Since mid-2017, mortgage rates have been on the rise and 5 year fixed products have already increased as much as 1.50% since that period. I would love to be able to tell you that rates have plateaued, but that would be wishful thinking.

The Bank of Canada has been looking to increase prime rate and has had their finger on the trigger for the past several months. With the new NAFTA (Now USMCA) announcement a few weeks ago, we will certainly see the Bank of Canada increase their overnight rate at their next scheduled rate announcement next week on October 24th, 2018. This means that prime rate will be increasing by 0.25% to 3.95%, which affects variable rate mortgage and HELOCs (Home Equity Line of Credit).

This does not affect fixed rate mortgages, as they are determined by bond yields. As this is increase is fully expected, I do not anticipate bond yields to spike as a result, therefore fixed mortgage rates ‘should’ remain stable……for now. However, it’s just a matter of time before they start increasing as well. You can follow the bond yields yourself here: https://www.investing.com/rates-bonds/canada-5-year-bond-yield

It’s expected that prime rate will continue to increase in 2019, with two more increases planned by the Bank of Canada. While we likely won’t see any immediate movement on fixed rates next week, they will almost certainly start to move upward, and we can expect to see further increases by the end of 2018, and additional increases through 2019. We are already starting to see 5 year fixed rates in the low 4% range with some lenders, so this is what we need to be prepared for moving forward.  By 2020, I would fully expect 5 year fixed mortgage rates to move into the 5% range.

Let’s now look at the other side of it. The looming trade war between the US and China can keep rates low, or even result in decreases should it continue. This can have a global economic impact, which will in turn, affect Canadian economic progress. I would say that there is a greater chance that we’ll see rates continue to rise however.

Currently, there are still 5 year fixed rates available for as low as 3.19% for high ratio (less than 20% down payment) purchases only. For other situations, 5 year fixed rates range from 3.39% – 3.64%. Variable rate mortgages range from prime -1.24% (2.46% currently) to prime -0.85% (2.85%).

 

What can you do to protect yourself against rising rates?

If you will need a new mortgage within the next 4 months, now is the time to get started. Do not delay any further.

Do you have any high interest debt you want to consolidate?  Now is the time to consider refinancing and consolidating it into your mortgage.

Do you have a variable rate of prime -0.90% (2.80%) or higher?  It may make sense to do a mid-term switch or even consider converting to a fixed rate. 

If you are not sure of what to do, reach out to me and I can assess your situation and help you to determine your best course of action.