For the latter half of 2020, the Bank of Canada had been adamant that they will be holding their overnight rate steady through to 2023.  No increases, nor decreases.  In recent weeks, they started to hint towards a possibility of another rate cut, which could have come as early as today, January 20, 2021.  We’ll have to wait a little longer however, as the BOC announced this morning that they will be holding their overnight rate steady.  That is… at least for now.  The overnight rate is what mortgage lenders use to set their prime rates, which will remain at 2.45% where it has been since late March of 2020.

 

The Bank of Canada rate announcements are mostly of interest to those in variable rate mortgages, or those with HELOCs (Home Equity Line of Credit). They generally don’t effect fixed rates,  however they can influence them indirectly at times. Fixed rates can sometimes move in the opposite direction of the BOC overnight rate, although this is rare.  Fixed mortgage rates are more closely tied to bond yields.  If bond yields increase then this can put upward pressure on fixed mortgage rates, and vice versa. This doesn’t necessarily mean that fixed rates WILL go up with bond yields. They aren’t married to them. Just influenced by them.

 

At the time of writing this blog, bond yields are up 4.50%.  In a typical market, this is something that we would be watching very closely as it could lead to upward movement in rates. We’re in anything but a typical market however.  Sometimes there is evidence to support the movement, as there is here.  In this case, the financial markets are responding favourably to today’s inauguration of Joe Biden as President of the United States, and additional stimulus he is expected to introduce.   If the yields were to continue to increase, then we would eventually see fixed mortgage rates increase as well.  However, I would not expect this to happen.

 

While there might be some fluctuation in fixed mortgage rates in coming months, I would expect mortgage rates to remain relatively stable throughout 2021.

 

The next announcement from the Bank of Canada will be on March 10th.  Will we see them come through with a cut at that time?  Very possible.  As always, time will tell.