In this article, we will look at mortgage interest rates in Canada, at their highest and at their lowest. Here is everything you need to know.
To understand why Canada’s mortgage market is what it is today, it is important to know the context. Is a mortgage rate of nearly 7% high? Not necessarily—if you look at the history of mortgage rates in Canada.
In this article, we will look at mortgage interest rates in Canada, at their highest and at their lowest. We will also look at what experts are predicting in the near future. Here is everything you need to know about historical mortgage rates in Canada.
The highest mortgage rate ever in Canada was 21.75% for a five-year term, which happened between August and October of 1981, as the average posted rate from most major lenders. The highest variable mortgage rate happened in August 1981, when Canada’s prime rate skyrocketed to a record high of 22.75%.
To put that into context, the best high-ratio, five-year variable mortgage rate in Canada was 5.55% as of May 2023. And the lowest fixed mortgage rate ever in Canada was 1.44% for a five-year term, which happened only recently, between September and October of 2021. The lowest variable mortgage rate happened when Canada’s prime rate fell to a historic low of 2.25%, between April 2009 and May 2010. More recently, the five-year variable mortgage rate has dropped to as low as 0.88% near the end of 2021.
As of June 7, 2023, the Bank of Canada (BoC) announced a rate hike of 25 basis points, which brought the overnight rate to 4.75%. At the same time, the prime rate in Canada was at 6.95%.
Fixed rates have ticked upwards, while variable rates are also projected to rise. Long-term mortgage rates, on the other hand, are expected to trend toward 4%. Throughout 2024, the BoC is expected to cut rates by 2%; over 2025, it is expected to cut rates by another 1%, while adjustable-rate mortgage holders should see lower payments. Economists are also expecting the BoC to announce another rate hike of 0.25% before the end of this year.
Mortgage rates in Canada were 18% in the early 1980s. Near the end of the 1980s and in the early 1990s, mortgate rates decreased to roughly 12%. By the mid 1990s, however, mortgage rates fell to around 4% before increasing gradually by the end of the 1990s by roughly 8%.
By the early 2000s, mortgage rates decreased again to about 5%. Ever since that period, mortgage rates have remained relatively low, hovering around 5% or under in most recent years.
When will mortgage rates drop in 2023?
It is difficult to predict with 100% accuracy when mortgage rates will drop again. The reason is that there are numerous factors that can impact mortgage rates. If, however, you are thinking of purchasing a property in 2023, it would be smart to start looking at the economic factors involved. That way, you can plan your budget more intelligently and be able to make a more informed decision.
As of June 1, 2023, the Bank of Canada was expected to raise its benchmark rate by 25 basis points. The BoC is expected to raise its base rate another one or two times before the year is out. The reason for the BoC rate hikes is that Canada’s inflation is at 4.4%, which is well above the BoC target of 2%.
The BoC estimates that the neutral police rate—i.e., the overnight rate which facilitates economic stability without forcing economic slowdown or an acceleration—to be roughly 2.5%. In the US, the Federal Reserve (which continues the US’s primary policy rate) is believed to continue putting pressure on the BoC’s policy rate. Additionally, the BoC’s quantitative tightening, compared to the growth of Canada’s economy, which is substantial compared to the US Federal Reserve relative to the economy in the US.
What is the forecast for 2024-2025?
Inflation is expected to decrease toward the target rate of between 1% and 3%, the reduction of which is expected to lead to a sizeable decrease in job vacancies. Additionally, the high inflation experienced between 2021 and 2023 may add pressure to household spending, which could then lead to high labour force participation rates.
Once inflation stabilizes, and the job market rebounds, the BoC is expected to lower its policy rate, toward the neutral level. The BoC policy rate is expected to reach 3.75% by the end of next year and 2.75% by the end of 2025.
While it is nearly impossible to predict the future of mortgage rates in Canada, knowing why rates are currently so high can help us make an educated guess. Most experts agree that 2023 will see a slowdown in the Canadian economy, due partly to the BoC’s recent police rate hikes, the high cost of living, and reduced household spending.
Brandon Ogmundson, the chief economist for the British Columbia Real Estate Association (BCREA), suggests in his forecast that five-year fixed rates most likely peaked at 5.5%, their average in December 2022. Ogmundson goes on to say he expects the average to start decreasing to 5% closer to the end of 2023. He also suggests variable rates will increase to 6.35% before dropping at the end of the year, which would be in line with the BoC’s anticipated changes to the policy rate.
“We could see a significant downward trajectory for inflation in 2023, which would provide the Bank with the necessary support to begin lowering its policy rate,” Ogmundson writes.
If you are looking for a mortgage, you will want to read our Special Report on the Best Mortgage Products in Canada.
Have experience with historical mortgage rates in Canada? Let us know in the comment section below about your experience.