Canadian Mortgage Rates on the Rise

Canadian Mortgage Rates on the Rise


Canadian mortgage rates are on the rise as Canadian banks are continuing to increase mortgage rates with the expectation of a higher interest rate environment.

5-Year Fixed Mortgage Rates

The Government Of Canada 5-year bond yield have risen to the highest levels in 11 years.  Bond rates determine fixed mortgage rate.

Government of Canada - 5 Year Bond Yield
Government of Canada – 5 Year Bond Yield

In response, the major banks in Canada have risen their 5-year fixed rate to 4.39%.  Anyone looking to get a new mortgage or renew their mortgage will be in for higher monthly payments.  Interest rates and yields are expected climb higher for the remainder of 2022 and potentially 2023.

Variable Mortgage Rates

Variable rates are closely tied to the bank prime rates, which is currently at 3.2%.  The prime rate follows the the Bank of Canada policy interest rate, which currently sits at 1%.  Banks then set their variable rate at a offset against the prime rate (generally lower than the prime rate).

The Bank of Canada has aggressively been trying to fight off the high inflation, currently sitting at 6.7% resulting in rate increases in 2022.  Further increases are expected throughout this year and potentially into 2023 but it remains to be seen as they engineer a soft landing in the Canadian economy.

Interest Rate Impact on Mortgages

Just to give you an idea of the impact on interest rates, every 1% increase in interest rates on every $100,000 mortgage balance will increase the monthly payment by about $50. While this seems small, it can easily get magnified with further interest increases on large mortgage balances especially in high priced markets such as Vancouver and Toronto.

As another example, a $1 million mortgage balance with a 2% increase in rates would increase the monthly payment by just over $1,000.

Final Thoughts

Mortgage rates should continue to rise for the rest of 2022 and it will depend if the economy can handle much higher rates. The housing markets are generally starting to slow down as buyers are feeling the pinch.  The housing market generally takes a pause when significant factors are making their way through the market.

The Bank of Canada will have a difficult decision whether to continue the rate hiking path or reduce rates to stop the economy from going into a recession. Inflation will need to be tamed before the economy gives into higher interest rates. It is a delicate balance and a soft landing is difficult to achieve.

Do you feel the housing market will cool further or will the Bank of Canada reverse course by 2023? Comment below.


Bank of Canada Bond Yield Data

Bank of Canada Website


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