What is the Current State of Mortgage Rates in Canada?

What is the state of mortgage rates in Canada, and what should buyers expect in the near future? 

Those who are interested in purchasing a home can expect an increase when it comes to mortgage rates. According to economist Don Drummond, a recent forecast by the Bank of Canada indicates the reasons behind this. While the policy rate is currently steady at 0.25%, It also has the possibility of increasing as early as the second quarter of 2022. Variable mortgage rates may increase as well. 

What is the current state of mortgage rates?

In an interview with CTVNews.ca, Drummond predicted that by the end of next year, the bank’s short-term interest will increase by approximately 0.75 percentage points. As for the end of 2023, Drummond predicted that the rate will reach between 1.75% and 3%. 

Meanwhile, economist Robert Hogue had a different prediction. He noted a possible 0.5 percentage point increase in terms of the bank’s interest rate by the end of 2022. This will be alongside an increase in variable mortgage rates. As for fixed-rate mortgages, Hogue acknowledged that they have already increased over the past months. 

Hogue also advised those who wish to buy a home during these rate increases to have a conversation with a specialist. This is because everyone’s situation is different and they should make educated decisions when looking into getting a loan, renting a property, or becoming a homeowner. 

As for Drummond, he advised keeping the principal as low as possible. This would involve paying it down and lowering one’s exposure. When it comes to selecting either a fixed or variable-rate mortgage, he said that historically, variable-rate mortgages result in paying less interest over the term. He noted that it also comes down to how comfortable people are with risk levels. 

What is a fixed-rate mortgage?

A fixed-rate mortgage is when the interest rate remains the same over a mortgage term. This type of rate is typically higher compared to variable interest rates as well. A fixed-rate mortgage can be viable to an individual who is looking to purchase a property if, for example, they wish to keep their payments the same over the mortgage term. 

A fixed-rate mortgage may also be a reasonable choice if one wants to know their principal payment in advance and by the end of their term. Additionally, a fixed-rate mortgage can be a step in the right direction if one believes that the market interest rates will increase. 

What is a variable-rate mortgage?

As for a variable-rate mortgage, it’s when the interest rate can increase and decrease over the course of one’s term. For instance, if an individual decides on a variable interest rate, then their rate can be lower compared to a fixed one. A variable interest rate can be viable, for example, if one is comfortable with changes in terms of their interest rate and mortgage payments. 

Understanding the trends can aid in the prediction of these rates. However, as  Drummond noted, everyone’s situation and their tolerance for risk are different. Therefore, make sure to speak with a professional in order to determine whether or not a variable interest rate is the right decision.