The Canadian mortgage market is buzzing with recent updates on mortgage financing. Today we are sharing some valuable updates and what they mean for you as a potential homeowner or investor.
Recent Bank of Canada Updates
The Bank of Canada (BoC) reduced its policy rate from 5.00% to 4.75% in the last few weeks. This is the first cut we have seen since early 2020, and it’s a welcome reduction for variable-rate mortgage holders. The new rate means that for every $100,000 you have borrowed, you will save about $25 per month on a 25-year amortisation.
Fixed and Variable Rates Outcomes
Fixed and variable mortgage rates react differently to the various economic signals.
For example, fixed rates are tied, at a predetermined level, to Government of Canada bond yields, while variable rates follow the BoC’s policy rate. So your variable rates benefit from the drop as they are a higher-risk loan, and the fixed rates remain unchanged as their conservative risk projection is already priced into their rate.
Mortgage Financing Rates Projection
The BoC has indicated that inflation is still on target for its 2% goal. This optimistic outlook can be interpreted to mean that there will be further rate cuts in the short to medium term. The BoC’s confident statement is arguably due to the decreasing core inflation and a broader economic ability to handle non-inflationary growth.
Global and Domestic Factors
Several factors could influence future rate decisions, for example:
- Global Tensions: The ongoing geopolitical tensions from Ukraine to Taiwan have been and will continue to impact global prices and inflation and, therefore, mortgage rates.
- Housing Market Movements: If there is a concentrated increase in properties being put up for sale, as seen in the Greater Toronto Area, this could make real-estate investors more ‘picky’, slow down sales and affect the demand for mortgages.
- Wage Growth Vs. Productivity: In Canada, wage increases have been higher than productivity increases, i.e. headcount is costing more. This will keep the pressure on the rate of inflation. If there is an increase in headcount availability versus jobs available, then this could soften the wage-productivity ratio and inflation pressures.
Mortgage Selection Advice
If you are in the market for a home and mortgage financing, we advise that the current environment favours a variable-rates mortgage.
While fixed rates offer stability, the potential of further rate cuts means that variable rates could provide the most cost-effective solution over the mortgage term.
For conservative borrowers, consider a three-year fixed-term option as the best balance of security without the longer five-year term commitment.
Your Mortgage Next Steps
Canadian mortgage rates are fluctuating, with policy changes and economic signals pointing to potential rate cuts. Whether you’re a first-time buyer or looking to refinance, talking to an expert who has their finger on the pulse is your best bet!
Discover how our mortgage financing experts can help you today. Call us and let’s make your real estate dreams a reality.