Table of Contents
- Introduction: Canadian Mortgage Rate Trends Overview
- Mortgage Rate Forecast for 2024
- Economists’ Predictions for Mortgage Rates in 2024
- Short-Term Mortgage Rate Predictions
- Long-Term Mortgage Rate Outlook for 2025–2028
- Key Factors Influencing Future Mortgage Rates
- Impact of Mortgage Rate Trends on Canadian Homeowners and Buyers
- Conclusion: Key Takeaways for Homeowners and Buyers
1. Introduction: Canadian Mortgage Rate Trends Overview
Canada’s mortgage rate environment has experienced substantial changes in recent years. After a period of historically low rates during the pandemic, high inflation pushed the Bank of Canada (BoC) to enact rapid interest rate hikes in 2022–2023, which elevated mortgage rates and monthly payments. Now, as inflation shows signs of moderation, the BoC has taken initial steps toward reducing its policy rate, offering hope for relief in the housing market.
This report outlines mortgage rate projections for the next 3–5 years, examining economic indicators, the impact on Canadian homeowners, and what prospective homebuyers can expect.
2. Mortgage Rate Forecast for 2024
As of late 2024, the Bank of Canada’s recent 50 basis point policy rate cut to 3.75% signals the start of a possible easing cycle. Major banks in Canada anticipate additional rate cuts throughout 2024, with estimates of a cumulative reduction of 75 to 100 basis points by year’s end, contingent on stable inflation and economic growth.
Current Snapshot:
- BoC Policy Rate: 3.75%
- Prime Rate: 5.95%
- Inflation: 1.6%, trending downward
While these figures indicate potential economic improvement, unexpected global or economic shifts could influence the BoC’s direction.
3. Economists’ Predictions for Mortgage Rates in 2024
Top Canadian economists expect the BoC to continue with gradual rate cuts in 2024 to help stabilize the economy and manage inflation. According to the Bank’s Market Participant Survey, experts project the policy rate could settle around 3.25% by the end of 2024. Variable-rate mortgages are likely to become more appealing, but fixed-rate reductions may lag as they are more closely tied to bond yields.
All major Canadian banks—BMO, CIBC, RBC, Scotiabank, TD, and National Bank—predict modest rate declines through 2024, provided inflation remains under control and economic conditions stay stable.
4. Short-Term Mortgage Rate Predictions
December 2024 Rate Decision
The BoC’s next major rate announcement is scheduled for December 2024. Analysts anticipate an additional 25 to 50 basis point cut, which could further reduce mortgage costs into 2025, particularly for homeowners with variable-rate mortgages.
Early 2025 Outlook
With inflation expected to continue moderating, Canadian homeowners with mortgages up for renewal in early 2025 could see more favorable terms than in recent years, offering potential cost relief for those with variable or adjustable-rate mortgages.
5. Long-Term Mortgage Rate Outlook for 2025–2028
From 2025 to 2028, Canada’s mortgage rate outlook will largely depend on inflation trends, economic growth, and global market conditions. Should inflation stay near the BoC’s 2% target, rates could see a gradual decline, though they may not return to the ultra-low levels observed in 2020.
By 2028, economists project variable rates stabilizing around 2–3%, with fixed rates possibly ranging from 3.5–4.5%, based on bond performance. However, any significant economic disruptions could quickly alter these projections, leading to rapid changes in either direction.
6. Key Factors Influencing Future Mortgage Rates
Bank of Canada’s Monetary Policy
The BoC’s interest rate policy remains the most significant determinant of mortgage rates in Canada. By adjusting its policy rate, the Bank can directly influence the prime rate, which affects both variable and fixed mortgage rates. Given that approximately half of all Canadian mortgages are up for renewal in the next two years, the BoC’s decisions will critically impact mortgage affordability.
Inflation Trends
Inflation is a primary driver of BoC rate decisions. As of late 2024, inflation is trending downward, reaching 1.6%, which is close to the Bank’s 2% target. If inflation remains stable or declines further, the BoC is likely to continue cutting rates, easing the financial burden on mortgage holders.
Employment and Economic Growth
Employment and overall economic growth also influence the Bank’s policy. High employment levels and steady wage growth can increase borrowing demand and spending, driving inflation. Conversely, slower economic growth and rising unemployment could prompt the BoC to lower rates to stimulate the economy. As of late 2024, Canada’s job market is stable, with moderate wage increases, which could support rate stability or gradual cuts.
Global Economic Influences
Canada’s economy is closely linked to the global market, particularly the U.S. economy. U.S. Federal Reserve interest rate decisions often influence the BoC’s actions, as the BoC aims to maintain a competitive exchange rate. Should the Fed reduce rates due to slowing growth, the BoC may follow suit to prevent an appreciation of the Canadian dollar, which could negatively impact exports.
7. Impact of Mortgage Rate Trends on Canadian Homeowners and Buyers
First-Time Homebuyers
Lower mortgage rates typically improve affordability for first-time homebuyers, making entry into the housing market more accessible. However, high home prices in many Canadian cities remain a barrier. As rates stabilize or decrease, demand for homes may increase, potentially driving up prices in popular areas such as Toronto, Vancouver, and Montreal.
Existing Homeowners
For current homeowners, especially those with variable-rate mortgages, rate cuts would reduce monthly payments, easing cash flow. Fixed-rate mortgage holders with renewals approaching in 2024–2025 could benefit from lower rates than in previous years, though they may still be above pandemic-era lows.
The Broader Canadian Housing Market
If mortgage rates decline, demand for homes may increase, potentially stabilizing or raising prices in high-demand regions. This effect could mitigate the cooling impact of recent rate hikes on housing prices and may help rejuvenate the real estate market by mid-2024.
8. Conclusion: Key Takeaways for Homeowners and Buyers
In summary, Canada’s mortgage rate forecast for the next 3–5 years suggests gradual easing, although the pace and extent will depend on inflation, economic conditions, and global events. Homeowners, buyers, and real estate investors should monitor the BoC’s upcoming announcements to stay informed about potential opportunities and challenges in the mortgage market.
Key Takeaways:
- Rate Cuts Likely in 2024: The BoC is expected to continue cutting rates into 2024, potentially totaling 75–100 basis points by year-end if inflation remains under control.
- Short-Term Relief for Variable Rates: Homeowners with variable-rate mortgages could see immediate cost savings with each rate cut, while fixed-rate mortgages may decline more slowly.
- Long-Term Stability Possible: Assuming stable economic conditions, mortgage rates may stabilize at moderate levels by 2028, offering greater predictability for long-term financial planning.
- Affordability Still a Challenge: Lower rates may improve housing affordability, but high property values in major cities will remain a barrier for many Canadians.
In an evolving economic landscape, Canadian homeowners, potential buyers, and real estate professionals should remain adaptable and well-informed to make the most of upcoming mortgage trends. Whether you’re planning a home purchase, refinancing, or simply managing existing mortgage payments, staying ahead of rate forecasts can help you make informed financial decisions in a dynamic market.