Mortgage rates in Canada have tumbled to a multi-year low in February — only two months after Canada’s biggest banks began raising rates in response to higher bond yields.
On our rates comparison page, the lowest offered mortgages have moved from 1.90% for a five-year variable closed mortgage, to 1.79% as of Tuesday morning. The last time rates were that low was October 2015.
The move might come as a surprise to many Canadians. At the end of 2016, there was a chorus of voices questioning whether 2017 would see mortgage rates probe new highs — and recommendations for consumers to explore fixed-rate mortgages.
But as you’ll see in the breakdown below, fixed-rate was the wrong way to go — potentially costing you thousands in extra interest fees this year.
On our own website, the best rate you could get in Ontario as of December 2016 was from True North Mortgage — a five-year variable at 1.90%. Back then, the Big Five banks had just announced higher mortgage rates for consumers. TD, for instance, revealed in November that its five-year closed special rate was going up by 0.1 of a percentage point to 2.94%.
There were a few reasons for the rate increases. Bond yields in the United States, which help determine mortgage costs in Canada, were rising following the election of Donald Trump. Back home, the federal government had just announced a slew of new mortgage rules, including a stress test that decreased home buying power for many Canadians.
In the past decade, going with a variable mortgage has been the winning bet. Interest rates have been trending down for much of that time, as the Bank of Canada has kept rates low in response to global economic weakness and more recently, a crash in crude prices that has led to recession in oil-producing provinces.
But the expectation has been that, sooner or later, healthy growth will return and the Bank of Canada (BoC) will have to raise interest rates. There are also concerns that low rates have added to potential housing bubbles in Vancouver and Toronto.
Sigma is offering a five-year variable for 1.79%. Compare that to its fixed rate, which is currently 2.39%. The difference on the average $1 million GTA home is about $6,000 a year
At the moment, it looks like higher interest rates aren't coming anytime soon. BMO Capital Markets said in a report last week that there is now a chance that the Bank of Canada might cut interest rates again this year — which would drive mortgage rates down even further. The BoC’s current benchmark rate sits at 0.50%. Another cut would bring it down to the lowest level since the 2008 financial crisis.
Lenders are certainly taking note of the current environment. In mid-January, Sigma Mortgage stepped into the ring with a new variable rate of 1.83% — a multi-month low for the Canadian mortgage market.
But the rate cut war was just getting started. True North responded a week later with its own five-year rate of 1.80%, bringing rates to the lowest level they’d been since 2015.
And now here we are. Sigma is offering a five-year variable closed mortgage for 1.79%. Compare that to Sigma's five-year fixed rate, which is currently 2.39%. The difference on the average $1 million home in the Greater Toronto Area is about $6,000 a year.
It seems the rate moves once again lend credence to the argument that in the current economy, going variable wins.