Fixed Mortgage Rates Increase: Navigating the Changing Landscape for Canadian Homeowners
Canadians are experiencing a noticeable climb in fixed mortgage rates, a trend directly linked to fluctuations in bond yields and, increasingly, global events like rising oil prices. Experts warn this isn’t a temporary blip, and homeowners need to understand the factors at play to make informed decisions.
The Impact of Global Events and Oil Prices
Since the escalation of conflict in the Middle East in late February, the bond market has been volatile. Dan Eisner, CEO of True North Mortgage, notes that insured five-year fixed mortgage rates have jumped from around 3.9% to 4.2% – a direct consequence of the Bank of Canada’s five-year bond yield increasing by approximately 40 basis points at its peak. A key driver of this increase? Rising oil prices.
The surge in oil prices has sparked investor concerns about potential inflationary pressures. Central banks typically respond to rising inflation by increasing their key interest rates. Consequently, bond yields are rising in anticipation of these future rate hikes. Since most fixed-rate mortgages are tied to the five-year bond yield, any increase in the yield translates directly to higher interest rates for homeowners.
What Does This Mean for Your Mortgage?
While oil prices remain around $100 per barrel, the increases may stabilize. Eisner suggests that strategic oil reserve releases could help keep rates elevated but steady. However, a further spike to $140 per barrel could trigger another increase in bond yields and, subsequently, fixed mortgage rates.
Fixed vs. Variable Rates: Which is Right for You?
Currently, the lowest variable-rate mortgage available is 3.35%, unchanged since the Bank of Canada lowered its key interest rate to 2.25%. Variable-rate mortgages are directly linked to changes in the Bank of Canada’s key rate. Penelope Graham, a mortgage expert at Ratehub.ca, points out that the Bank of Canada has adopted a “wait-and-see” approach regarding the ongoing conflict and its potential economic impact.
Canada’s inflation rate in February was 1.8%, below the target of 2%. The Bank of Canada will likely need to observe a sustained rise in inflation before considering a rate hike.
Victor Tran, a mortgage and real estate expert with Rates.ca, acknowledges that rising rates are discouraging some mortgage shoppers, particularly those facing renewal. However, he emphasizes that market unpredictability is not new.
While many Canadians prefer the stability of fixed rates, Eisner notes that approximately half of his clients are currently opting for variable mortgages. However, he cautions that, given the current geopolitical uncertainty, a fixed rate might be the more prudent choice, especially for those nearing renewal. Locking into a fixed rate now provides a safeguard against potential future rate increases.
Expert Advice for Homeowners
If you’re facing a mortgage renewal in the coming months, experts recommend locking in a fixed rate as a precautionary measure. You can always switch to a variable rate later if conditions improve. Staying informed and seeking professional advice are crucial in navigating this evolving mortgage landscape.
Resources:
- Bank of Canada – Stay updated on key interest rate announcements.
- Ratehub.ca – Compare mortgage rates and access expert analysis.
- Rates.ca – Find mortgage rates and get personalized advice.
