Given that the Bank of Canada has increased their rate by a whopping 3.50% in roughly seven months, it’s only natural to be concerned. Especially considering that they have made it clear that more rate increases will be required. But that shouldn’t have come as a surprise given that this was the expectation all along.
What was more surprising was that the BOC increased by 0.50% when the market was expecting a larger increase of 0.75%. While nobody in a variable rate mortgage is delighted to see their rate increase further, at least it wasn’t as bad as expected.
While the common belief is that the next scheduled rate announcement on December 7th will be the last of the rate increases, there are still some who think rates will increase further in 2023.
But what are the odds this would happen?
While anything is possible, this is not a likely situation, and not one of the big six banks are forecasting anything remotely close to this. Nor is the Bank of Canada themselves.
Updated Rate Forecasts From The Big Six Banks
| 2022 | 2023 | ||||
| Dec 7 | Q1 | Q2 | Q3 | Q4 | |
| CIBC | +0.50% | NC | NC | NC | NC |
| National Bank | +0.25% | NC | NC | -0.25% | -0.25% |
| RBC | +0.25% | NC | NC | NC | NC |
| Scotia | +0.50% | NC | NC | NC | -0.25% |
| TD | +0.50% | NC | NC | NC | -1.00% |
| BMO | +0.25% | NC | NC | NC | NC |
NC = No change
Three banks are forecasting a 0.50% increase on December 7th while the remaining three are only anticipating a 0.25% increase. It’s nice to see that we’re so close to the end or the year and not one of them are including an increase in 2023. It’s also nice to see that there are now three of the big banks forecasting rate cuts in the latter half of 2023.
While the forecasts are subject to change, the big six banks have not significantly altered them over the last three months. In early August, there were two of the big six forecasting a 0.25% rate cut at the end of 2023. Now there are three, and with predictions of larger and earlier cuts than previously anticipated.
While there is still uncertainty moving forward, these forecasts are promising, particularly for those worried that rates could spiral out of control.
The Impact Of Inflation On Mortgage Rates
The future of mortgage rates is tied directly to how fast the Bank of Canada can get inflation under control. Their goal is for inflation to reach 3.00% by the end of 2023 and 2.00% by the end of 2024. The faster inflation drops, the sooner we’ll see rate cuts.
However, if inflation remains at higher levels for longer than expected, then the Bank of Canada will have no choice but to keep rates higher for a longer period. Should this happen, then they may need to increase rates even further. It all comes down to how quickly they can get it under control.
Let’s hope they remain on track with bringing it down to where it needs to be.
Fixed Mortgage Rates Are Dropping!
As the rate increase on October 26th was smaller than what the market expected, bond yields immediately dropped which resulted in downward pressure on fixed mortgage rates. Multiple mortgage lenders have already reacted with cuts to 5 year fixed rates of roughly 0.15%. It’s expected that more lenders will come through with cuts as we move further into the week.
This doesn’t necessarily mean that the cuts will hold. While it’s possible they will, or even drop further, it’s also possible that the yields could climb back upward. It’s too soon to make a call one way or the other.
Are You Still Worried?
If you’re still worried that rates are going to spiral out of control, then it might be time to consider locking into a fixed rate, which are currently as low as 4.69%, depending on your situation. Chances are strong that rates will be lower in the next two to three years, which is why many are considering shorter term fixed rates, even if the rates are higher.
Everyone’s situation can be a bit different, and not everyone is in the same financial situation, nor do they have the same tolerance for risk. This is why I’m a firm believer that there is no one size fits all mortgage advice. For the most part, I believe riding out a variable rate mortgage will result in the most savings over the next several years. However, anything can happen and you need to do what you feel is best for you and your family.
As I say in my book, the best choice isn’t always the one that saves you the most money. It’s the one that allows you to sleep soundly at night.
Everyone’s situation can be a bit different, so it’s best to reach out to us to discuss your situation in detail. We’ll always advise you based on what is right for you and offer up the same advice that we would give to our own family.
Conclusion
Rate forecasts are always subject to change. I don’t think there was a single expert who got it right in 2022, and even the most pessimistic predictions didn’t expect the increases to be this extreme. All anyone can do is go based on the information they have available at the time. Circumstances can always change in one direction or the other. Fortunately, it appears that they starting to change for the better. But time will tell and anything can happen.
