Published: October 10, 2024 | 5 min read
Mortgage rates don't exist in a vacuum—they're influenced by Bank of Canada policy decisions, inflation, economic growth, and global market conditions. Here's what you need to know about recent rate trends and how they affect your mortgage strategy.
The Bank of Canada sets the overnight lending rate, which directly influences:
After a period of historically low rates during the pandemic (as low as 1.5%), the Bank of Canada raised rates aggressively to combat inflation. Here's what that means:
Bank of Canada Overnight Rate: ~5.00%
Prime Rate: ~7.20%
5-Year Fixed Rates: 4.5-5.5%
Variable Rates: Prime - 0.5% to Prime + 0.5%
Your payments adjust with Bank of Canada rate announcements. A 0.25% rate increase on a $400,000 mortgage adds about $60/month to your payment.
What to do: Review your budget, consider locking into a fixed rate if rates are rising, or stay the course if you believe rates will fall.
Your rate and payments don't change until renewal. However, if rates drop significantly, you might consider breaking your mortgage early and refinancing.
What to do: Calculate break-even point if considering early refinancing. Usually only worth it if rates drop 2%+.
This is your opportunity to reassess and potentially switch lenders for a better rate.
What to do: Start shopping 90 days before renewal. Even a 0.5% rate difference saves thousands.
Higher rates mean reduced purchasing power, but also potentially less competition.
What to do: Get pre-approved to understand your budget. Consider shorter amortizations if rates are high.
While no one can predict rates with certainty, here's the consensus among economists:
Don't try to time the market perfectly. Focus on what makes sense for your financial situation right now, not on trying to predict rate movements. A good mortgage broker can help you model different scenarios.
If you think rates will drop, consider a 1-3 year fixed term instead of 5 years. You'll renew sooner and potentially catch lower rates.
Higher rates mean more of your payment goes to interest. Combat this by:
In higher rate environments, the spread between lenders widens. Shopping around becomes even more valuable.
If you're locked into a high fixed rate and rates drop, some lenders offer "blend-and-extend" to blend your current rate with today's lower rate in exchange for extending your term.
The Bank of Canada announces rate decisions 8 times per year. Mark these dates on your calendar:
Let's discuss how current rate trends affect your specific situation and create a strategy that works for you.
Schedule Your Free ConsultationAbout the Author: Ragini is a FSRA-licensed mortgage broker with Blue Key Mortgage, powered by BRX Mortgage. She helps Ontario homeowners navigate changing mortgage markets and make informed financing decisions.
