Following the collapse of Silicon Valley Bank last month, there has been some speculation that we could see the Bank of Canada cut their rate as early as June of this year. The news had rattled not just the US banking industry, but the financial industry around the globe. Bond yields immediately plummeted which resulted in significant downward pressure on fixed mortgage rates… which began to drop shortly thereafter.  

However, now that the dust has settled, the chances of the Bank of Canada cutting their rate this summer seems to be pretty much zero. In fact, BoC governor Tiff Macklem stated in last week’s press conference that a cut this year is unlikely. These were his exact words:  

“The implied expectation in the market that we are going to be cutting our policy rate later in the year….that doesn’t look today like the most likely scenario for us”.  

In the press conference, Macklem didn’t sound convinced that they have done enough to bring inflation down to the 2% target. He stated yet again that they are prepared to increase the rate further if needed.  

As it can take 12-24 months for the economy to realize the full effects of the rate hikes, it’s still too soon for them to make a call one way or another.  

He also stated that “the policy rate may need to remain restrictive for longer to return inflation to the 2% target.” While Macklem confirmed that they are on track to have inflation down to 3% this summer, he said that he doesn’t expect to reach the 2% goal until the end of 2024.  

Until the Bank of Canada is 100% certain that their 2% target will be achieved, they will not be cutting their rate.  

Does this mean that we won’t see a cut until the end of 2024?  

While it doesn’t seem realistic that we’ll be waiting that long, it’s possible, and this month’s Monetary Policy Report seems to indicate that this is what the Bank is expecting.  

The big six banks are all still forecasting cuts between 1-2% between the end of 2023 and the end of 2024. National Bank is the only one forecasting that cuts will begin in the fourth quarter of this year. The other five believe they will start in January, 2024. We’ll have to wait to see if they adjust their forecasts in coming months.  

 

Serious Upward Pressure on Fixed Mortgage Rates   

As it’s now looking less likely that we’ll see a cut from the BoC this year, bond yields have reversed direction and have now been climbing upward precipitously for more than a week.  

This is placing serious upward pressure on fixed mortgage rates once again.   

There are some who are currently sitting on the fence in hopes that fixed rates will drop. Anyone in this group may end up having to settle for a rate that is higher than what they were previously quoted. If you have a purchase closing, or mortgage coming up for renewal within the next 120 days should get something locked in immediately. 

Even if the bond yields remain where they are today, fixed rates are sure to increase. If they continue to rise, then we could start to see fixed rates increase within days.  

For now, there are fixed rates as low as 4.34%*, depending on your situation.  

 

Choosing The Right MortgageFor You 

The most popular mortgage product today is the 3 year fixed. While many are asking for one and two year terms, they carry significant rate premiums making them less attractive. If the timing of the expected rate cuts was more predictable, then it might be possible to justify going with a higher rate with the expectation of much lower rates at time of renewal. But nothing is certain. As three year terms are substantially lower, most people are choosing to go with this option. They offer enough cushion to allow for rates to fall, while not too long that could put you at risk of missing the boat when rates start to drop.  

I discussed this in detail in my recent post on How to Choose Between a 1, 2 or 3 Year Fixed Mortgage Rate 

There is also a lot more to a mortgage than just rate, and the lowest rate doesn’t always make it the best choice. Nor is it always the one that saves you the most money. Check out my blog on The Best Mortgage Rate Vs. The Best Mortgage where I explain this in detail.  

 

Variable Rate Mortgages  

While variable rate mortgages have typically won out over fixed rates in the past, we’re in a bit of a different time now. Variable rates traditionally start out lower than their fixed rate alternatives. But today, they are greater than 1.00% higher than the fixed rate options, which puts you at a disadvantage right from the start. The longer it takes for the Bank of Canada to cut their rate, the lower the chances of coming out ahead with a variable rate.  

While it’s still possible you could come out ahead with a variable rate mortgage, I would say the odds of winning are similar to playing a slot machine at the casino.  Sure, you could come out ahead nicely. But it’s not likely that you will. I explain this in detail in my recent blog Should Variable Rates Be Avoided in Today’s Market.  

 

Conclusion  

The only thing that is certain about mortgage rate forecasts is that they can radically change. In other words, they’re not certain at all!  

There are always going to be differing opinions, and no one knows for sure. The forecasts today will change. And will then change again. They always do. But for now, they haven’t not changed significantly since late summer of 2022.  

The rates will eventually drop. It’s just a matter of when the cuts start and by how much. But it’s all dependent on inflation being brought under control. Only then can we expect the Bank of Canada to start cutting their rate.  

I’ll continue providing updated forecasts as things progress, so please ensure you are subscribed to my blog to ensure you’re kept in the loop!  

 

*The 5 year fixed at 4.34% or 3 year at 4.54% are available for certain situations only.  Rates can vary based on purchase price, down payment/equity percentage, property value, purchase date, usage of property, etc. Please contact us to find the lowest available rate for your situation.  You can read more this in my blog on Why Different People are Quoted Different Rates