Fixed mortgage rates have been climbing steadily since September. But by how much and at what cost to new homebuyers?
We’re about to answer that. But first, let’s look at what’s been driving rates higher.
After a short-lived spike in rates earlier in the year, fixed mortgage rates have spent most of 2021 going sideways, just off their all-time lows reached in December 2020.
They got a second-wind in late September, soon after bond yields started shooting upwards. As the chart below illustrates, the 5-year Government of Canada bond yield, which leads fixed mortgage rates, took two steps higher during both those periods.
Meanwhile, variable rates on new mortgages had been falling over the last several months, but that trend appears to have ended, with some lenders slowing their variable rates in anticipation of coming Bank of Canada rate hikes.
Variable rates are priced based on a lender’s prime rate, which takes its direction from the Bank of Canada’s overnight target rate, which is currently still at an all-time low of 0.25%. But the Bank of Canada has indicated it expects to start hiking rates by the “middle quarters” of 2022.
Current market forecasts show the Bank of Canada on track for seven quarter-point (25 bps) rate hikes by the end of 2023, with Scotiabank expecting eight rate hikes.
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Fixed-Rate Increases Costing Today’s Homebuyers Over $10,000 More in Interest