In recent months, interest rates on certain fixed mortgages have seen a notable decline, presenting an enticing opportunity for Canadians exploring the upcoming spring housing market or facing the renewal of their existing mortgages.

The insurable five-year fixed-rate mortgages, a popular choice among Canadians, have witnessed a significant drop, falling below five per cent before the close of 2023. This marks the first time it has dipped below this benchmark since the previous spring. As of Thursday, multiple Canadian lenders were offering rates as low as 4.84 per cent for the same product, a decrease of over a percentage point from the highs observed last fall, according to James Laird, co-CEO of Ratehub.ca, as reported by Global News.

The shift in sentiment within the bond market, which influences the rates offered by banks on mortgages and loans, has been a key factor in this development. As the Canadian economy weakened and inflation showed signs of cooling, experts revised their expectations for the Bank of Canada’s policy rate, shifting from a “higher for longer” outlook to considering “rate cuts sooner rather than later,” explains Laird.

This change has led to a decline in yields on products like the government of Canada’s five-year bond, a crucial benchmark for fixed-rate mortgages of the same duration. It’s not just the popular five-year fixed mortgages that are experiencing this downward trend; three-year fixed mortgages are also witnessing a decrease from recent highs, hovering just above the five per cent mark, according to Leah Zlatkin, Mortgage Outlet COO and broker. While the current environment presents an excellent opportunity for individuals to secure lower fixed interest rates, Zlatkin cautions about potential risks that could disrupt this positive trend. Factors such as sustained inflation could deter the central bank from implementing rate cuts, limiting housing market activity by reducing the number of people eligible for affordable rates.

Laird draws parallels to a similar scenario in the previous year when the bond market experienced a similar easing trend, only to face a reversal with back-to-back rate hikes by the Bank of Canada. He emphasizes that unforeseen global events or inflation challenges not factored into the forecasts could impact the timeline for rate cuts.

Despite the potential risks, experts suggest that there’s “never a downside” for Canadians considering a mortgage for the first time or renewing an existing one to secure a rate hold while the market is easing. By consulting with a mortgage professional, individuals can lock in today’s rates for up to 120 days in advance, providing a buffer against potential rate fluctuations. For those with mortgages up for renewal in the first half of 2024, Zlatkin recommends getting documents in order and reaching out to a broker or professional to initiate the renewal process. While existing lenders may offer competitive rates, working with a broker can enhance negotiation possibilities.

Another consideration for mortgage consumers is the option of variable-rate mortgages, which are currently priced higher than most fixed-rate alternatives. However, if forecasts are accurate and the central bank rate is expected to decline, variable rate holders could benefit from a synchronized drop in their rates.

While there are risks associated with variable-rate mortgages, Zlatkin suggests that consumers should factor in the potential for rate cuts, as holders could pay less than those with fixed rates over the same period if the predictions materialize. Laird notes an early interest among buyers, as indicated by Ratehub’s mortgage pricing and leads tools. Coming off a subdued winter season, he predicts a robust start to the year in the housing market, driven by pent-up demand resulting from fewer transactions in the previous year.

 

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