The title of this blog is a question with an easy answer. Of course they will. But that’s a very loose answer since it does not state ‘when’.  Eventually, we will see fixed mortgage rates rise back up over 3%, however I would not expect to see this anytime this year. Or even next year for that matter.

But what can we expect from fixed mortgage rates over the next few months?

In the past week, we’ve seen fixed mortgage rates increase approximately 0.25% – 0.30%, which is a pretty large jump for such a short time span. Fixed mortgage rates are heavily influenced by bond yields, which had more than doubled since February 1st.  Mortgage lenders were trying to hold off on increasing rates for as long as they could. However, with such a precipitous rise in rates, they were forced to make a move.

 

Why Did Rates Increase?
The reason for the rapid rise in bond yields is largely due to Joe Biden’s announcement of his $1.9 trillion stimulus package. Such a large package creates inflationary concerns, which is driving up the yields, and in turn, fixed mortgage rates. Positive news can also push the yields higher. COVID infection rates are falling fast, and Biden just announced that he expects there to be enough vaccines for every American by May. This is all great news, which brightens the light at the end of the tunnel. We’re still far from being out of the woods yet however. Let’s hope Canada can pull up their slacks and expedite our vaccine distribution as well!

 

Fixed Mortgage Rates Heading Into The Spring
As I’ve repeated many times since last spring, it will take years to dig ourselves out of the economic mess we’re in. Yes, mortgage rates will eventually rise, but I would not expect anything significant anytime soon. Even after the recent increases, 5 year fixed mortgage rates are still as low as 1.69%*.  While that may sound high compared to last week’s 1.39%, 1.69% is still extremely low by historical standards. Prior to August of 2020, we had never seen rates this low.  Since early summer 2020, I was predicting that rates could fall to as low as 1.50% by the end of the year, but we had still not seen anything close to 1.69% at that time. Eventually, this rate will be gone forever as well. The question is, how much longer do we have to take advantage of it?

 

As I mentioned in my blog on what we can expect from mortgage rates in 2021, I mentioned that rates can be expected to move in either direction throughout the course of the year. The recent increases to fixed rates are not surprising. I believe this to be a bit of an overreaction to the stimulus package, which would therefore make the increases transitory. I would expect the bond yields to pull back again as we move towards the spring, which would then put downward pressure on fixed mortgage rates once again.

Will the lowest rate drop back down to 1.39%?

That remains to be seen. I would expect a drop, but not necessarily back down to this level.  Time will tell, and anything can happen of course.

 

What Can Be Expected From Variable Rate Mortgages
While fixed rates have recently increased, we’re seeing lenders become more aggressive with their discounts on variable rate mortgages. Prime rate has not changed, but the discounts off prime have increased, which means lower rates.  Depending on your situation, variable rate mortgages now range from prime -1.25% (1.20%) to prime -1.05% (1.40%)*. Now that the spread has widened between fixed and variable rates, the variable is starting to look a lot more attractive. Prime rate is not expected to increase until sometime in 2023, and the Bank of Canada seems pretty confident about this. This gives you a pretty big head start!  When the prime rate does start to increase, it would not expect to see anything too significant in the next 5 years. It’s still possible that the Bank of Canada could make another cut to prime rate. They have not taken that off the table. I would not hold your breath for it however.

 

If you have a purchase or mortgage renewal coming up within the next 120 days, I would still recommend getting something locked in ASAP. While I expect fixed rates to drop again, there is no guarantee of this of course. If rates drop back down, as I’m expecting, we’ll of course ensure you get the lower rate. Getting something locked in now is just a precaution, which gives you protection in the event that I’m wrong.  I’ll of course ensure that you get the best mortgage rate for your particular situation!

 

Please leave any questions or comments below!  I’d love to hear from you!

 

*The lowest mortgage rates are available for insured mortgages, or for those with 35% or greater down payment or equity. Original purchase price must be under $1 million, OR home must have been purchased prior to November 30, 2016.  (some exceptions apply).