No break for borrowers on variable-rate mortgages, but fixed rates have eased

“With GDP and employment growth both showing recent upticks, the Bank of Canada’s decision to hold its key lending rate at 2.25 per cent was essentially a done deal,” said Clay Jarvis, NerdWallet Canada’s mortgage and finance expert.

“A rate hike at this point might squash what little momentum the economy’s enjoying; a rate cut could fuel inflation.” 

Because it’s the sixth consecutive rate hold from the central bank it gives Canadians some certainty, he added.

“Variable interest rates will hover near their current levels until at least September, which means no extra nudge for the housing market for the rest of the summer selling season,” he 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.

Fixed mortgage rates have been trending modestly lower in recent weeks because the five-year bond yield, which lenders use to price most fixed terms, has eased, said Victor Tran, Rates.ca mortgage and real estate expert.

And even though the bond yield rose from about 3.01 per cent at the end of June to roughly 3.16 per cent by mid-July, it’s “still relatively contained, which has helped prevent upward pressure on fixed-rate pricing,” Tran said.

While bond yields take into account oil prices and ongoing geopolitical uncertainty, they also factor in inflation, which has stabilized, allowing market confidence to return. Because of this, bond yields haven’t soared recently. 

It’s also a “very competitive year for the mortgage industry,” Tran said, resulting in lenders keeping fixed-rate offers slightly lower to retain existing clients and “win new business.”

Currently, the lowest available three-year fixed rates for insured mortgages are around 3.99 per cent, while five-year fixed rates are available from around 4.09 per cent to 4.14 per cent, said Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert. 

Five-year variable rates “remain competitive,” Zlatkin added, with insured options available from around 3.55 per cent, and uninsured variable rates starting around 3.85 per cent.

“For homeowners renewing from lower pandemic-era rates, however, those rates can still translate into higher monthly payments, making it important to compare options several months before renewal rather than trying to time the market perfectly,” she said. 

Michelle Campbell, president of Canadian Mortgage Brokers Association (CMBA) Ontario, supports the Bank of Canada holding its key interest rate.

“The housing market wanted this reassurance. People are looking to the Bank of Canada for a signal about whether it is safe to invest, and a rate hold is a green light,” she said.

“This is what was needed given the degree of uncertainty in the global economy. Investors and prospective homeowners are looking for security right now.”

Jarvis added that a rate cut might have threatened Canada’s “shaky housing recovery” by fuelling demand and triggering a price run-up.

“With buyers so price-sensitive, it might be argued that rate holds are actually the best outcome,” he said.