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What Factors Affect Mortgage Rates and Will They Go Down?

A model of a house with keys and money on a table, illustrating mortgage rates.

Bad news for investors: Canada’s inflation rate saw an uptick last month. 

For many prospective home buyers, this hardly came as a shock. And with Canada’s central bank continuing to try and steer the consumer price index (CPI) towards its goal of 2%, we could expect some more roller-coaster rides ahead.

Mortgage rates are affected by a complex range of factors. From inflation, economic growth, and housing market conditions to the Bank of Canada’s policy interest rate, these elements work behind the scenes, pulling the strings on mortgage rates. Competition between private lenders and major banks also plays a vital role in the financial products available to prospective home buyers in Canada.

Navigating the landscape of mortgage rates can be an intimidating and stressful process, especially due to the inherent uncertainty in today’s housing market. By taking a step back and reviewing the fundamentals, you can glean valuable insights to help you get a mortgage that is right for you.

A man and woman holding a calculator discussing mortgage rates at a desk.

The Basics of Mortgage Rates

Mortgage rates aren’t just random figures. They’re influenced by several well-defined factors. Here are some of the main ones:

  • Inflation: When inflation increases, mortgage rates often do too. This is because lenders need to ensure that the returns they get from their loans stay in line with the dollar’s purchasing power.
  • Economic Growth: If the economy is flourishing, mortgage rates are likely to follow suit. The reason? An upward-trending economy typically triggers increased demand for credit and bolsters consumer confidence.
  • Monetary Policy: The Bank of Canada’s primary interest rate is a direct influencer of mortgage rates. If it rises, you can expect your rates to do the same.
  • Housing Market Conditions: The current state of the housing market also has a say in mortgage rates. When demand is high and supply is low, rates may edge upwards.

Mortgage lenders take on several risks when they lend money to borrowers. One of the biggest risks is the risk of default. If a borrower is unable to make their mortgage payments, the lender may have to foreclose on the property and sell it to recoup their losses. This can be a lengthy and costly process for the lender, which is why they charge interest rates to compensate for this risk.

Another risk that mortgage lenders take on is interest rate risk. When a lender offers a mortgage with a fixed interest rate, they are taking on the risk that interest rates will rise in the future. If interest rates rise, the lender will be stuck with a lower interest rate than they could have earned if they had waited to lend the money. To compensate for this risk, lenders may charge higher interest rates on fixed-rate mortgages.

All of these risks affect the rates that mortgage lenders offer. Lenders need to charge enough interest to compensate for the risks they are taking on, while still remaining competitive with other lenders. If the risks increase, lenders may need to raise their rates to maintain profitability. On the other hand, if the risks decrease, lenders may be able to offer lower rates to attract borrowers.

A couple smiling while looking at a laptop discussing mortgage rates.

There are many tools online for gathering valuable information on mortgage rates available from lenders in Canada. One of the most essential is a mortgage calculator, such as this one from the Government of Canada website. These tools allow you to glimpse what kind of mortgages you can borrow from Canadian lenders based on specific criteria.

One of the most important factors is you are applying for a mortgage is to ensure that your credit score is solid. Without a healthy credit score, you could be turned down, regardless of other evidence of your financial standing. And as many credit reports contain errors, verifying that yours is correct is imperative to landing a mortgage for your property investments. It’s vital that you use a service like Credit Verify to ensure that your credit score is in good condition, and that you check it regularly (or use Credit Verify’s services) to maintain and prevent errors or fraud that could damage it. 

Economic Conditions and Policies

If you’re currently trying to make sense of the Canadian mortgage market, you might be finding this summer season a bit of a tough nut to crack.

On July 12, the Bank of Canada decided to turn up the heat a little more with its latest overnight rate hike. This added another 0.25% of pressure on those with variable-rate mortgages, who have already seen a rate surge of 475 basis points (4.75%) since March 2022.

In the first week of August, one-, three- and five-year fixed mortgage rates crept up at a number of major lenders, making mortgage shopping especially difficult. With five-year terms being the more affordable option, buyers may no longer be able to opt for shorter-term mortgages that would allow them to renew — and hopefully score a lower rate — in 2024 or 2026.

While five-year terms appear more cost-effective, prospective homeowners might find it challenging to choose shorter-term mortgages, which would have provided an opportunity to renew — potentially at a reduced rate — by 2024 or 2026.

In terms of policy changes, the Bank of Canada announced its schedule for announcements related to rate hikes and other policy changes in 2024 at the end of July:

  • Wednesday, January 24
  • Wednesday, March 6
  • Wednesday, April 10
  • Wednesday, June 5
  • Wednesday, July 24
  • Wednesday, September 4
  • Wednesday, October 23
  • Wednesday, December 11

All announcements regarding interest rates are scheduled for 10:00 (ET). Additionally, Monetary Policy Reports were released alongside the rate announcements in January, April, and July, with another expected in October. Staying up-to-date on Bank of Canada announcements is a great way to stay on top of emerging conditions in the Canadian mortgage market.

Will Mortgage Rates Go Down in Canada?

A couple excitedly holding keys to their new home, while considering mortgage rates.

Mortgage rates in Canada are influenced by a variety of factors, including decisions by the Bank of Canada, global economic conditions, and domestic market dynamics. Historically, rates have fluctuated in response to these factors. While it’s challenging to predict with certainty, any changes in economic indicators, monetary policy, or global financial trends can impact the trajectory of mortgage rates.

For potential homebuyers and homeowners, staying informed and consulting with financial professionals is crucial. As with any market prediction, it’s essential to approach the question of future mortgage rate movements with a blend of research and caution.

Underlying trends suggest a growing unease among Canadians regarding their financial state and mounting debts. Despite this, the impact of rate increases on consumer discretionary spending has been gradual. The BoC fears that, even with June’s inflation figure below 3%, inflation may persistently exceed its 2% target or potentially rebound, posing long-term economic challenges.

Currently, economic experts don’t anticipate a rate decrease until the second quarter of 2024 at the earliest. This means that mortgage rates will likely remain where they are in Canada throughout the end of 2023 and into 2024, depending on how employment and inflation evolve going forward.


Both potential homeowners and current investors must remain vigilant regarding rising and falling mortgage rates, regularly updating their strategies in response to the shifting economic environment. Staying informed and consulting with financial professionals can offer guidance in these uncertain times, ensuring sound decision-making for the future.

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