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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?

May 2011 Overall Summary

Despite overwhelming pressure for mortgage rates to increase, our industry experts believe the Bank of Canada and mortgage lenders will continue to employ a slow and steady approach to rate hikes. Don't expect any movement in the short term, but rate increases are on the horizon.

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Although we've seen a slight dip in bond yields over the past few weeks, national and global economic conditions are improving, encouraging lenders to increase fixed mortgage rates. However, low demand in the housing market will cause the banks to rethink this approach. Home borrowers can expect fixed mortgage rates to stay where they are in the short term.

Our strong loonie is reason enough for the Bank of Canada to hold off on increasing interest rates, despite the jump in inflation, when they meet later this month. The experts are calling for level variable mortgage rates until July, but caution that discounts on Prime might get squeezed in the near future.

This Month's Panelists

George Hugh - President, Taurus Mortgage Capital

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Much of the economic data seems to be pointing to a move up in interest rates as many global economies are in a positive up trend, employment numbers remain strong in Canada and the United States etc. The pressure for fixed rates to move up continues to be a reality but with a slowing housing market, it not likely to be reflected in borrowing costs for home buyers, at least not in the short term. Fixed rates will remain unchanged over the short term.

With China and the European Central Bank already moving interest rates, how long can Canada and the United States holdout? The chance of a move at the end of the month seems likely, but I do not expect this to continue throughout the rest of the year. Moves will be gradual at best. VRM shoppers will get a little nervous, but VRM still remains a good bet given how things are shaping up.

Dr. Ian Lee - Program Director, Carleton University

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The 5 year Bank of Canada bond rate is stable. Moreover, CREA just released its latest revised forecast for 2011 Canadian housing market projecting a 1.3 % decline in sales for the year (instead of a 1.6% decline as forecast in February 2011). But, housing sales will be down this year. Increasing demand is not there.

Given Gov Carney's recent, repeated statements of concern over the high loonie and its negative impact on the competitiveness of Canadian exporters, he is going to be very reluctant to increase the BoC rate at end of may, as it will push the loonie to 1.05?, 1.06?, 1.07? If 1.04 is very troublesome for Canadian exporters when we still have stubbornly high unemployment, what will an even higher rate do. For these reasons, it seems reasonable to assume that the BoC will push back a rate increase to July.

Elisseos Iriotakis - President, Safebridge Financial

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Bond yields seem to have stabilized over the past few weeks, and international economic data seems to be improving. Expect fixed mortgage rates to remain at their current levels over the next few weeks.

The next Bank of Canada interest rate announcement is coming up on May 31. Inflation has increased but the loonie is still very high. It's a tough position for Governor Mark Carney, but the general consensus is he'll hold off this month and leave the rate increase until later in the summer.

Dan Eisner - President, True North Mortgage

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Bond yields have fluttered lower over the past 2 to 3 weeks thus giving lenders the flexibility to lower 5 year fixed rates.

It isn't prime that is on the rise it is the bank discounts off of prime that are changing. Banks and other lenders are squealing about the margin squeeze they are experiencing on their variable rate products. In fact, a few lenders have already made the move decreasing their discounts by up to .25%. As it turns out, with so many Canadians taking the variable rate product there aren't enough funds to go around. As demand goes up, so do prices.