in the country's hottest housing markets (Toronto and Vancouver), which continue to see record growth in prices year over year. This pattern is likely to continue, although the reaction to the introduction of a 15% tax for foreign homebuyers in B.C. – new this month – has yet to be seen. Going forward, our experts don't believe there will be any change in the overnight rate at the next two Bank of Canada meetings on September 7 and October 21. It's even possible these low rates could hold through to 2017, meaning prospective homebuyers can still take advantage of a wide range of mortgages that suit their time frame and budget.

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Bond yields have been very stable the last several weeks despite the recent fluctuations in the Canadian dollar. As a result, we don't expect to see mortgage rates change in either direction. The structural changes in the last few years in this industry has led to a transition of power from the consumer in the pre-2008 years, to the banks in the post-2008 years, and at the current time, to the banking regulators. Consumers must play by the ever changing rules set out by the regulators.

We will have to see a sustained recovery in the U.S. economic situation before we start seeing the banks change their variable rates. As a result, we don't foresee any changes to variable rates for the next while.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Bond yields have been roughly flat for four months, with only minor variations from day-to-day and week-to-week. As a result, rates for fixed rate mortgages have also been relatively stable. The spread between mortgage rates and bond yields is at a normal level, and there is currently no pressure for any substantial adjustments of mortgage rates. That said, there are big risks around the U.S. election, and as election day approaches there could be turbulence. If the polls remain close or point to a Trump win, financial markets will increasingly see high risk: bond yields could rise sharply and stock markets fall. If not, I still expect that fixed rate mortgages in Canada will remain at or close to current levels for the next six months - something I have been saying this since the start of the year. My most likely scenario is that typical rates for fixed rate mortgages will stay under 3.0% for some time to come.

The Bank of Canada's has been forced to lower its economic forecasts, but it continues to foresee enough economic growth that it is unwilling to reduce its key rate. It is also concerned about providing any more stimulus to hot housing markets. There will probably be more disappointments in the coming months and eventually the Bank of Canada will have to drop the rate by another quarter point, probably not at the September 7 or October 21 meetings but likely by December 7. Therefore, I expect that before the end of the year we will see some reduction in rates for variable rate mortgages.

Dr. Ian Lee - Program Director, Carleton University

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A review of the 3 to 5-year Government of Canada bond yield reveals narrow fluctuations. Moreover, there is no evidence of either a surge in demand or a precipitous decline in the demand for mortgage money. This, in turn, suggests a rough equilibrium in mortgage markets at this time.

Notwithstanding the latest economic data – starting with the largest decline in GDP since 2009, decline in exports and business investment – we should not expect any reductions in the central bank rate. We base this on the increasing nervous sentiments expressed by the Bank of Canada which has been echoed by CMHC, the IMF and OECD and a myriad of analysts. It suggests that we will see fiscal policy measures – such as a tax on empty homes or possibly an increase in the down payment required – to address heated housing markets. A central bank rate reduction would merely pour gasoline on a red hot fire. However, the very weak Canadian economic data ensures that neither will we see a central bank rate increase in the next year or so.