It seems like just about everyone was following the US election last night. As I mentioned in last week’s blog, a Trump victory would likely trigger an increase in bond yields—and that’s precisely what happened. Bond yields spiked immediately following the election results, setting the stage for higher fixed mortgage rates.

We have already seen some increases in fixed mortgage rates over the past week. While we were seeing 3-year fixed rates as low as 3.99% in some situations, the lowest now has jumped into the 4.09% to 4.24% range, depending on your situation. Now it looks like they may be rising further. 

This is exactly why I’m always saying not to wait for the Bank of Canada announcements before making the decision to start the mortgage application process.  While Bank rate is still expected to drop significantly over the next year, including a another potential 0.50% cut on December 11th, this affects variable rate mortgages only. As I say time and time again, fixed mortgage rates do not move with the Bank of Canada rate and can even move in opposite directions at times. This is what we’re seeing now… a precipitous downward rate trend with the Bank of Canada, and fixed mortgage rates rising. 

 

Fixed Rates Might Not Fall Much Further in Coming Years

Even in a long-term downward rate trend, there will always be some upward blips along the way. But this may not just be a blip. It’s possible that fixed mortgage rates may not get much lower over the next few years. There is also nothing to say that they won’t be higher.  

I think there are some who believe that fixed mortgage rates will fall into the 2% range. But aside from another global health or economic crisis, this was never expected to happen. As I’ve said before, if we were to see rates in the mid-3% range than we would be doing really well. In other words, it’s possible, but not likely. 

In last week’s blog, I mentioned that it  may be time to start considering 5-year fixed rates over the 3 year terms that have been so popular over the last couple of years. 

 

Time for a Variable Rate Mortgage? 

Given that variable rate mortgages are priced so much higher than fixed rates, and that the prime rate increased substantially more than originally expected in 2022 and 2023, we’re now at the time where they are starting to regain popularity.  RBC Economics is forecasting for the Bank of Canada to cut their rate by another 1.75% by the end of the 3rd quarter in 2025. Other banks are expecting additional cuts in the range of 1.25% to 1.50% in additional cuts. Scotiabank has the least optimistic forecast, anticipating additional drops of only 0.75% over the next year. 

As mentioned above, this doesn’t mean fixed mortgage rates will fall further than where they are now. In most markets, variable rates are lower than their fixed alternatives. But they currently come at a premium, with rates close to 1% higher than fixed. 

This should correct itself over the next year, which would bring variable rate mortgages lower than fixed once again.  If RBC is correct in their forecast, then this would mean that variable rates would drop into the low to mid 3% range. 

 

Do Not Wait to Lock in a Rate! 

As fixed rates have already increased, and with further increases likely, I would highly advise getting a rate locked in ASAP.  If you’re looking for a variable, there is not quite as much urgency. However, any delays with locking in a fixed rate could result in having to accept something higher. 

Locking in a rate protects you against rising rates, but it doesn’t mean that you can’t take advantage of lower rates should they drop further… even if you have already signed the mortgage approval documents. If rates fall, we can still get your rate lowered for you, right up until a few business days before your closing date. 

 

Final Thoughts 

It’s amazing how the outcome of the US election can play such an important role on this side of the border. Bond yields were expected to rise with the election of Trump, which is exactly what is happening now.  At the time of writing this blog, the yields have risen close to 3%. Fixed mortgage rates are now expected to rise further… regardless of the expected December 11th rate cut from the Bank of Canada. 

Anyone with a purchase closing within the next 120 days, or with a mortgage coming up for renewal should be locking in a rate asap. Shoot us an email at info@pmtmortgage.ca and we’ll advise you on the lowest rates and best options, tailored to fit your unique situation. 

Fixed mortgage rates may not drop much further over the next few years, so variable rates or 5-year fixed products might be better options compared to shorter 3-year terms. Stay tuned for an upcoming blog, where I’ll dive deeper into the fixed vs. variable rate debate.

As for what we can expect with rates moving forward? Time will tell and anything can happen.