Are we finally near the end of the interest rate hikes?

The Bank of Canada announced its 7th straight rate hike, pushing the key interest rate up half a percentage point from 3.75% to 4.25%, on Wednesday, December 7th, 2022. This is the highest the interest rate has been since 2008. Economists are predicting this will be the last interest rate hike for the Bank of Canada in the near term.

The Bank of Canada’s current interest rate is 4.25%

What does this mean for mortgage rates in Canada?

According to our December Mortgage Rate Outlook, Ali Hussin, Head of Mortgage Advisory at Perch, predicts fixed mortgage rates will continue to drop, with variable mortgage rates expected to increase slightly.

On December 7th, 2022 5-year bond yields dipped below 3%, close to a full percentage point decrease in the past month. This is a signal of declining fixed rates, even in the face of rising variable rates. Psychologically, most borrowers will not choose a variable rate, since the rate is much higher than fixed after today’s Bank of Canada interest rate announcement. To counter this, look towards banks to widen their spreads to encourage borrowers to opt for a variable rate.

The Canadian Real Estate Association (CREA) reported national home sales were up 1.3% on a month-over-month basis in October 2022. Meanwhile, the number of newly listed properties edged up 2.2% month-over-month. Historically, November and December see lower inventory and less motivated buyers as the holiday season rolls in. For home buyers who are actively viewing properties, expect there to be less competition with limited new listings to check out.

What should I do as a homeowner due for a mortgage renewal?

For homeowners who are coming up for a mortgage renewal, continue to monitor our Canada interest rate forecast. Given today’s mortgage market, we recommend renewing into a shorter term, until mortgage rates begin to decrease in the coming year.

What are today’s best mortgage rates?

The best 5-year fixed rate is 4.70%. The best 5-year variable rate is 5.30%. Additional mortgage rates and terms can be found here.

Why has the Bank of Canada increased the interest rate so much in 2022?

With a red hot economy and rapidly rising inflation, increasing the interest rate is one of the main levers the Bank of Canada has to slow consumer spending. As per Tiff Macklem, Governor of the Bank of Canada: “The Bank of Canada’s job is to ensure inflation is low, stable and predictable. […] We are still far from that goal. We view the risks around our forecast for inflation to be reasonably balanced. But with inflation so far above our target, we are particularly concerned about the upside risks.”

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When is the next Bank of Canada rate announcement?

The next Bank of Canada interest rate announcement is Wednesday, January 25th, 2023 at 10:00 AM. After that, the next announcement is set for Wednesday, March 8th, 2023.

What is the Bank of Canada rate announcement schedule for 2023?

The Bank of Canada released its schedule for interest rate announcements in July 2022. The 2023 schedule kicks off in January:

  • Wednesday, January 25, 2023
  • Wednesday, March 8, 2023
  • Wednesday, April 12, 2023
  • Wednesday, June 7, 2023
  • Wednesday, July 12, 2023
  • Wednesday, September 6, 2023
  • Wednesday, October 25, 2023
  • Wednesday, December 6, 2023

What should I consider when choosing a mortgage?

It’s important to remember that the mortgage rate is only one aspect of picking a mortgage. A lot of banks and mortgage brokers will focus on just the lowest rate, however there are other important things to keep in mind, such as:

  • Prepayment flexibility: Some mortgages allow for additional payments, which let you pay off your mortgage faster and reduces the amount of interest you pay. Other mortgages are strict, and don’t allow you to make those extra payments. If having this option is important to you, be sure to ask your mortgage advisor to walk you through any prepayment privileges, including the maximum amount you’re allowed to prepay.
  • Penalty fees: If you’re unsure whether you’ll retain ownership of the property for the entire duration of your mortgage term, or if you think you may need to break your mortgage for any reason (e.g. for a lower mortgage rate or to improve your cashflow), review your mortgage contract or ask your mortgage advisor to clarify how the penalty fees are calculated so you can go in with your eyes open.
  • Term length: While the most popular mortgage term in Canada is 5 years, if you know ahead of time that you’ll need to break your mortgage, you may want to look at a shorter 2 or 3-year term. As well, if mortgage rates are currently high and markets suggest mortgage rates will be decreasing in the near future, you may consider a shorter term to avoid having penalty fees.