Some fixed mortgage rates are up despite hints of Bank of Canada cuts. Why?

Click to play video: 'Bank of Canada holds key rate, signals June cut in the ‘realm of possibilities’'
Bank of Canada holds key rate, signals June cut in the ‘realm of possibilities’
The Bank of Canada held its benchmark interest rate steady on Wednesday amid signs that inflation is easing. Asked about whether an interest rate cut in June was on the table, governor Tiff Macklem said it was “in the realm of possibilities.” – Apr 10, 2024

Market watchers say some Canadian lenders are raising their fixed-mortgage rates on offer despite indications from the Bank of Canada that rate cuts are possible in the months ahead.

Mortgage experts who spoke to Global News say despite the Canadian central bank opening the door on rates coming down by mid-year, stubborn economic data in the United States might play spoiler for prospective homebuyers eyeing the spring market.

The Bank of Canada held its benchmark interest rate steady at 5.0 per cent for the sixth straight decision last Wednesday, amid signs that key inflation indicators were heading in the right direction.

Governor Tiff Macklem told reporters last week that a June interest rate cut is within the “realm of possibilities” — a departure from previous messaging when he said it was “too early” to talk about lowering the policy rate.

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He said the central bank is now looking for evidence that recent easing in inflation will be “sustained.”

Click to play video: 'Bank of Canada holds key interest rate at 5%'
Bank of Canada holds key interest rate at 5%

‘Bumpy road’ for fixed-rate mortgages

The Bank of Canada’s key interest rate informs rates that Canadian lenders post on products including variable mortgages.

Changes in market sentiment about the rate path can also influence rates on offer, as the bond yields that inform fixed rates rise or fall based on traders’ expectations for the policy rate.

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Despite indications that the Bank of Canada’s tightening cycle could be coming to an end, bond yields have been rising over recent weeks.

The five-year Government of Canada bond – the one that informs five-year fixed mortgages – topped 3.8 per cent on Monday morning before settling somewhat. That compares to yields of 3.4 per cent three months ago and 3.6 per cent a month earlier.

That’s pushing some lenders to raise their fixed rates on offer, says Victor Tran, broker with True North Mortgage and the mortgage and real estate expert at

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Fixed-rate insured mortgages are typically being offered around the low-to-mid five per cent range right now, Tran says, depending on the length of the term and whether the mortgage is insured or not.

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A comparison tool shows the lowest available five-year fixed-rate insured mortgage in the market stands at 4.84 per cent as of Monday afternoon. That’s up from rates of 4.79 per cent just a month ago.

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“Fixed rates have had a bumpy road for the past few months now,” Tran says.

U.S. economy affecting Canadian mortgage rates

James Laird, co-founder of, says there’s “upward pressure” on fixed rates right now.

Some lenders have been raising their rates but others are waiting for Statistics Canada to release inflation data for March on Tuesday.

While inflation has been trending lower in Canada over recent months – the annual rate cooled to 2.8 per cent in February from 2.9 per cent the previous month– many economists expect an uptick in gas prices last month will see the overall inflation figures rise in March.

“Those lenders who are holding out may be forced to move this week,” Laird tells Global News.

Last month also saw consumer price index figures in the U.S. run hotter than anticipated for a third consecutive month.

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Click to play video: 'Business News: The Central Bank’s take on inflation and growth'
Business News: The Central Bank’s take on inflation and growth

That, combined with other signs the American economy is holding up well under the weight of higher interest rates, is pushing back market bets for when the U.S. Federal Reserve will start cutting rates south of the border.

While Macklem has made clear that the Bank of Canada is setting monetary policy based on Canadian trends — not its U.S. counterparts’ timelines — there are risks to the central banks’ rate paths diverging.

If the Bank of Canada cuts more quickly and frequently than the U.S. Fed, the rate gap could hurt the Canadian dollar compared to the American greenback.

That could, in turn, drive up the price of imports from the U.S., which risks adding fuel to inflation at a time when Macklem and his cohorts are looking for sustained downward pressure on prices.

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Laird says that if the U.S. economy wasn’t performing so well right now, forecasters could well be pulling forward calls for rate cuts in Canada.

“I actually think that the Bank of Canada might be thinking about cutting sooner if it weren’t for what was happening in the U.S.,” he said.

But Laird also says the confirmation last week that the Bank of Canada is preparing for a possible interest rate cut at its next meeting in June was already “priced in” to the bond market, so it didn’t sway sentiment all that much.

He says bond traders are now looking for hints of what happens after the first interest rate cut – will there be a series of rate reductions, or will the central bank hold again after that point?

Could higher rates stymie the spring market?

Rising fixed mortgage rates among some lenders comes as prospective home buyers and sellers try their hands in the typically busy spring housing market.

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Tran says he doesn’t expect fixed rates in the five-to-six per cent range to put too much of a “damper” on the spring housing market.

After two years of the Bank of Canada’s interest rate hiking cycle, he says sidelined buyers will be tired of putting their lives on hold and might have to pull the trigger on higher rates – if they can afford to.

“Buyers that are ready to buy and need to move on, they’re going to make moves. Some of those not ready to buy will just continue renting and saving until that opportunity comes through,” Tran says.

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Laird says the market is off to a “slower start” this year than last, when the Bank of Canada’s pause in rate hikes drove down bond yields and borrowing costs for home buyers. Higher fixed mortgage rates could hold back the market from taking off, in the same way that last spring’s momentum was cut short when bond yields rose in the fall of 2023, he says.

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“Rates are crucial,” Laird says.

“Right now I think Canadians are expecting rates to drop. That’s driving a lot of the demand. And if that narrative changes, expect a lot of people who are currently in the market to go back to the sidelines like they were in the second half of last year.”

Even with talks of rate cuts in the cards, Laird says that it’s wise not to assume rates will keep dropping from this point. He advises prospective buyers to get a mortgage pre-approval as soon as possible to lock in rates at current levels to insulate themselves from possible future upticks in borrowing costs.

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