Upward pressure on fixed mortgage rates continues into this week. While the Bank of Canada has eight scheduled rate announcements per year (which determines prime rate), fixed and variable rate discounts can change at any time.

When fixed rates change, they can change quickly. Below is an example of recent rates for 5 year fixed insured mortgages by date:

  • September 1st, 2021:  1.59%
  • January 1st, 2022:  2.19%
  • March 16th, 2022:  2.84%

That’s a 79% increase totalling 1.25% over a six month period. 

But why are rates increasing and how much higher will they go?

 

Why Are Rates Increasing?

In mid-2020, fixed mortgage rates plummeted to new historical lows. This was the result of economic conditions created by the pandemic, along with the significant government stimulus that came with it.  

As things start to return to normal, mortgage rates will naturally start to rise.

Fixed mortgage rates are heavily influenced by bond yields, which have been trending upward since September 2021. They started to dip again in November and December, which was largely due to the uncertainty revolving around the Omicron COVID variant.

In early January 2022, the US Fed hinted that they are planning on increasing their key policy rate sooner than expected. The news immediately sent the bond yields soaring.

Since the beginning of the year, bond yields have risen more than 60%, resulting in fixed mortgage rates increasing by more than 0.50%.

 

How Much Higher Will They Go?

Bond yields have now reached their highest level since November 2018.  At that time, 5 year fixed rates ranged from 3.44% to 3.74% through non-bank lenders, or 3.94% to 4.04% through major banks

Does this mean we can expect to see fixed rates increase to this level?

There is still room for lenders to increase their fixed rates further, even if the bond yields level off. Fixed rates will eventually hit 4.00% and even higher, but the bond yields would need to rise quite a bit more before there is enough upward pressure to bring them there. This can be hard to predict however. While fixed mortgage rates are largely determined by bond yields, they are not the sole determining factor. Anything can happen.

When the bond yields were at the same level in November 2018, they were trending downward, yet fixed mortgage rates were moving in the opposite direction. This is extremely rare, but was a prime example that anything can happen.

While there is some room for fixed rates to move higher given the current bond market, if the yields level off then we’ll likely see fixed rates level off with them.

 

Conclusion

Given all the uncertainty around the situation in Ukraine, it’s close to impossible to predict what will happen with fixed rates moving forward. We can only speculate based on what we know today. And what we know today is that there is too much uncertainty to even try to make a prediction. All anyone can do is guess.

Fixed mortgage rates have been rising quicker than originally expected. Chances are that they will be higher at the end of the year then they are now… but like anyone else, all I can do is guess. Time will tell, and anything can happen.