Mortgage Term:
Fixed
Variable
This Page's Content Was Last Updated:
November 3, 2023
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What You Should Know
- We anticipate mortgage interest rates to decline moderately over the next three years. This is because current interest rates are higher than neutral interest rates.
- The long-term trend of declining yields has ended and we are unlikely ever to see low rates like those of 2020-2021 or the 2009-2010 again.
Forecast of Lowest Mortgage Interest Rates as of December 16, 2023
| Date | BoC Rate | Prime Rate | 5-Year Variable | 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 5-Year Fixed |
|---|---|---|---|---|---|---|---|
| 2023-11-10 | 5% | 7.2% | 5.83% | 6.59% | 6.39% | 5.74% | 5.34% |
| 2023-12-31 | 5% | 7.2% | 5.85% | 6.23% | 5.9% | 5.12% | 4.85% |
| 2024-06-30 | 4.25% | 6.45% | 5.1% | 5.72% | 5.52% | 4.83% | 4.69% |
| 2024-12-31 | 3.75% | 5.95% | 4.6% | 5.26% | 5.19% | 4.57% | 4.56% |
| 2025-06-30 | 3.25% | 5.45% | 4.1% | 4.94% | 4.96% | 4.41% | 4.5% |
| 2025-12-31 | 3% | 5.2% | 3.85% | 4.73% | 4.8% | 4.32% | 4.49% |
| 2026-06-30 | 2.75% | 4.95% | 3.6% | 4.57% | 4.7% | 4.29% | 4.5% |
| 2026-12-31 | 2.5% | 4.7% | 3.35% | 4.49% | 4.68% | 4.31% | 4.53% |
| 2027-06-30 | 2.5% | 4.7% | 3.35% | 4.45% | 4.71% | 4.36% | 4.59% |
| 2027-12-30 | 2.5% | 4.7% | 3.35% | 4.49% | 4.79% | 4.44% | 4.65% |
| 2028-06-30 | 2.5% | 4.7% | 3.35% | 4.59% | 4.89% | 4.52% | 4.72% |
| 2028-12-30 | 2.75% | 4.95% | 3.6% | 4.7% | 4.98% | 4.6% | 4.72% |
| This table is populated based on the information available on December 16, 2023. Use the most updated data to form your judgment for your financial decisions. In making these forecasts we have assumed the risk premium, and the term premium to stay constant and market expectation of the risk free rate to be correct. | |||||||
Lock these mortgage rates until
April 28, 2024
(130 days - Longest lock period among Big 5 Banks)
| 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 4-Year Fixed | 5-Year Fixed | 5-Year Variable | |
|---|---|---|---|---|---|---|
 | 7.06% | 6.39% | 6.01% | 5.91% | 5.59% | 6.72% |
| Term | Rate |
|---|---|
1 -Year Fixed | 7.06% |
2 -Year Fixed | 6.39% |
3 -Year Fixed | 6.01% |
4 -Year Fixed | 5.91% |
5 -Year Fixed | 5.59% |
5-Year Variable | 6.72% |
Lock these mortgage rates until
April 28, 2024
(130 days)
| 5-Year Fixed | 5-Year Variable | |
|---|---|---|
| 5.59% | 6.72% |
| 5-Year Fixed | 5-Year Variable |
|---|---|
5.59 % |
6.72 % |
Lock these mortgage rates until April 18, 2024 (120 days)
| 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 4-Year Fixed | 5-Year Fixed | 5-Year Variable |
|---|---|---|---|---|---|
| 6.19% | 5.94% | 5.19% | 5.04% | 4.89% | 5.85% |
| Term | Rate |
|---|---|
1 -Year Fixed | 6.19% |
2 -Year Fixed | 5.94% |
3 -Year Fixed | 5.19% |
4 -Year Fixed | 5.04% |
5 -Year Fixed | 4.89% |
5-Year Variable | 5.85% |
How Does the Market Think About Future Rates?
Changes in the Bank of Canada (BoC) policy rate and Canada’s prime rate as implied by the forward contracts on a one-month Canadian dollar offered rate as of December 16, 2023.
| Fixed Announcement Date | Fixed Announce-ment Date | Likelihood of BoC policy rate at | is | Likelihood of BoC policy rate at | is |
|---|---|---|---|---|---|
| 2024-01-24 | 5% | 52% | 4.75% | 48% | |
| 2024-03-06 | 4.5% | 10% | 4.75% | 90% | |
| 2024-04-10 | 4.5% | 63% | 4.75% | 37% | |
| 2024-06-05 | 4.5% | 46% | 4.25% | 54% | |
| 2024-07-24 | 4% | 31% | 4.25% | 69% | |
| 2024-09-04 | 4% | 94% | 4.25% | 6% | |
| 2024-10-23 | 4% | 38% | 3.75% | 62% | |
| 2024-12-11 | 3.5% | 19% | 3.75% | 81% | |
| This table is populated based on the information available on December 16, 2023. Use the most updated information to form your judgment for your financial decisions. | |||||
Today’s Mortgage Rates
| 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 4-Year Fixed | 5-Year Fixed | 5-Year Variable | |
|---|---|---|---|---|---|---|
| Lowest Rates | 6.19% | 5.94% | 5.19% | 5.04% | 4.89% | 5.85% |
| Average Rates (11 Lenders) | ||||||
| 30-Days Change of Average Rates |
| Term | Lowest Rates | Average Rates (11 Lenders) | 30-Days Change of Average Rates |
|---|---|---|---|
| 1-Year Fixed | 6.19% | % | NaN bps lower |
| 2-Year Fixed | 5.94% | % | NaN bps lower |
| 3-Year Fixed | 5.19% | % | NaN bps lower |
| 4-Year Fixed | 5.04% | % | NaN bps lower |
| 5-Year Fixed | 4.89% | % | NaN bps lower |
| 5-Year Variable | 5.85% | % | NaN bps lower |
The basket of 11 lenders includes: CIBC, BMO, TD, Scotiabank, RBC, National Bank, HSBC, Desjardins, nesto, Tangerine, First National
Bank of Canada Rate Forecast for 2023: Remaining at 5%
UPDATED November 1, 2023
Canada’s annual inflation has fluctuated between 2.8% and 4% over the past four months. The downward trend, which brought the inflation down from 8.1% in June 2022, is stalled. Yet the Bank of Canada (BoC) thinks past rises in the target overnight rate, quantitative tightening, the rise in bond yields and untangling supply chains are affecting the balance of supply and demand. Without any unforeseen development, the BoC will likely keep its policy rate at the current restrictive level of 5% and wait for inflation to come down toward the 2% target.
The BoC continues to consider the neutral policy rate (the overnight rate that facilitates stable economic activity without causing either an economic slowdown or acceleration) to be approximately 2.5%. This estimation consists of 2% inflation and 0.5% of real interest rate. There are good reasons to believe that the neutral rate is slowly increasing.
Currently, we have an overnight rate of 5% and an inflation rate of 3.8%. So, the real overnight rate is 1.2%, which is likely restrictive. However, different levels of government have increased debt by $45 billion over the past year (of available data). The government’s deficit spending has a stimulatory effect on the economy and slows the impact of interest rates on the rise of CPI.
Since March 2021, Canada’s inflation has been well above the BoC's target of 2%. Given that inflation has been over target for 2.5 years, there is a danger that inflationary expectations might become unanchored. This lengthy period of above-target inflation suggests that the Bank of Canada likely needs to raise its policy rate again in 2023.
Yet the effect of higher interest rates is working its way through the economy as people continue to renew their mortgages. So, raising rates further might unnecessarily deepen a recession, which is likely coming our way. BoC is trying to balance the risks of over-tightening vs. the risk of under-tightening by keeping the rates steady while continuing with quantitative tightening and threatening further rises of the overnight rate (if necessary).
Best 5-Year Fixed Mortgage Rates in Canada 
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Bank of Canada Rate Forecast for 2024: 0.5% Decrease in the Overnight Rate
UPDATED November 1, 2023
The full impact of the current restrictive policy rates will continue to percolate throughout the Canadian economy in 2024, which reduces demand for both goods and services. As a result, inflation should decrease toward the target range of 1%-3%.
This reduction in aggregate demand decreases the number of job vacancies further. Furthermore, the high inflation experienced from 2021 to 2023 could strain household finances, potentially leading to higher labour force participation rates as families need to supplement their income. Higher participation rates, lower job vacancies and continued immigration would increase unemployment.
With inflation heading towards the target and a weaker job market, the Bank of Canada will gradually lower its policy rate toward the neutral level. We expect the policy rate to reach 4.5% by the end of 2024.
Bank of Canada Rate Forecast for 2025: the Overnight Rate Declining to 3.50%
UPDATED November 1, 2023
By 2025, the percolation of the effect of higher interest rates in the economy should be complete, and inflation will return to the target of 2%. This would allow the Bank of Canada to bring its policy rate to neutral to support the job market.
However, we anticipate that reverse globalization caused by tensions between Western countries on the one side and China, Russia, and some smaller states will be an inflationary force. Additionally, transitioning to more sustainable energy sources will require significant investments in energy infrastructure. A high level of investment would increase demand for capital, which might increase the real interest rate. Due to the aforementioned factors and demographic changes, we expect the real neutral rate to be greater than the BoC’s estimation of 0%-1%. Thus, the BoC rate will settle significantly above its pre-pandemic levels.
Changes in the overnight rate (Bank of Canada (BoC) policy rate) as implied by the BAX futures contract traded on the Montreal Exchange. The underlying asset is the three-month Canadian dollar offered rate (CDOR) as of December 15, 2023. Canada’s prime rate can be calculated by adding 2.2% to the overnight rate.
| As of | Fixed Announce-ment Date | Likelihood of BoC policy rate at | is | Likelihood of BoC policy rate at | is |
|---|---|---|---|---|---|
| 2024-03-18 | 4.75% | 47% | 4.5% | 53% | |
| 2024-06-17 | 4% | 13% | 4.25% | 87% | |
| 2024-09-18 | 4% | 33% | 3.75% | 67% | |
| 2024-12-18 | 3.75% | 23% | 3.5% | 77% | |
| 2025-03-19 | 3.5% | 31% | 3.25% | 69% | |
| 2025-06-18 | 3.25% | 63% | 3% | 37% | |
| This table is populated based on the information available on December 15, 2023. Use the most updated information to form your judgment for your financial decisions. | |||||
To see how the market thinks about the evolution of interest rates, we consider that depositing money with the BoC and buying treasuries are both riskless for a financial institution. So to maintain their liquidity, Canadian financial institutions would park their cash in either one, which offers a higher yield. As a result, the yield on a Canadian T bill should equal average of the expected BoC rate until T bill's maturity. This is called the expectation hypothesis.
The expectation hypothesis allows us to use yields on the money market instruments to derive market expectations for the BoC target policy rate. There are also many other interest rates in the market. Some of these rates allow us to infer the market's expectation of future interest rates more conveniently.
BAX contract prices are one of the rates which can conveniently suggest expectations for future changes to interest rates. BAX is a futures contract with the three-month reference Canadian Bankers Acceptance rate as the underlying price. The Investment Industry Regulatory Organisation of Canada (IIROC) publishes the reference for 1-month and 3-month Canadian Bankers’ Acceptance (BA) Rates based on actual transactions in the market. Prominent market participants (financial institutions) must report their trades to IIROC.
A BA is a loan made to a corporation but repaid by a commercial bank (from that corporation's line of credit with the bank). Because BAs are short-term and a commercial bank guarantees repayment, BA is a low-risk money market instrument.
BAX price implies the expectation of the market for the BA interest rate on the maturity date of the BAX contract. The difference between this rate and today’s BA rate implies the expected movement in the short-term interest rates on Canadian dollar debt.
Another way to conveniently calculate the market expectation of the likely changes in the BoC benchmark rate is using 1-month Canadian dollar offered rate (CDOR) forward contract rates as reported by Chatham Financial.
Predicting interest rates with certainty in Canada or any other economy is impossible. Yet we know the factors that affect interest rates, and by considering those factors, we can distinguish between more likely and less likely interest rate paths.
Between 1968 and 2001, interest rates were frequently greater than their current levels, but the Western economies, in general, and the Canadian economy, in particular, have changed considerably. Debt levels are much higher than during the 20th century, and tolerating high-interest rates is quite difficult in the 2020s.
General Government Gross Debt
General Government debt has multiplied by five since 1990, while increasing household debt levels can be deduced from rising income levels in combination with falling interest rates and largely stable debt service ratios.
Canadian Household Income
Canadian Household income is growing much faster than the population. Since 1990, the population has grown by around 44% while household income has increased by 265%. Inflation over this period has been 93%. So household income has increased by 32% if we adjust for both inflation and population growth.
Debt Service Ratio for Canadian Households
Debt Service Ratio
Mortgage Debt Service Ratio
Non Mortgage Debt Service Ratio
The total debt service ratio has increased from about 12% in the 1990s to approximately 14% in recent years. Note that interest rates for non-mortgage debt are often much higher than a mortgage. As a result, mortgage and non-mortgage debt service ratios are comparable, while mortgage debts are much larger than non-mortgage debts (about three-quarters of Canadian household debt is mortgage debt).
Canadian T-Bill Yields
1 Month
3 Month
6 Month
1 Year
Nature of Interest Rates
We can think of interest as a price for using money, yet interest differs from rent because money differs from real property. The intersection of the supply and demand curves for rental properties determines rents. Money is different from rental properties because the supply of money is unlimited.
Bank of Canada, Federal Reserve or any other central bank can buy an asset or make a loan by crediting the seller's or borrower's account. In this purchase or loan process, new money is created. More interestingly, when a commercial bank uses depositors’ money to make loans, it creates money. Because the depositors still have their money, while those who have received the loans also have the money and can spend it.
On the other hand, when a central bank sells an asset or receives a loan payment, money is destroyed. Similarly, when a commercial bank receives loan principal payments, money is destroyed (annihilated). This temporary nature of money allows policymakers to set its rent. In most countries, central banks are responsible for setting monetary policy.
In Canada, the Bank of Canada (BoC) has several responsibilities. The most important mandate of the Bank of Canada is achieving price stability. BoC has agreed with the Department of Finance to define price stability as having a 2% CPI inflation rate.
Importance of Mortgage Rates
Canadian homes’ average price at a two-year low is over $600k. Thus a home buyer who has saved close to 20% for their down payment to reduce their risk and save on mortgage insurance premiums requires a mortgage of around $500k.
Currently, Canada’s interest rate environment is such that advertised mortgage rates range from 4.5% to over 7%. So if you are shopping for a mortgage, 5% is an attractive rate depending on the features of your mortgage.
WOWA’s mortgage interest calculator shows that conservatively buying an average house with a competitive mortgage rate would translate into a monthly mortgage payment of $2,900, initially including $2,100 in interest costs.
The median after-tax income for a Canadian family is $67K per year, around $5,600 per month. It is easy to see that the mortgage expense is the most significant expense of a Canadian family. The mortgage expense is much more for those living in the most expensive Canadian population centers of the Greater Toronto Area (GTA) and the Greater Vancouver Area (GVA).
Interest Rate Determinants
| Factors that push interest rates higher | Factors that pull interest rates lower |
| High inflation | Low inflation |
| Low savings rate | High savings rate |
| Decreasing trade | Increasing trade |
| Risk of default | Loan security |
| Decrease in labour productivity | Increase in labour productivity |
| High employment | Low employment |
How do Mortgage Lenders Fund Mortgages?
To understand how we can save on our mortgage costs, we should understand how mortgages work in Canada. A bank can use deposits it is holding to lend out a mortgage. The first problem with using depositor money for lending a mortgage is that those who have deposited their funds in a chequing account or a savings account might want their money back at any time.
In contrast, a mortgage borrower would repay his debt on a predetermined schedule over many years. So the bank would have to put aside some money to provide liquidity to its depositors.
Moreover, the bank might lose money on this loan if the borrower fails to make their scheduled payments and becomes delinquent. Thus such a mortgage would increase the amount of capital the bank requires. Still, because the loan is secured by real estate, it is pretty safe, and the added capital requirement it imposes on the bank is relatively small.
The three preceding paragraphs explained how a home equity line of credit (HELOC) works. HELOC interest rates are often slightly higher than the prime rate. Looking at variable mortgage interest rates, we see that most lenders offer rates well below the prime rates (and below HELOC rates). OSFI regulation imposes a HELOC limit of 65% of the property value. In comparison, conventional mortgages can be up to 80% of the property value, and high ratio (insured) mortgages can be up to 95% of the property value.
Because of their lower loan-to-value (LTV) ratio, HELOCs pose a lower risk to lenders than mortgages. We know an interest rate comprises a risk-free rate plus a risk premium. So why do HELOCs, despite their lower risk, have a higher rate than residential mortgages?
Mortgage rates are low because the National Housing Act created a legal framework to transform mortgages into safe and liquid assets. According to the National Housing Act (NHA), lenders can create a special legal entity (called a guarantor entity) and transfer their mortgages (after purchasing insurance for their conventional mortgages) into this entity which can issue what is called covered bonds.
Mortgages would serve as collateral for covered bonds. NHA also protects cover bond collateral from being affected by any bankruptcy proceedings. According to the NHA, the guarantor entity should be registered with the Canada Mortgage and Housing Corporation (CMHC). These bonds are called covered bonds because a pool of assets covers them. This means that a pool of assets (loans) is their collateral.
The legal framework of covered bonds allows Canadian financial institutions to transform their mortgage loans into liquid assets. This framework allows them to offer mortgages with interest rates materially lower than their prime lending rates. A bank has both liquidity and capital requirements. From the liquidity standpoint, an illiquid loan would require a bank to put aside some liquid (often low-yielding) assets to maintain its liquidity ratio. From a capital perspective, a liquid asset can be sold in bad times and prevent diluting shareholders by raising capital. So a lender is willing to advance liquid loans at a much lower margin than illiquid loans.
What About Fixed Rate Mortgages?
Covered bond programs reduce the cost of funding mortgages for Canadian lenders by transforming their mortgage assets into liquid assets. The other issue relating to mortgages is that many borrowers are unwilling to accept interest rate risk. At the same time, the cost of money for a financial institution often changes in line with the risk-free interest rate. So lenders are expected to offer fixed-rate mortgages and must manage their interest rate risk when offering fixed-rate mortgages.
The interest rate of savings accounts often changes with the risk-free interest rate. Therefore using deposits to make loans at a fixed interest rate brings interest rate risk to a bank. To mitigate this risk, the bank has to hedge its exposure to changes in interest rates.
One can use interest rate swap contracts to hedge their exposure to interest rates. An interest rate swap is a financial arrangement which enables a stream of variable-rate interest payments to be exchanged for a stream of fixed-rate interest payments.
Several types of swaps are available, including
- Interest rate swaps: These swaps involve exchanging interest payments based on a notional principal amount. The parties involved agree to exchange interest payments based on fixed and floating rates. This type of swap is commonly used to manage interest rate risk.
- Currency swaps: Currency swaps involve exchanging the principal and interest payments in one currency for the principal and interest payments in another. Multinational corporations often use this type of swap to manage exchange rate risk.
- Commodity swaps: Commodity swaps involve exchanging cash flows based on the price of a particular commodity, such as natural gas or oil price. Energy (oil) companies commonly use this type of swap to manage price risk.
- Equity swaps: Equity swaps involve exchanging cash flows based on the performance of a particular stock or stock index. Investors commonly use this type of swap to gain exposure to a particular stock or market, e.g., .
- Credit default swaps: Credit default swaps involve exchanging cash flows based on the occurrence of a credit event, such as a default on a particular bond or loan. Investors commonly use this type of swap to manage credit risk.
A common form of interest rate swaps is called OIS. OIS stands for "Overnight Index Swap." It is a type of interest rate swap in which the two parties involved exchange the difference between an overnight interest rate index and a fixed interest rate.
The overnight interest rate index used in an OIS is typically the overnight interbank lending rate, such as the Federal Funds Rate in the United States, the Euro Overnight Index Average (EONIA) in the Eurozone, or the Sterling Overnight Index Average (SONIA) in the United Kingdom. However, the two parties involved in the swap agree on the fixed interest rate.
The purpose of an OIS is to manage interest rate risk by providing a way for market participants to protect themselves from fluctuations in overnight rates. Market participants with cash positions exposed to overnight rates can use OIS to hedge or mitigate that risk.
OIS is typically settled daily, with the swap value recalculated daily based on the current overnight index rate. This means that the swap value can change daily, depending on the movement of the overnight index rate.
The calculators and content on this page are provided for general information purposes only. WOWA does not guarantee the accuracy of information shown and is not responsible for any consequences of the use of the calculator.
As an enthusiast with demonstrable expertise in the field of mortgage rates and financial forecasting, I've closely examined the provided article on the Best 5-Year Fixed Mortgage Rates in Canada. My extensive knowledge in this area allows me to shed light on various concepts used in the article:
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Interest Rate Forecasting: The article discusses the anticipation of moderate declines in mortgage interest rates over the next three years. This forecast is based on the observation that current interest rates are higher than neutral rates. It also highlights the end of the long-term trend of declining yields, emphasizing that rates similar to those in 2020-2021 or 2009-2010 are unlikely to recur.
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Bank of Canada (BoC) Rate Forecast: The article provides a detailed forecast of BoC rates over the next few years, indicating a gradual decrease from the current 5% to 2.5% by mid-2028. The forecast takes into account various factors, including inflation rates, government debt, and economic conditions.
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Mortgage Rate Lock Periods: It mentions the option to lock in mortgage rates until a specified date, offering insights into the duration and rates associated with different lock-in periods, such as 130 days.
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Market Expectations and Forward Contracts: The article includes information on how the market perceives future interest rates based on forward contracts. It outlines the likelihood of BoC policy rates at different future dates, providing a glimpse into market expectations.
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Bank of Canada's Inflation and Policy Rate: The article delves into the Bank of Canada's stance on inflation and the policy rate, emphasizing the central bank's target rate of 2% CPI inflation. It explores the considerations for maintaining the current restrictive policy rate of 5% and potential future adjustments.
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Economic Factors Influencing Interest Rates: It discusses various economic factors that can influence interest rates, including inflation, trade conditions, risk of default, and employment rates. These factors are crucial in understanding the dynamics of interest rate movements.
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Covered Bonds and Mortgage Funding: The article explains the role of covered bonds in transforming mortgages into safe and liquid assets. It highlights how this legal framework allows lenders to offer mortgages at lower interest rates by creating a pool of assets.
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Interest Rate Swaps and Hedging: It touches upon the use of interest rate swaps, specifically Overnight Index Swaps (OIS), as a mechanism for financial institutions to manage interest rate risk associated with fixed-rate mortgages. The explanation covers the purpose, settlement, and recalibration aspects of OIS.
In conclusion, my expertise in the subject matter enables me to provide a comprehensive understanding of the concepts discussed in the article, facilitating informed financial decision-making for individuals seeking mortgages in the Canadian market.
