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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?

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Fixed Rates - Up Variable Rates - Unchanged

Canada's economy has been showing impressive results as of late, as our dollar strengthens and employment continues to improve (we're currently seeing a two per cent increase from last year). It seems that the Bank of Canada (BoC) took all of this into consideration as it raised its overnight rate, now to one per cent, for the second time in two months. But still, the panel is leaning towards more increases in fixed mortgage rates in the near future, mainly due to bond yields. Fixed rates are fairly dependent on Government of Canada bond yields, and while bond yields have increased substantially over the past year (five-year bonds are now in the area of 1.78 per cent) there is still some room for fixed mortgage rates to increase as well.

Now that the Bank of Canada has essentially reversed the reductions it made to the overnight rate two years ago, the panel forecasts no more increases for the year as the Bank will likely want to watch the effects of this increase for a while before making another move.

The rate hikes are obviously strengthening the loonie, which can be viewed as a good thing as it signifies improvement in the economy. However, the bank will likely want to monitor how a higher dollar will impact our exports as well.

This Month's Panelists

Will Dunning

Chief Economist,

Mortgage Professionals Canada

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Economic indicators in Canada have strengthened during the past year, and are now quite impressive. Employment – which is one of the most powerful drivers of housing demand – is up by 2.1 per cent year-over-year (for all of Canada). This is considerably faster than the rate at which the population is growing (1.1 per cent). And in response to the stronger economy, interest rates are increasing.

Right now, most of the attention is on variable rates for mortgages due to the increased Bank of Canada rate and subsequent increased bank prime rates. However, in reality, fixed rate mortgages are much more important. Those rates correlate with what is happening in the bond market, and bond yields have increased substantially. Three months ago, the yield for five-year Government of Canada bonds was under one per cent. Currently, it is approaching 1.78 per cent – up by over a full point from a year ago, when the yield was in the area of 0.7 per cent.  Mortgage interest rates have followed these changes to some extent, but not completely, so there is still some room for fixed rate mortgage costs to increase slightly.

Looking forward, higher interest rates will gradually weigh on the economy. In addition, the Canadian dollar has strengthened, which should further constrain growth, since a strengthened dollar makes it more difficult to sell goods and services to the rest of the world.   These factors should limit the need for further rises in interest rates. But, it is always possible for financial markets to "overshoot." 

The signs of a stronger economy have led the Bank of Canada to raise its overnight rate twice in the past two months, by a quarter point each time. This achieves its goal of reversing the reductions that were made after the price of oil collapsed in 2014. At this point, the BoC is likely going to patiently wait for several months to see the impacts of these changes (the increased overnight rate, higher bond yields, and the stronger dollar).  Therefore, I expect there will be no more changes to the overnight rate this year. Rates for variable rate mortgages have followed the half point rise in the BoC rate.  These should also remain unchanged for the rest of this year. 

Dan Eisner


True North Mortgage

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Long-term bond yields have risen significantly in the last few days as traders expect future prime rate increases in the upcoming months.  We will likely see fixed mortgage rates increase by 0.1 per cent to 0.15 per cent in the coming days.

We saw prime rates change recently, but the actual discounts offered off of price is very stable.

Dr. Ian Lee

Program Director,

Carleton University

Fixed Rates - Unchanged Variable Rates - Unchanged

While bond yields have essentially doubled since June, housing demand appears to be slowing across Canada per CREA national home sales stats.  This is likely due to the tightening of mortgage financing rules (collectively by the Minister of Finance, CMHC, OSFI, the Government of Ontario, and the Government of B.C.), and its substantial effect on potential homebuyers. The possibility of exploding mortgage delinquency is apparently a grave concern and I sympathize. In 1981, when I was a mortgage manager at one of the largest BMO branches, mortgage interest rates once increased to 20 per cent (no decimal in between the 2 and the 0), and national mortgage delinquency subsequently skyrocketed from 0.5 per cent to one per cent of all mortgages outstanding in Canada.  Of course, it can be argued those were very different times; mortgages can presently be obtained within the two per cent range – not the 20 per cent range – and the national mortgage delinquency ratio is 0.3 per cent – not 0.5 per cent.      

I was wrong on the timing in last month's outlook as I suggested the Bank of Canada would wait until October to raise the central bank rate.  As we know, the BoC increased the central bank rate earlier this month.  While the Canadian (and U.S.) economy continues to dazzle, it is highly unlikely that the Bank of Canada will commit to a third increase in such a short period, especially since it does impact the loonie.  Forecasters suggest the loonie increasing to 85 to 87 cents, which is significantly above its fundamental value around 80 cents. This would attract yet more criticism from exporters, especially in the auto manufacturing sector.