The impact on Canadians with a mortgage
The BoC announcement is of interest for those with a mortgage.
The impact on variable-rate mortgages
Variable mortgage rates are most directly impacted by changes to the BoC’s overnight lending rate. This trend-setting rate influences the prime rate used by Canadian lenders to price their variable mortgages, as well as other prime-linked lending products such as loans and HELOCs. These products are based on the prime rate, plus or minus a percentage.
As a result of today’s BoC rate hold, the impact on variable-rate mortgage borrowers will be… nada. Their payments, as well as the portion going toward interest costs, will remain the same. Those who are shopping for a variable mortgage rate will also find little change in the pricing environment, though lenders do sometimes change their spreads to the prime rate, which could make new variable mortgage rate pricing rise or fall slightly.
The impact on fixed-rate mortgages
Fixed mortgage rates aren’t directly impacted by the BoC’s rate moves, but rather by what’s happening in the bond market. So, when bond yields fall, lenders tend to pass on discounts to their fixed-rate pricing, and the opposite when yields rise. And, yields have been on quite the ride in recent weeks.
Five-year Government of Canada bond yields, which largely underpin five-year fixed mortgage rates, plunged to 2.52% on April 4, a low not seen in three years, as the market reacted to Trump’s initial threat to levy a 50% “reciprocal” tariff on a number of nations. At the time, fixed mortgage rates in Canada headed lower.
However, a curious market phenomenon then took place. Despite ongoing calamity in the stock market, bond yields—which investors usually pile into during times of uncertainty—started to rise again. In particular, the U.S. 10-year Treasury yield. It acts as the global benchmark for debt, and is viewed as the most secure investment in the world. Well, it rose by a shocking 40 basis points in the space of a few days. This reflected investors’ flagging confidence in US-backed assets, as fears rose that the current administration neither understands its own tariff plan, or its impact on the market.
This has put upward pressure on Canadian yields, which as of publish time, sit around the upper 2.6% range. While fixed rates are still currently competitive priced (with the lowest five-year mortgages in Canada currently at 3.79%, and 3.74% in Quebec), they could start to creep higher if yields stay elevated.
Check out the rates below to see the current status of mortgage rates in Canada.
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What does this mean for the housing market?
The March national housing numbers are hot off the press, and it’s not a pretty picture. The latest data report from the Canadian Real Estate Association (CREA) shows home sales fell by 4.8% month over month, and plunged 9.3% year over year. As well, the sales-to-new-listings ratio (SNLR) has dropped to 45.1%—a low not seen since 2009. This ratio measures the level of competition in the housing market, and indicates that demand has cooled substantially in comparison to the inventory currently available for sale.
