How are bond yields related to fixed mortgage rates?

Banks will originate mortgages and then pool a bunch of them into what is called a mortgage backed security (MBS) to be sold off to investors (someone like a pension fund for example) who collect a yield on the MBS. The pension fund could invest in other fixed income investments, so mortgage rates rise as a result to entice investors to keep buying the MBS. lBond yields and mortgage rates move in the same direction.

How does the overnight rate affect the prime rate?

When the Bank of Canada raises the overnight rate, it becomes more expensive for banks to borrow money. This will result in banks raising their prime rates to cover the added costs. If the Bank of Canada lowers the overnight rate, banks usually will lower their prime rates.

2024 Key Takeaways (updated October 2024)

The prime rate in Canada as of OCtober 23, 2024 is 6.45%. (last change: -0.50% on October 23, 2024) On Wednesday, October 23, 2024, The Bank of Canada announced that it will be cutting its rate, bringing the policy rate to 3.75%. Recent data indicates inflation is decelerating toward the Bank of Canada’s target, coupled with slow economic growth.

2024 Predictions (updated October 2024)

The Canadian economy continues to show signs of weakness and recent inflation figures dipped to 1.6% last month, below the 2% target. This has prompted the Bank of Canada to cut rates further to avoid inflation further decelerating and potentially risking deflation.

Canada Interest Rate Forecast 2024-2028

Q: What is the mortgage interest rate forecast for 2024 in Canada?

The prime rate in Canada as of October 23, 2024 is 6.45%. (last change: -0.50% on October 23, 2024) On Wednesday, October 23, 2024, The Bank of Canada announced that it will be cutting its rate, bringing the policy rate to 3.75%. Recent data indicates inflation is decelerating toward the Bank of Canada’s target, coupled with slow economic growth. The Canadian economy continues to show signs of weakness and recent inflation figures dipped to 1.6% last month, below the 2% target. This has prompted the Bank of Canada to cut rates further to avoid inflation further decelerating and potentially risking deflation.

Q: How will the latest Bank of Canada interest rate announcement impact your monthly mortgage payments?

For variable rate mortgages (meaning your payments don’t fluctuate as prime rates change): The September 4th decrease means that less of your existing mortgage payments go towards the interest portion of your mortgage as your amortization decreases, but your payments will stay the same. Use our Mortgage Renewal Calculator to get an estimation of what your expected rate and payment will be at your maturity date. If the payment isn’t manageable, connect with your advisor well in advance to look at all options. For adjustable rate mortgages (meaning your payments fluctuate as prime rates change): The latest cut will further decrease your mortgage payments and the outlook shows that further cuts from the Bank of Canada are expected throughout 2024 and into 2025 to further reduce your mortgage payments.`

Q: Will Interest Rates in Canada Go Down in 2024?

On October 23rd, the Bank of Canada cut its interest rate to 3.75%. The next Bank of Canada announcement is scheduled for December 11, 2024. Commentary from Perch’s CEO and Principal Mortgage Broker, Alex Leduc: The Canadian economy continues to show signs of weakness and recent inflation figures dipped to 1.6% last month, below the 2% target. This has prompted the Bank of Canada to cut rates further to avoid inflation further decelerating and potentially risking deflation.

Last Updated: December 11, 2024

CURRENT INTEREST RATE FORECAST FOR 2024: 3.25% (last updated December 11, 2024)

Current Forecasts:

December 2024 Canada Mortgage Rate Forecast 📊

For more information about the 2024 Bank of Canada rate announcement schedule, read more here 👈

When will interest rates in Canada go down in 2024?
When is the next Bank of Canada rate increase and what can I expect?
What is the interest rate forecast for 2024 in Canada?
What is CPI and how does it affect the Canada interest rate forecast?
What affects the Bank of Canada’s interest rate forecast?
What is the mortgage interest rate forecast for 2024 in Canada?
What are the interest rate predictions from the banks?

Key Takeaways (updated December 2024)

The prime rate in Canada as of December 11, 2024 is 5.95%. (last change: -0.50% on December 11, 2024)
On Wednesday, December 11, 2024, The Bank of Canada announced that it will be cutting its rate, bringing the policy rate to 3.25%.
Recent data indicates inflation is decelerating toward the Bank of Canada’s target, coupled with slow economic growth.

2024 Predictions (updated December 2024)

The Canadian economy continues to show signs of weakness and recent inflation figures hovered at 1.7% last month, below the 2% target. Furthermore, unemployment reached a 3-year record high of 6.8%. This has prompted the Bank of Canada to cut rates further to avoid dragging the Canadian economy down further

Will Interest Rates in Canada Go Down in 2024?

On December 11th, the Bank of Canada cut its interest rate to 3.25%. The next Bank of Canada announcement is scheduled for January 29, 2025.

Commentary from Perch’s CEO and Principal Mortgage Broker, Alex Leduc:

The Canadian economy continues to show signs of weakness and recent inflation figures hovered at 1.7% last month, below the 2% target. Furthermore, unemployment reached a 3-year record high of 6.8%. This has prompted the Bank of Canada to cut rates further to avoid dragging the Canadian economy down further.

Commentary from Perch's CEO and Principal Mortgage Broker, Alex Leduc:

Forecasts are largely unchanged from the prior month, with a Trump victory expected to keep inflation higher for Canada and rate cut expectations have been tempered accordingly. We are now expecting only 0.75% in cumulative cuts over the next few years. It's worth noting that lenders have cut back the prime spread on their variable rates from 1.10% to 0.95%. This further reduces the net benefit to variable rate holders renewing since it takes away from the rate cuts.

When is the next Bank of Canada rate increase and what can I expect?

The current market overnight interest rate forecast for the remainder of 2024 is:

Variable Rate Interest Forecast 2024 to 2028 (as of December 2024)
Date	5-year variable rates
11/30/24	5.00%
12/31/24	4.82%
6/30/25	4.48%
12/31/25	4.24%
6/30/26	4.00%
12/31/26	4.26%
6/30/27	4.25%
12/31/27	4.17%
6/30/28	4.25%
12/31/28	4.25%
6/30/29	4.25%
12/31/29	4.25%

Commentary from Perch’s CEO and Principal Mortgage Broker, Alex Leduc:

Forecasts are largely unchanged from the prior month, with a Trump victory expected to keep inflation higher for Canada and rate cut expectations have been tempered accordingly. We are now expecting only 0.75% in cumulative cuts over the next few years. It’s worth noting that lenders have cut back the prime spread on their variable rates from 1.10% to 0.95%. This further reduces the net benefit to variable rate holders renewing since it takes away from the rate cuts.

How will the latest Bank of Canada interest rate announcement impact your monthly mortgage payments?

For variable rate mortgages (meaning your payments don’t fluctuate as prime rates change): The October 23rd decrease means that less of your existing mortgage payments go towards the interest portion of your mortgage as your amortization decreases, but your payments will stay the same. Use our Mortgage Renewal Calculator to get an estimation of what your expected rate and payment will be at your maturity date. If the payment isn’t manageable, connect with your advisor well in advance to look at all options.

For adjustable rate mortgages (meaning your payments fluctuate as prime rates change): The latest cut will further decrease your mortgage payments and the outlook shows that further cuts from the Bank of Canada are expected throughout 2024 and into 2025 to further reduce your mortgage payments.

What is the interest rate forecast for 2024 in Canada? (updated December 2024)

Commentary from Alex Leduc, Principal Mortgage Broker and CEO of Perch:

The Canadian economy continues to show signs of weakness and recent inflation figures hovered at 1.7% last month, below the 2% target. Furthermore, unemployment reached a 3-year record high of 6.8%. This has prompted the Bank of Canada to cut rates further to avoid dragging the Canadian economy down further.

What is CPI and how does it affect the Canada interest rate forecast?

CPI stands for consumer price index and it is the measure of average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is mainly used to measure inflation. A rising Consumer Price Index (CPI) would prompt the central bank to raise interest rates. The CPI basket includes 8 main categories of goods and services: Food, Shelter, Household operations, Clothing, Transportation, Health, Recreation, and Alcoholic beverages. CPI data is reported for various geographic areas, including Canada, provinces, and select cities, such as Whitehorse, Yellowknife, and Iqaluit.

What affects the Bank of Canada’s interest rate forecast?

We look at some of the core factors that the Bank is monitoring to gauge which direction they are likely to go. In this case, all indicators justify a cut, which makes it very likely.

GDP Growth: The Bank of Canada is expecting GDP growth of 1.20% for 2024. Q1, Q2 and Q3 2024 came in at 1.8%, 2.1% and 1% respectively, implying a slow Q4 is also expected. (Source: Trading Economics)
Inflation: Core inflation (year over year) in August ticked up slightly to 1.7% (vs 1.6% in July), now below the Bank’s 2% inflation target. However, with a Trump presidency the risk of higher inflation is now acute. (Source: Trading Economics)
Unemployment: Holding steady at 6.5% in October (0.8% higher than 1 year ago), the Bank of Canada has signalled they think this is a good level as it indicates slack in the labour market and wage growth is not unreasonably high. (Source: Trading Economics)

What is the Canadian prime rate?

The prime rate is what major banks and financial institutions in Canada use to set interest rates for loans and lines of credit which also include variable rate mortgages.

Is prime rate the same as mortgage rate?

The prime rate is not the same as your mortgage rate. A prime rate is the base cost of borrowing from which lenders start to determine interest rates on mortgages, personal loans, credit loans or other financial products. In general, the prime rate mostly affects variable rate mortgages. Your mortgage rate is the interest rate you are expected to pay on any borrowed money.

What is the mortgage interest rate forecast for 2024 in Canada?

On December 11, the Bank of Canada announced a rate cut, bringing the interest rate to 3.75%.

Our current best 5-year fixed rate is 4.15% and 5-year variable rate is 4.96%.

What are the interest rate predictions from the banks?

CIBC

CIBC ‘s economist Avery Shenfeld stated “a 50 basis point rate cut from the Bank of Canada is a reasonable bet, and rightly so in the face of softer inflation and sluggish Q3 growth. The Bank will downgrade its call for that quarter, but don’t expect it to get too pessimistic about growth next year, since it should view the inflation trend as giving it carte blanche to do what it takes to get the economy moving at a faster clip. As for the rate outlook ahead, those used to Fed dot plots, or musings from the Fed chair, need to remember that Canada’s central bankers aren’t fans of explicit forward guidance. So we wouldn’t expect anything more than a reiteration of the statement that further reductions in interest rates would be a likely outcome if economic developments unfold as they expect. On the data front, a healthy ex-autos retail sales report won’t do much to alter the medium trend of lacklustre per capita consumption growth”.

RBC

RBC economists predicted on October 11th that “Details from the third quarter Bank of Canada Business Outlook Survey are suggesting that demand is still weak and businesses continue to expect inflation pressures will further unwind. That combination should be enough of a catalyst for a larger 50 bps rate cut from the next BoC meeting in two weeks”.

Scotiabank

Scotiabank economist, Derek Holt said “Scotia expects a 50bps cut that is priced and widely expected among domestic shops, plus no change in balance sheet policies. I see the case for cutting 50bps judged through the lens of how the BoC is probably going to look at conditions, but would personally prefer that they cut by 25bps in a more careful manner”.

TD Canada

TD Economist James Orlando says “Now that headline CPI inflation has dropped below the 2% target, the BoC has gained confidence that it can cut rates at a quicker pace. While there isn’t much in the way of a changing economic narrative – slow GDP growth and core inflation above 2% remain – the central bank is set on doing what it can to boost economic growth. Will a 50 bp move achieve this? Probably not, but the central bank felt it should do something with economic data continuing to show that the country is stuck in a rut. Hopefully we get a bit more clarity on this in the press conference. This won’t be the end of rate cuts. Even with the succession of policy cuts since June, rates are still way too high given the state of the economy. To bring rates into better balance, we have another 150 bps in cuts penciled in through 2025. So while the pace of cuts going forward is now highly uncertain, the direction for rates is firmly downwards”.

BMO

BMO economist, Douglas Porter, predicted on October 15th “We suspect that the big improvement in inflation, the still-high unemployment rate, and the still-sour consumer and business sentiment will be enough to prompt the Bank of Canada to opt for a 50 bp rate cut later this month. After all, the BoC has dovishly signalled that they are now more concerned about downside risks to the economy and the possibility that inflation may drop too low”.

Alex Leduc

Alex Leduc is Founder and CEO at Perch. Prior to starting Perch, he worked in the real estate sector for 8 years in corporate finance, strategy and analytics roles. He is currently a Technical Advisory Committee Member of the Financial Services Regulatory Authority of Ontario (FSRA) and Co-Chair of the Canadian Lenders Association Mortgage Roundtable. Alex is a graduate of Ivey Business School from Western University and a CFA Charterholder. LinkedIn

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