As Canadians navigate the mortgage landscape in 2024, rising fixed mortgage rates have significantly narrowed their options, leaving many potential homeowners feeling the squeeze. Since early March, fixed rates have steadily increased, driven by concerns over inflation and geopolitical tensions, particularly the ongoing conflict in Iran. With lenders responding to rising bond yields, fixed mortgage rates have jumped by 25 to 40 basis points, making it imperative for borrowers to stay informed about their choices.
Current Mortgage Landscape
For those looking to secure a mortgage, the current lowest five-year insured rate stands at 4.04 per cent, primarily available to borrowers making a down payment of less than 20 per cent. Uninsured mortgage rates are slightly higher, beginning at 4.19 per cent for those putting down more than 20 per cent. However, these rates are typically reserved for individuals with the strongest credit scores. Those with average credit may see five-year fixed rates exceeding 5 per cent.
Despite the uptick in fixed rates, variable rates are maintaining a lower profile at 3.35 per cent. However, forecasts suggest that these rates could rise by early 2027, as indicated by the Q1 Market Participants Survey from the Bank of Canada. This survey predicts a potential increase in the central bank’s benchmark rate by 50 basis points within the next year, which would push the five-year variable rate to approximately 3.85 per cent.
Borrowing Decisions: Fixed vs. Variable
With the current climate of uncertainty, prospective borrowers face a crucial decision: should they opt for a fixed-rate mortgage above 4 per cent, or take a chance with a variable rate? For many, the allure of a temporarily lower variable rate may not outweigh the need for predictable monthly payments. Therefore, a shorter fixed-term mortgage, such as two or three years, may present a more appealing option. This strategy provides flexibility and the possibility to refinance at a later date when rates may be more favourable.
Three-year fixed rates are experiencing a resurgence in popularity, particularly as lenders have begun to competitively price these products. While the lowest three-year rate currently stands at 4.09 per cent—slightly higher than the five-year option—there is a growing trend among borrowers seeking shorter terms, reflecting a desire for adaptability in a fluctuating market.
Monitoring Market Trends
The summer of 2024 serves as a recent example of shifting borrower behaviour. At that time, fixed rates hovered in the high fours while variable rates remained above 5 per cent. In response, lenders reduced their three-year pricing to attract borrowers looking for flexibility, resulting in a notable increase in inquiries for these terms—from 5 per cent of all inquiries in January to 11 per cent by August.
Currently, there are signs of renewed interest in three-year terms, with more customers exploring shorter options and lenders adjusting their rates accordingly. For those contemplating a mortgage, securing a rate hold can be a wise strategy. Most lenders allow borrowers to lock in current rates for up to 120 days, providing a safety net as they monitor the market for potential discounts.
Why it Matters
The evolving mortgage landscape reflects broader economic pressures and geopolitical uncertainties that can significantly impact Canadian homeowners and prospective buyers. As rates climb and options dwindle, borrowers must carefully weigh their choices, balancing the need for stability against the potential for savings. With the right approach, including exploring shorter fixed terms and taking advantage of rate holds, individuals can navigate these challenges and make informed decisions that align with their financial goals.
