Mortgage rates play a key role in the housing market, influencing both home buyers and home owners alike. The direction of these rates can have a significant impact on affordability and the overall health of the real estate industry. So, you may well be wondering whether lending rates in Canada are on the rise or decline. Here is what I can tell you.

Understanding mortgage rates

Let’s start with the basics. Mortgage rates represent the interest charged on a mortgage loan and are driven by various factors, including the central bank's monetary policy, inflation rates, economic indicators and global market trends. In Canada, the Bank of Canada (BoC) has the responsibility of setting the overnight lending rate, which serves as a benchmark for mortgage rates.

Factors influencing mortgage rates

Certainly, the most important element that influences mortgage rates is the BoC’s overnight lending rate. When the Bank raises or lowers this rate, it directly impacts the interest rates that banks charge on mortgages.

The factors noted above such as inflation, economic growth and global economic conditions can influence what the BoC does and, therefore, impact mortgage rates. For example, if inflation is high, the Bank may raise interest rates to control inflation, which would lead to higher mortgage rates.

Another aspect to consider is competition among lenders. Banks and other financial institutions attempt to draw business away from competitors and one way they do this is by offering better mortgage rates.

Recent trends

In recent years, mortgage rates in Canada have experienced a period of historic lows. The BoC slashed interest rates in response to the economic challenges posed by the COVID-19 pandemic. This move was intended to stimulate borrowing and spending, providing much-needed support to the economy. 

As the economy started to recover and inflationary pressures increased, the BoC gradually raised its key overnight rate. With recent inflationary pressures, there has been speculation about the BoC raising interest rates again. However, for now, the Bank has been keeping the key lending rate steady at 5%.

Expert insights

Financial analysts and economists can offer valuable insights into the direction of mortgage rates in Canada, although these can be mixed. Some believe that rates will remain relatively low for the foreseeable future, citing the BoC’s commitment to supporting the economic recovery. They argue that the Bank will be cautious in raising interest rates to avoid derailing this growth.

On the other hand, some experts believe that mortgage rates will start to rise in the coming months. They point to the improving economic conditions and the BoC’s signaling of a shift in its monetary policy stance. They also note that fixed mortgage rates are closely tied to government bond yields, which have been increasing.

Impact on home buyers and home owners

Understandably, the direction of mortgage rates in Canada has a real impact on both home buyers and home owners. For those purchasing a property, lower mortgage rates mean smaller monthly payments, making homes more affordable. On the other hand, higher mortgage rates can make buying a home more expensive and may force some individuals to hold off.

For home owners, those with variable rate mortgages will see their monthly payments increase if rates rise, potentially putting strain on their finances. Property owners with fixed-rate mortgages are protected from rate hikes during the term of their mortgage but may face higher rates when it comes time to renew.

Finally

In conclusion, the trajectory of mortgage rates in Canada is influenced by a complex interplay of economic, financial and policy factors. While current indications suggest a potential uptick in rates in response to inflationary pressures and monetary policy normalization, the future remains uncertain.

If you’re planning to buy or sell, it’s important to stay informed about economic developments. Consulting with a financial expert to make informed decisions about mortgage financing is a good idea. And, remember, you can reach out to me at any time to discuss the Calgary real estate market.