If you’ve read the news lately, you’ve probably heard quite a bit about rising interest rates. Let’s take a closer look at where rates are going, how rates normally increase and what impact they have on variable rate mortgages.
Where are rates going
If you’re in the market for a fixed rate mortgage, fixed mortgage rates have been heading up like a rocket over the last couple of months. This is due to the sharp rise in Government of Canada bond yields. (Mortgage lenders price their fixed rate mortgages based on bond yields.) This has led to something we haven’t seen in quite a while – higher fixed mortgage rates.
Bond yields and fixed mortgage rates go hand in hand. The higher bond yields go, the higher fixed mortgage rates go.
Bond yields are heading higher for a couple main reasons: optimism around the post-Covid recovery and the Bank of Canada ending its bond buying program that was keeping interest rates artificially low to stimulate the economy.
Because of this, it’s expected that fixed mortgage rates will keep heading higher in the coming weeks and months.
Then there are variable mortgage rates. Variable mortgage rates aren’t expected to go up this year. However, next year is another story.
Most economists are predicting between two and four 0.25% rate hikes in 2022. I’m sure you’ve noticed everything is more expensive these days, from the price of groceries to the price at the pumps. The cost of everything going up has caused the Bank of Canada to move up its plans to raise rates. It looks like we could see the first rate hike as soon as the spring of 2022.
How rates normally increase and what impact will they have on variable rate mortgages
If you’re locked into a fixed mortgage rate and your mortgage isn’t coming up for renewal anytime soon, you don’t need to worry about rising mortgage rates. However, if you are planning to buy a home and take out a fixed or variable rate mortgage, you have a fixed rate mortgage that’s coming up for renewal in the coming months or you have a variable rate mortgage, that’s when you’ll want the help of a trusted mortgage partner. (More on that below.)
When it comes to variable rates, variable rates normally increase based on the Bank of Canada’s key interest rate. When our central bank raises interest rates, mortgage lenders are almost certain to follow by raising their prime rate. This leads to an immediate increase in variable mortgage rates.
We’re here to help
If there was ever a time to reach out to mortgage experts, this is it. If you’re going to be in the market for a mortgage in the coming months, now would be the perfect time to connect.
Mortgage experts are here to help you navigate through all market conditions. We’re your trusted partner who can help you with important decisions, such as going with fixed or variable, and locking in a rate so you’re protected against higher rates in the future.