One of the most common questions I get is what can be expected from mortgage rates moving forward. We’re now enjoying some of the lowest mortgage rates in history, but how long will this last?

Fixed mortgage rates have been relatively stable for much of 2021. The exception is late February, early March when we saw fixed rates increase by as much as 0.40% within a few short weeks. Even with that increase, fixed mortgage rates for insured and insurable mortgages remained under 2%. To put this into perspective, the lowest 5 year fixed rate prior to 2020 was 2.14%. It took a pandemic to drive them down below 2%.

Fixed mortgage rates have trickled down since the beginning of April, however just marginally. The most recent rate drop was this week, with the lowest 5 year fixed rate dropping to 1.64% for an insured mortgage.  Overall, 5 year fixed mortgage rates range from 1.64% – 2.14%, depending on your situation.

 

Variable Rate Discounts Improve
While prime rate has remained unchanged throughout 2021 as expected, we’ve seen discounts on variable rates increase by as much as 0.30% since the beginning of the year. This brings the lowest variable rate down to prime -1.46% (0.99%) for an insured 3 year term. Overall, variable rate mortgages range from 0.99% – 1.40%, depending on your situation.

 

Bank of Canada Projections
The Bank of Canada remains committed to keeping their overnight rate unchanged until sometime in the later half of 2022. This is the rate that mortgage lenders use to set their prime rate, which is currently 2.45%. The BOC was originally planning on holding steady until 2023, but changed their stance back in April due to economic recovery moving faster than original projections.

Will they change their stance again? 

Anything can happen of course.  I personally wouldn’t be surprised if they reverted back to their original 2023 projection.

Why?

 

The Bank of Canada will generally follow the US central bank, who is not expected to increase their rate until 2023. It’s rare for Canada to take the lead on rate movement. If they stay true to their word and increase ahead of the US, we can then expect the Canadian dollar to start closing the gap against the US. A higher Canadian dollar makes us a less attractive trading partner, which would have a negative impact on our exports. As 80% of Canadian exports are to the US, our already fragile economy would not react favorably. This happened back in 2010, a move which sent the Canadian dollar rising above the US. I can’t see the Bank of Canada letting this happen again. Either the US will move up to 2022, or Canada will push back to 2023. We’ll see what happens and time will tell.

 

What Mortgage Rate Movement Can be Expected?
I would not expect any significant movement on fixed or variable rates throughout the remainder of 2021. No significant movement does not mean no movement at all. Rates can move in either direction.  There is still much uncertainly around the pandemic and the economy.  As long as uncertainly exists, rates will remain low. While mortgage rates will eventually increase, I would not expect anything significant anytime soon. Time will tell, and anything can happen.