Forecasting Mortgage Rates: Trends and Predictions

Today's Bank of Canada rate announcement (January 24th, 2024) brought no surprises as the policy interest rate remains at 5%. This marks the fourth consecutive pause by the bank, reflecting a cautious approach amidst ongoing economic uncertainties, particularly regarding inflation and potential unforeseen events akin to the Covid-19 pandemic.

Fixed Rates: A Downward Trend

Across Canada, economists from various banks are anticipating a decline in interest rates, with some projecting up to six rate cuts by the summer of 2025. The observable negative trend in the five and 10-year Canada bond yields directly contributes to the decrease in fixed interest rates, which have notably dropped by 1.14% over the last 90 days, plummeting from 6.24% to 5.10%.

Variable Rates: Seeking Stability

Variable-rate mortgage holders have endured significant fluctuations over the past two years. Rates have surged from a low of 1.2% to approximately 6.90%, resulting in substantial increases in interest costs within a short timeframe. Despite the decline in fixed rates spurred by the Canadian bond market, variable rate holders await potential relief from the Bank of Canada, as their mortgages and home equity lines of credit are linked to the bank's prime rate.

Choosing the Right Mortgage Term Amidst Volatility

Traditionally, the five-year fixed term has been the preferred choice for Canadians. However, given sentiments indicating potential Bank of Canada rate reductions in the next year, many are now considering shorter fixed terms of two or three years, or even exploring variable rates. Clients at DLC Valley Financial Specialists are increasingly opting for shorter fixed terms, while discussions around variable rates are gaining traction, given the possibility of further Bank of Canada rate cuts.

In summary, the mortgage landscape reflects a nuanced balance of economic indicators and consumer preferences. While fixed rates experience a downward trajectory driven by bond market dynamics, variable rate holders await potential relief amid volatile economic conditions. As borrowers navigate these complexities, considerations around mortgage terms become increasingly pivotal in securing favorable terms amidst evolving market conditions.

Please contact Jared Gibbons, your local realtor, should you have any questions!