It’s the talk of the town, mortgage rates are falling… and falling fast. In fact, fixed mortgage rates have plummeted by as much as 1.50% since they reached their recent peak in October 2023. 

Meanwhile, the Bank of Canada has cut its overnight rate by 0.75% since their rate cutting cycle began on June 5th 2024, with more reductions on the horizon. 

 

Why Aren’t Rates Dropping Evenly? 

Fixed mortgage rates don’t follow the Bank of Canada’s rate cuts directly.  As I say time and time again, fixed mortgage rates are largely influenced by bond yields. As the bond market is expecting further cuts from the BoC, the yields have already fallen accordingly.  

This is why further cuts from the Bank of Canada doesn’t necessarily mean that the yields will continue to tumble, resulting in lower fixed mortgage rates. 

The bond market, much like the stock market, is unpredictable and can shift rapidly based on news or economic data. 

Although it’s already pricing in additional cuts from the Bank of Canada, it’s still possible that fixed rates could fall further.  At the time of writing this blog, the 5 year bond yield is at 2.75%. Mortgage lenders will generally look for a spread of 1.00% to 2.00% over the bond yield. This means that 5-year fixed mortgage rates should be within the range of 3.75% to 4.74%.  Current 5-year fixed rates for most owner-occupied homes fall between 4.24% and 4.49% which is right in line with the desired spread. 

While this means that fixed rates could technically move lower, there is no guarantee that they will… regardless of what happens with the Bank of Canada rate.  

 

Rate Forecasts from the Big Six Banks 

Here are the latest predictions from Canada’s largest banks regarding the Bank of Canada’s rate cuts through 2025:

BANK 2024 2025 TOTAL 
Q4 Q1 Q2 Q3 Q4
CIBC -0.50% -0.50% -0.25% -0.25% -0.25% -1.75%
RBC -0.25% -0.25% -0.50% -0.25% N/C -1.25% 
Scotia  -0.50% -0.50% -0.25% N/C N/C -1.25%
TD -0.50% -0.50% -0.25% -0.25% -0.25% -1.75%
BMO -0.50% -0.25% -0.50% N/C N/C -1.25%
National Bank -0.50% -0.50% -0.25% -0.25% N/C -1.50% 

 

The definitely looks promising if it holds true. But how much can we rely on these forecasts? 

Rate predictions, much like weather forecasts, are subject to change. They are based on information that is currently available to the economists/meteorologists. 

Economists were radically wrong for about four years straight as anyone who is currently in a variable rate mortgage can attest to. However, they have been relatively accurate since the beginning of 2024. The question is, will their recent accuracy continue into 2025? Only time will tell. 

 

Final Thoughts 

While there’s a strong chance fixed mortgage rates will drop further, the declines may not be as steep or as fast as some hope. We may see fixed mortgage rates starting with a 3 once again, but whether that happens by the end of 2024, sometime in 2025, or later is anyone’s guess.

One thing we do know for sure is that mortgage rates are on a downward trend, and this is expected to continue. But how much and how quickly rates fall remains to be seen. As always, the financial world is full of surprises and anything can happen.