Mortgage Basics

Mortgage Rates Forecast Canada 2024

Mortgage Rates Forecast Canada 2024

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    The Bank of Canada’s (BoC) most recent announcement was to hold rates, keeping the policy rate at .

    The impact of rate increases can take up to 4 fiscal quarters (1 year) before they begin to impact the whole economy. After 7 quarters, our economy is now starting to feel the effects of the 10 interest rate increases the BoC implemented over the last 21 months.

    Nearly half of all Canadian mortgages (2.2 million) are coming up for renewal over the next 2 years, leaving many homeowners with the reality of much higher mortgage interest costs at renewal. 


    Key Takeaways

    • The prime rate is currently .
    • Inflation in Canada is currently 2.9%.
    • Interest rates are not likely to decrease until mid-2024.

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    What Is the Mortgage Rate Forecast For Canada in 2024? (Updated May 2024)

    The mortgage rate forecast for Canada is a hold until at least mid-2024, with some predictions indicating the first rate cut could occur at the June announcement. The Big 6 Banks all agree in their predictions that while interest rates are not likely to come down in time for the spring lending season, they will come down this year. 

    Predictions are mixed on exactly how much and by when we will see rates start to decrease. These predictions, however, are always subject to change depending on geopolitical and macroeconomic conditions.

    Bank Policy Rate Q1 Policy Rate Q2 Policy Rate Q3 Policy Rate Q4
    BMO 5.00% 4.75% 4.50% 4.00%
    CIBC 5.00% 4.75% 4.50% 4.00%
    National Bank 5.00% 5.00% 4.75% 4.25%
    RBC 5.00% 4.75% 4.25% 4.00%
    Scotiabank 5.00% 5.00% 4.75% 4.25%
    TD 5.00% 5.00% 4.50% 4.00%
    *Data as of April 10th, 2024*

    Will Interest Rates Go Down in Canada in 2024? (May 2024)

    The BoC Policy Rate increased by 75 basis points (1 basis point is equal to 0.01%) in 2023. A range of predictions from the Big 6 Banks in Canada so far indicate that interest rates should start to decrease mid-2024 by 25 basis points and close out the year with a decrease of around 100 basis points.

    Will Interest Rates Increase More in Canada in 2024? (May 2024)

    It seems unlikely that interest rates will increase anytime soon. Most experts predict rate cuts should start in mid-2024. The Bank of Canada Governing Council has shifted its stance from being prepared to raise rates further if necessary to when they should be lowered.

    Inflation continues to be a top concern for the BoC, and an increase in geopolitical risks could add to inflationary pressures. This could keep inflation well above the 2% target and prevent interest rates from coming down significantly this year.

    Top Economist’s Mortgage Predictions for 2024

    Douglas Porter, Chief Economist and Managing Director of Economics at BMO predicts rate cuts could still be on the table for the June 5th Bank of Canada announcement as long as core inflation remains stable. 

    Derek Holt, Vice-President and Head of Capital Markets Economics at Scotiabank, suggests we may need to forget about rate cuts happening all this year. This is due to inflation in the U.S. being much stronger than predicted, with markets now only pricing in a 50 basis point cut this year. 

    Rishi Sondhi, an economist at TD, predicts that the BoC could start cutting the policy rate during its July 24th announcement. This would spur the housing market, increasing home sales and average prices in the second half of 2024.  

    The Bank of Canada’s (BoC) latest Market Participant Survey, which gathers and publishes the views of senior economists and strategists in the Canadian financial market, forecasts the first rate cut occurring in June 2024 based on the median response.

    Bank of Canada Monetary Policy Announcement Date Policy Interest Rate (%)
    (expectations based on median response)
    January 24th 2024 5.00
    March 6th 2024 5.00
    April 10th 2024 5.00
    June 5th 2024 4.75
    July 24th 2024 4.50
    September 4th 2024 4.50
    October 23rd 2024 4.25
    December 11th 2024 4.00

    June 2024 Canada Mortgage Rates Forecast: 

    The next Bank of Canada rate announcement will take place on June 5th. Most market predictions suggest that the rate could be decreased by 25 basis points. However, without a sustained or further reduction to CPI, the Bank may leave the key rate unchanged to avoid sabotaging the gains it has made in its inflation fight. The Bank needs to be mindful not to tip the scale too far and cause a prolonged slump in the housing market and a contraction in employment.

    Long-Term Mortgage Rates Forecast

    The economy is finally beginning to feel the effects of the interest rate increases implemented, as it can take up to 24 months for the rate hikes to work through the economy. The Bank has achieved its goals within 12 to 18 months in past rate tightening cycles. However, this cycle has proven to be quite challenging for the BoC and most other central banks of advanced economies

    The impact of interest rate increases is being felt throughout the housing market as sales volumes have decreased. It’s predicted that the drop in home sales will continue into 2024 unless sellers are willing to slash prices to offset higher borrowing costs or interest rates finally begin to decrease. 

    The economy has also started to slow, though inflation has fallen less than experts predicted during the past year. However, inflation still shows areas of increasing demand as prices continue to rise. So far, this data does not indicate a meaningful slowdown. 

    Experts are now predicting that we will likely see gradual rate cuts starting in Q2 of 2024 and continuing throughout year-end. Rate cuts can accelerate if the Federal Reserve pivots to a more dramatic drop, as the BoC will have to align to keep the Canadian Dollar affordable for businesses stateside. 

    Bank of Canada Interest Rate Hike Predictions for 2024

    Inflation has remained persistently stubborn, and work still needs to be done to reach the BoC’s target of 2%. It will be interesting to see how the Bank of Canada will respond to inflation in 2024, especially if rental costs keep accelerating across the country.

    Bank of Canada 2024 Rate Change Schedule

    Date BoC Rate Announcement Decision (%) Target Rate (%)
    January 24 No Change 5.00%
    March 6 No Change 5.00%
    April 10 No Change 5.00%
    June 5 TBD TBD
    July 24 TBD TBD
    September 4 TBD TBD
    October 23 TBD TBD
    December 11 TBD TBD
    Policy rate announcement dates and changes from the Bank of Canada (BoC)

    What Affects Future Bank of Canada Rate Decisions?

    Inflation

    The most recent inflation data came in at 2.8%, mainly due to deceleration in cellular services, food purchased from stores, and internet access services. This figure has moved closer to the central bank’s inflation target of 2%. However, shelter continues to be the largest driver of inflation, up 6.5%.

    Inflation is the most important driving factor behind the BoC’s rate decisions. To hit its inflation target of 2%, the BoC needs to adjust the policy interest rates to control inflation. 

    When inflation rises above this target, the BoC increases the policy rate. In turn, commercial banks and lenders raise their prime rates, which directly affect loans and mortgages. This discourages borrowing and spending and helps the BoC’s efforts to bring inflation back to its target of 2%. 

    If inflation were below the 2% target, the BoC might lower the policy interest rate to stimulate the economy. Lenders, in turn, decrease their prime rates to encourage borrowing and spending.  

    Consumer Price Index (CPI) Release Dates 2024

    Date CPI Index (Year-over-Year Change)
    January 16 + 3.4%
    February 20 + 2.9%
    March 19 +2.8%
    April 16 +2.9%
    May 21 TBD
    June 25 TBD
    July 16 TBD
    August 20 TBD
    September 17 TBD
    October 15 TBD
    November 19 TBD
    December 17 TBD
    Consumer Price Index (CPI) release dates from StatsCan

    Employment

    Statistics Canada’s Labour Force Survey data highlights that April’s employment was unchanged at 6.1%. The employment rate held steady at 61.4% after 6 consecutive monthly declines. Employment was up 0.4%, adding 90,000 jobs. The total number of unemployed remains at 1.3 million.

    BoC rate decisions aim to support maximum sustainable employment levels while maintaining output growth by keeping inflation predictable and stable while stimulating the economy. For the economy to maintain inflation at the 2% target, it needs to maintain its maximum sustainable level of employment. This means the economy operates at its highest productive capacity and can sustain itself without triggering inflation. 

    When employment falls below the maximum sustainable level, people cannot find work and their earnings and savings decline. As this happens, it affects spending habits, pushing inflation lower, possibly below the 2% target. When employment is higher than this level, employers cannot find enough workers to keep up with demand, which drives prices and wages higher and increases inflation. Finding the perfect balance between inflation and the employment rate is difficult as both are measured on data gathered about their performance from the previous month – and not in real-time.

    The U.S. Economy

    The latest from the Bureau of Labor Statistics reported that the U.S. economy’s core CPI cooled for the first time in 6 months. CPI came in at 3.4% in April, down from 3.5% in March. 

    Currently, the US economy continues to accelerate and run much hotter with a significant divergence in GDP growth from Canada. This could make the BoC’s job difficult if the US federal funds rate stays elevated longer than needed to curb inflation south of the border.

    Historical Context: What Does a Slowing Economy Typically Mean for Mortgage Rates?

    The COVID-19 shutdown of the economy and supply chains increased the demand for much-needed supplies. Our demand outstripped supply with lower interest rates and more significant cash flows, creating high inflation. Since inflation is a lagging indicator, and Statistics Canada measures inflation differently for resales of existing homes, it became apparent that inflation was quickly running rampant. As a result, the BoC started ramping up the benchmark key policy interest rate to curb inflation quickly.

    Source: bankofcanada.ca

    What’s different about these rate increases in previous inflationary cycles? In the 1980s, we did not have the same debt levels. Today, Americans make $1 for every $1 of debt, while Canadians make $1 for every $1.65 of debt. North Americans were not as indebted as in the 1980s. Say you had a $100,000 mortgage, and your income on average was around $20,000; the monthly payment on your mortgage was likely less than $845 at 10% if you had a 35-year mortgage or, say, $1,604 if rates increased to 20% on that same mortgage. Credit cards and HELOCs were not used as often back then, so mortgage debt was likely all you had. 

    As rates jumped from 10% to 20%, their interest impact doubled (magnification of 2x). However, now the effect might be much more magnified. A rate increase from 0.25% to 5.00% on the BoC’s Key Policy Rate means a magnification of 19x on the interest component of your mortgage payment. That means on a 25-year mortgage, your $100,000 mortgage’s monthly payment would jump from $436 to $716.  The big difference between 2024 and 1982 is that we no longer have 35-year prime mortgages with average house prices near $72,800 and average mortgage balance hovering around $41,200.

    Navigating High-Interest Rates to Save Money on Your Mortgage

    As the full effects of past interest rate hikes are felt, consumer demand will be impacted. As demand drops, so too should rates, and navigating them to save money will depend on your situation. 

    What goes up must come down, but it might not come down fast enough for everyone. Mortgage rates are projected to come down, but rates may not come down perfectly linearly, as possible bond yield upticks can occur on longer-term declines. 

    With $900 billion in mortgages coming up for renewal over the next few years, those needing to renew should plan for payment shock in Canada. Payment shock could further restrict household budgets and inadvertently cause a further decline in fixed rates.

    Utilizing Fixed-Rate Mortgages to Reduce Interest Rate Risk

    Conventional thinking is locking yourself into a fixed-rate mortgage at the first sign of rate hikes. But if inflation is a lagging indicator and bond yields are a leading factor, then waiting for the right moment to lock in may be the most suitable way to move forward. 

    A calculated method is to position yourself to take advantage of lower rates. This is the best option for anyone navigating this tumultuous rate environment. According to the BoC, it may take 18 to 24 months to tame inflation, so using this timeline, it may take another 3 to 6 months before we see rates start to trend down. Riding out your mortgage on a shorter fixed term could be a good option if you want stability and predictability with your mortgage payments.

    Utilizing Variable-Rate Mortgages to Reduce Interest Rate Risk

    Regardless of your chosen rate, your goal should be to be in a better financial position than before. If you can adjust your budget for any possible volatility for future rate changes, you could opt for an adjustable-rate mortgage (ARM) to save as rates come down. This way, once rates revert to their downward trajectory, you will realize savings as the BoC reduces its Key Policy Rate.

    If you can accept the risk with a floating rate in a decreasing rate cycle, it may make sense for a well-qualified borrower to renew into an adjustable-rate mortgage (ARM) rather than a variable-rate mortgage (VRM). This way, you can take advantage of decreases in mortgage payments over time as the payment on the ARM adjusts with changes in the lender’s prime rate.

    Mortgage Rates Forecast for Buyers and Sellers in 2024 ( Updated May 2024)

    It’s probably best not to have specific expectations from the economy. Even the experts keep missing the mark on predictions, making long-term forecasting even more difficult. 

    The possibility of inflation remaining higher for longer is forcing the Bank of Canada to keep the policy rate at 5.00% and also leaves room for higher rates should it refuse to come down. If the BoC lowers rates too soon, the housing market could pick up and create higher inflation, but keeping it too high for too long could pull Canada into a recession

    Uncertainty or the fear of buying too early in this rate cycle could leave homebuyers on the sidelines for too long. Once home prices are on the rebound, the cost to purchase will be much higher, leaving you with fewer cash savings to weather prolonged inflationary pressures. 

    Comparatively, a 2% rate increase in monthly payments now might mean lower interest-carrying costs overall for the life of your mortgage. You can use part of the cash savings from purchasing a home today while home prices are lower to help manage higher interest rates and monthly payments during your initial term.

    If you want to sell and have more than 50% equity and a healthy cash flow, deferring your decision for a year or two with a shorter-term or variable rate option until house prices bounce back will make the most sense. But keep in mind that nothing is for sure, and homes may not bounce back to 2021 levels – they were in a bubble in some coveted urban regional markets.

    Mortgage Rate Predictions Over the Next 2 Years (Updated May 2024)

    While it’s almost impossible to predict where interest rates are headed, most economists agree that we are not likely to see interest rates come down in the near future. Instead, we will likely see a more gradual reduction in interest rates once inflation has been tamed. 

    One thing that remains certain is that there is an endemic shortage of homes, and this will keep putting upward pressure on inflation—especially if consumers can’t afford to buy homes and decide to spend their money on other things.

    The impact of higher interest rates will begin to affect more households in the next few years as those who took out mortgages with lower interest rates in 2020 and 2021 come up for renewal in 2024-25. 

    Interest Rate Forecast 2024-2025

    Bank June 2024 September 2024 December 2024
    BMO 4.75% 4.50% 4.00%
    CIBC 4.75% 4.50% 4.00%
    National Bank 5.00% 4.75% 4.25%
    RBC 4.75% 4.25% 4.00%
    Scotiabank 5.00% 4.75% 4.25%
    TD 5.00% 4.50% 4.00%
    Bank Policy Rate Q1 2025 Policy Rate Q2 2025 Policy Rate Q3 2025 Policy Rate Q4 2025
    BMO 3.75%  3.50% 3.25% 3.00%
    CIBC 3.50% 3.25% 3.00% 2.75%
    National Bank 2.75%
    RBC 3.75% 3.25% 3.00% 3.00%
    Scotiabank 3.75% 3.50% 3.25% 3.00%
    TD 3.50% 3.00% 2.50% 2.25%

    Bank of Canada Market Participants Survey Quarterly Forecast 2025-2026

    The Bank of Canada’s forecast looks ahead to 2025-2026 and provides an outlook of what we may be able to expect for interest rates in 2025 and early 2026. 

    2025 Policy Interest Rate (%) 
    (expectations based on median response)
    January 4.00
    March 3.75
    Q2 3.50
    Q3 3.25
    Q4 3.00
    2026 Policy Interest Rate (%) 
    (expectations based on median response)
    Q1 2.88
    Q2 2.75

    Mortgage Shopping Tips to Save On Your Mortgage Renewal or Refinance

    If you are up for renewal, your mortgage rate should be selected based on your financial goals for your home. Your rate choice will also depend on stress testing of your mortgage if you choose to switch lenders. Make your decision based on your needs. If you don’t plan on selling or moving, go with a longer term. 

    Conversely, if you need to move, choose a term that works for your situation and shop for the best rate. We recommend speaking honestly with a mortgage expert to see the most suitable option for your situation.

    Another option may be available for well-qualified borrowers with ample capital in the form of a low loan-to-value (LTV) ratio, liquidity in the form of cash savings to withstand a prolonged or double recession if rates change direction, and risk tolerance.

    These borrowers approaching renewal or needing to refinance could take advantage of a combination of fixed and variable options. For example, you could take part of your mortgage at a fixed rate and lock in your savings while taking the rest of your mortgage balance at a variable rate. 

    This route could reduce your overall risk while taking advantage of possible rate reductions. You would benefit more if the variable mortgage component is an adjustable-rate mortgage (ARM).

    However, the difficulty with taking advantage of this option is that lenders offering mortgages that allow you to hold a hybrid solution typically do not offer rates as low as mortgage finance companies, such as nesto. 

    If rates remain the same and don’t move down in the near term, you should look at your overall risk between fixed and variable options. If you are advanced in your life stage with built-up home equity, net worth, and free cash flow, choosing an adjustable rate option may work for your situation. If you are a first-time homebuyer (FTHB), a fixed rate is recommended to avoid any drastic increases to your most significant monthly obligation – your mortgage payment.

    Frequently Asked Questions

    Will mortgage interest rates go down in 2024?

    Mortgage rates are expected to decrease in mid-2024. Once rates settle down, house prices will increase again, so it is not recommended to time the market if your goal is to buy a home.

    How much will interest rates go up in the next 5 years in Canada?

    It is hard to predict precisely how rates will change for the next five years as many domestic and foreign inflationary pressures affect the BoC’s decision to increase or decrease rates. One of the most significant factors in the long-term inflation battle is the cost of living, which will keep rising as our population grows and ages.

    How will my mortgage payment be affected if it comes up for renewal in 2024?

    The BoC will likely have inflation under control by 2024. However, expect your mortgage payment to be higher than when you booked your mortgage rate. If you booked your rate in 2021, anticipate your mortgage payment to double or triple. If you booked your rate in 2019, anticipate your mortgage payment to be close to double.

    Final Thoughts

    Mortgage rates will go up and down as they have since the invention of mortgages. When it comes down to it, it’s not the rate that matters but how much of your disposable income goes to servicing this obligation. Your goal should be to keep your mortgage payments predictable and manageable for your budget and feasible for the long term to match your financial plans

    When deciding on a mortgage, your decision should be informed; with this in mind, we recommend that you speak with our mortgage experts before making your decision. Our commission-free mortgage experts at nesto will provide honest and transparent advice and guide you throughout this challenging decision-making process.


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