Geopolitical Conflict Pushes Canadian Mortgage Rates Higher: What Homeowners Need to Know

The Bottom Line: If you are renewing or getting a new mortgage, it just got more expensive. Five-year fixed mortgage rates have climbed by approximately 0.25%. This adds to the monthly payments for new borrowers and those renewing soon, making affordability even tighter.

What is Happening?

Recent escalations in the Middle East are starting to impact the Canadian housing market. Specifically, tensions affecting the Strait of Hormuz have caused oil prices to jump. This instability creates economic uncertainty that ripples out to Canadian lenders.

To cover their own increased costs, banks and lenders have raised five-year fixed mortgage rates by about 0.25%.

This increase is hitting a market that was already weak. TD Bank has already forecasted that home resales and price growth will slow down for the rest of the year.

Who is Affected?

There are two main groups who need to pay attention to this right now:

Homeowners renewing their mortgage: If your fixed-rate mortgage is coming up for renewal this spring, you will be offered a higher rate than what you see in current advertisements. You need to budget for a higher monthly payment.
New homebuyers: Anyone trying to buy a home right now will face higher borrowing costs. This makes it harder to pass the mortgage stress test and reduces the amount of house you can afford.

Variable vs. Fixed: A Tough Choice

The Bank of Canada has kept its benchmark rate steady at 2.25%. Because of this, variable-rate mortgages currently look cheaper than fixed rates.

However, experts suggest being careful. The geopolitical conflict makes the future unpredictable. If you are uncomfortable with risk, or if you are stretching your budget to the limit, a fixed rate might be the safer long-term bet right now, even though it costs more.

What You Should Do

If you are in the market for a home or need to renew soon, take these steps:

Run the numbers: A 0.25% increase might not sound like much, but it adds up. On a large mortgage, this can add hundreds of dollars to your annual housing costs. Use an online mortgage calculator to see the new numbers.
Shop around: Do not just accept the first rate your current bank offers you at renewal. Different lenders are reacting differently to these market changes.
Look at supply: If you live in the Greater Toronto Area, there is currently a high supply of homes. This gives you more negotiating power. You might be able to negotiate a better price on the home to offset the higher mortgage rate.
Get pre-approved: If you are buying, get a pre-approval to lock in a rate for 90 to 120 days. This protects you from further sudden increases while you house hunt.

Summary

Rates are up: Five-year fixed rates are up by 0.25% due to global instability.
Market is slow: Housing sales and price growth are expected to be down this year.
Be careful: Variable rates are cheaper, but fixed rates offer safety in a volatile world.
Budget for more: Expect higher monthly payments if you are renewing this spring.