Want a fixed-rate loan? Lock in now, mortgage experts say

However, whether the central bank will hold its key rate or not for the rest of the year is uncertain, said Penelope Graham, mortgage expert at Ratehub.ca. 

“It (the bank) really has indicated that they’re walking a tight rope right now,” Graham said, adding there could be rate hikes in the future if inflation rises due to oil price surges, or there could be rate cuts if there’s worse tariff changes under the upcoming renegotiation of the United States-Mexico-Canada Agreement.

“It can be a really confusing message. We’ve seen a lot of volatility and a lot of fluctuation with rates,” she said.

Currently, variable-rate mortgages are the cheapest in Canada with the lowest five-year variable rate sitting at around 3.35 per cent. The lowest five-year fixed rate is around 4.04 per cent. 

“That’s enough of a spread to offer considerable savings,” she said.

The Bank of Canada could hike rates by the end of 2026, which consumers have to factor in if they opt into a variable-rate mortgage.

“You need to be very aware of the risk,” Graham said.

Variable-rate mortgages are tied to key rate changes by the Bank of Canada, meaning variable-rate mortgages move in lock-step with increases or decreases to the central bank’s key rate.

Most fixed-rate mortgages are tied to the five-year bond yield, so when the bond yield goes up so does the interest on fixed-rate mortgages.

The Government of Canada’s five-year bond yield has been elevated since the Middle East conflict broke out in the end of February, which has caused lenders to increase their fixed rates between 25 and 40 basis points.

Once the Iran conflict escalated and oil prices jumped, investors have become nervous that upward pressure could be placed on inflation. Central banks typically hike their key interest rate when inflation increases, so bond yields are rising in anticipation of future key rate hikes.

That’s why experts suggest those seeking fixed-rate mortgages lock into a rate, which is typically 120 days, with a lender to ensure they can keep the best current interest rate while looking for property or when facing a mortgage renewal.

If interest rates drop, it allows the consumer to then opt into the lower rate, while if interest rates rise, consumers can feel comfortable with the interest rate they have, said Victor Tran, Rates.ca mortgage and real estate expert. 

For those hoping to buy in the next few months, locking in is essential, he said. 

“Those who have been looking for a while may be more motivated to purchase now. Mortgage rates have been hovering in the low to mid four-per-cent range for more than a year and there is plenty of inventory to choose from,” he added.

While the Bank of Canada’s rate hold won’t kick-start the market, it might motivate buyers who were pre-approved for a mortgage to try and buy a property before their approval expires and they lose out on a potentially lower interest rate, said Shawn Zigelstein, broker and leader of Team Zold, Royal LePage Signature Realty.

With buyer confidence shaken due to geopolitical turmoil and unpredictable expenses driving up the cost of living, it “pulls people back from being fully confident and ready to get into the housing market,” he said.

“People are taking their time, it’s a mindset shift. Because financially people can get a better deal than three or four years ago, but it’s more about their mindset and where they believe things are going to go.”