Mortgage Market Shift: Variable Rate Savings Window Closing
Canadian homeowners and prospective buyers may see their opportunity for further variable-rate mortgage savings diminishing rapidly. According to recent market data, the likelihood of additional Bank of Canada rate cuts has decreased significantly, potentially marking the end of a favorable period for variable-rate borrowers.
Rate Changes and Market Indicators
This week witnessed a notable spike in long-term government bond yields, reaching their highest level in over two months. Despite this significant movement in the bond market, mortgage pricing remained relatively stable with only minor adjustments.
The national rate leaderboard saw just two changes: the leading default-insured two-year fixed rate increased by 20 basis points to 3.99 percent, while the default-insured three-year fixed rate decreased slightly by five basis points to 3.84 percent.
Current frontrunners for nationally advertised fixed rates include 3.69 percent for insured five-year terms from Nesto and 3.83 percent for three-year terms from Citadel Mortgages. On the variable side, Ontario residents can access rates as low as 3.39 percent from Ratebuzz.ca, with 3.45 percent available nationwide through Nesto.
What This Means for Homebuyers and Owners
The data from CanDeal DNA forward rates reveals that markets are now pricing in just a one in three chance of another Bank of Canada rate cut next year. This represents a significant shift in expectations that could affect borrowing costs for Canadians.
For those struggling with qualification, the six-month fixed mortgage currently offers the easiest approval path due to the federal mortgage stress test requirements. These short-term rates, ranging from 2.49 to 2.99 percent from lenders like True North Mortgage and Marathon Mortgage, allow borrowers to qualify at 5.25 percent rather than the 5.69 percent required for leading fixed rates.
However, this strategy comes with important considerations. Borrowers must renew with the same lender after six months or face a one percent fee, and assuming rate risk to maximize buying power isn't advisable for most borrowers. These solutions better suit individuals expecting near-term income improvements.
Looking ahead, True North Mortgage is launching a Black Friday special of 3.59 percent for a two-year fixed rate, available for purchases and switches from other lenders, though default insurance is required.
Robert McLister, a mortgage strategist and interest rate analyst, emphasizes that unless lenders enhance their discounts from the prime rate, the era of additional variable savings appears to be concluding.
