It seems like it was just yesterday when I thought that the year 2021 sounded futuristic. In fact, it WAS yesterday. It does sound futuristic, doesn’t it? Here we are in 2021, but still no flying cars. How is that possible? For those who have followed my blog over the years, you may recall that I always use the same joke to start off my first blog of the year. That’s right. The same one. I like it and it makes me smile. You can watch for it again next year as well!

2020 was a mortgage rate roller coaster, which resulted in 2021 starting off with some of the lowest mortgage rates in history. We begin the year with 5 year fixed rates as low as 1.39%. By comparison, the lowest rate at the start of 2020 was 2.74%. Note that the same rate does not apply to every situation, and rates can vary as I explain in my blog on Why Different People Are Quoted Different Mortgage Rates.

Which leads us to the question….. What can we expect from mortgage rates throughout 2021?

There are many predicting that mortgage rates will rapidly increase once the pandemic ends and are expecting them to be considerably higher by the end of the year. I feel confident in saying that this won’t happen as there is a flaw in the logic used. Let me further explain.

I do believe that mortgage rates will increase once the pandemic ends. But when exactly will that be? It’s not as if we’ll hit a specific date and then WHAMO! The pandemic is over! It won’t end as if someone flipped a switch. We’ll come out of it slowly and gradually. It will take time for people to build confidence. That’s the flaw in the logic. Eventually, everything will return to normal, but I wouldn’t expect this to happen anytime in 2021. Or even in 2022 for that matter. It will take time. And when I say ‘normal’, what exactly does that mean? Will we ever return 100% to the way things were before? The pandemic has changed the way many of us do things, so when I say normal, I’m referring to the new normal. What that entails is still somewhat uncertain.

 

Vaccines And Their Contribution To the End Of The Pandemic
When the first vaccine was announced in December, many where thinking that this would mean the end of the pandemic. It’s a step in the right direction, but it does not mean that it will bring it to an abrupt end. The first problem is distribution. Getting enough doses out to vaccinate the entire population. That’s the easy part. The hard part will be getting everyone to take it. While there are many who will jump at the chance to be vaccinated, there are also many who will want to hold off, and some who will flat out refuse it. It will take some time before the entire population feels confident enough to take it.

We’re also now seeing mutations of the virus, which create even more uncertainty around when the pandemic will end, as well as the overall effectiveness of the vaccines.

As long as this uncertainty is present, mortgage rates will remain low.

 

Fixed Mortgage Rates in 2021
As mentioned above, I would not expect to see any major increases to mortgage rates this year. This doesn’t mean that there won’t be any increases at all. As in any year, mortgage rates fluctuate. There will be rate increases at times, but just because rates increase, it doesn’t mean they will continue to increase. I would expect rates to move in both directions periodically throughout the year. If rates start to increase, then I would expect them to fall back down shortly thereafter. Even with 5 year fixed rates as low as 1.39%, there is still potential for them to move a bit lower yet. Of course, time will tell.

 

Variable Mortgage Rates in 2021
The Bank of Canada has expressed on several occasions that they do not plan on increasing their overnight rate until sometime in 2023. I personally wouldn’t be surprised if they held it for longer. The overnight rate is what mortgage lenders use to set their prime rate, which is currently 2.45%.

Will they cut their rate further?

It was looking as though there would not be any movement in either direction, however the BOC has recently hinted that there could be another cut coming. This may be required to maintain a healthy spread between the value of the Canadian and US dollars. If the Canadian dollar gains too much ground on the US, then this can have a negative impact on Canadian exports. As 75% of Canadian exports are to the United States, this represents a huge part of our economy.

The prime rate is only one component of a variable rate however. The other is the lender’s discount off prime rate. Even if the Bank of Canada maintains the status quo for all of 2021, lenders can still make changes to the discounts they offer. 5 year variable rates currently range from prime -1.15% (1.30%) to prime -0.85% (1.60%), depending on your situation. There is a strong likelihood that lenders will improve their discounts as we progress into 2021. Just as with fixed rates, I expect variable rates to remain attractive throughout the year.

 

Anything Can Happen
These are all predictions based on what we know today. You’d have to have a crystal ball to know for sure, and mine is currently in the shop being professionally polished (another one of my recycled jokes, borrowed from my book, Beat the Bank – How To Win The Mortgage Game In Canada). I’m confident in these predictions, however anything can happen. As always, time will tell.

 

If I were to sum it up in one line, I would say that anyone requiring a mortgage in 2021 will be offered some of the lowest mortgage rates in history.