Today’s Rate Announcement
Earlier today, the Bank of Canada made their most recent rate announcement. And the news they shared contained some clues as to what might be on the horizon for mortgage interest rates.
The big news wasn’t that the overnight lending rate was not going to be increased (yay for variable rate mortgages) but rather the news that we should be paying attention to is their decisions on monetary policy, specifically with the bond market. In short, we can expect fixed rate mortgages to increase
This is due to the decision to stop quantitative easing (QE for short). Basically, this is an economic strategy where the central bank will buy back government bonds in order to help inflate demand of those bonds. In turn, it creates lower bond yields and keeps fixed rate mortgages lower. But, take quantitative easing away, and we’ll start to see bond yields increase, and along with it fixed rates. In fact, over the past 6 weeks or so fixed rate mortgages have been slowly on the increase and today’s announcement will likely accelerate this upward momentum.
We are also experiencing higher CPI inflation (the consumer price index), which is mainly being driven by the increase in energy costs (have you been to a gas station recently?!), and shipping bottlenecks caused by transportation and supply chain issues. You may have noticed the increase in dry goods and even automobiles. All of these factors lead to a higher rate of inflation, much higher than the governments goal of around 2%. They have stated that they will be keeping their overnight lending rate low well into 2022 which means we can expect variable rate mortgages (which are fixed to prime) to stay relatively lower than their fixed rate counterparts.
So What Does This All Mean?
But, don’t fear because it’s not all doom and gloom. With variable rates set to remain low (as of today, around 1% lower than their fixed rate counterparts) and the gap set to widen it makes even more financial sense to stay variable. Or, if you’re up for renewal in the next 90-120 days to lock into a mortgage that is variable.
