June 3, 2024 CMSpeople

Canadian Mortgage Rate Forecast: Remainder of 2024 & 2025

Hope on the Horizon for Homebuyers and Renewers

Canadians looking to buy a home, refinance or renew their mortgages have faced a year of rising interest rates. But with inflation showing signs of cooling, there’s a potential shift on the horizon. Here’s what experts predict for mortgage rates in the remainder of 2024:

The Interest Rate Landscape

The Bank of Canada (BoC) has been raising interest rates to combat inflation. While current rates are higher (around 4.80% for 5-year fixed and 6.04% for 5-year variable), recent data suggests inflation is finally slowing down. This has led many to believe the BoC may be nearing the end of its rate hike (or rate pause) cycle.

Potential Rate Decreases

Many financial institutions and economists predict interest rates could start to decrease in mid-2024, ranging from a 0.25% drop to a total decrease of 1.00% by year-end. The Bank of Canada’s next announcement on June 5th, 2024, could be a turning point. Market expectations lean towards a potential decrease, but the BoC might hold if inflation doesn’t show a sustained decline.

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Fixed vs. Variable Rate Predictions

The predictions for both fixed and variable mortgage rates in the rest of 2024 and 2025 hinge on the Bank of Canada’s (BoC) upcoming decisions:

Fixed Rates:

Generally Expected to Decline: Fixed mortgage rates are influenced by the Canadian bond market, particularly 5-year bond yields. With inflation showing signs of slowing, these yields have dipped, suggesting a potential decrease in fixed rates throughout 2024 and 2025

Timing Uncertain: The exact timing of the decrease is unclear. Some predict a mid-year drop, while others suggest it might be concentrated in the latter half of 2024.

Not a Straight Downward Trend: Don’t expect a rapid and consistent decline. Fixed rates might fluctuate before settling at a lower point compared to current levels (around 4.80% for a 5-year fixed mortgage).

Variable Rates:

More Directly Tied to BoC Decisions: Variable rates are more directly affected by the BoC’s policy rate. If the BoC cuts rates as predicted (by 0.25% to 1.00% by year-end), variable rates would follow suit.

Potential Short-Term Volatility: Even with a decrease, variable rates might experience some short-term volatility as the BoC navigates the economic situation.

Consider Risk Tolerance: Variable rates can be attractive with potential savings, but they also carry the risk of increasing if the BoC raises rates again in the future.

Choosing Between Fixed and Variable:

Risk Tolerance: If you prefer predictability and stability in your monthly payments, a fixed rate might be a better option. If you’re comfortable with potential fluctuations for the chance of lower rates, a variable rate could be suitable.

Financial Goals: Consider your financial goals. If you plan to sell your home in a few years, a variable rate might be a good short-term solution. If you’re planning to stay in your home for the long term, a fixed rate can provide peace of mind.

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What These Predictions Mean for You

These predictions offer hope for more affordable mortgages later in 2024 for homebuyers and those refinancing or renewing existing mortgages. However, some uncertainty remains, and rates could stay elevated in the short term. Here are some tips to navigate this environment:

  • Stay Informed: Keep an eye on economic data and BoC announcements to stay updated on interest rate trends.
  • Mortgage Options: Consider your risk tolerance and financial goals when choosing between fixed and variable rates. Choose comfort over trying to time or beat the market.
  • Shop Around: Compare rates from different lenders to get the best deal. A mortgage broker is most valuable in simplifying this process.
  • Be Patient: Waiting before making any moves could work in your favour. Since we’re heading into a rate decline cycle, rather than entering a rate incline cycle, be patient and assessing the BoC’s moves could be more advantageous (this requires very thoroguh analysis and guidance from a Mortgage Broker)

 

Remember: These are just forecasts, and the actual path of interest rates can be unpredictable in the short-term. Consulting a mortgage professional for personalized advice tailored to your specific situation is crucial.

Disclaimer: This is for informational purposes only and should not be considered financial advice.

 

Whether you’re looking for a new mortgage, or within term of your current mortgage, are you willing to seek value from a free mortgage consultation? Contact us today.

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