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 a year before they begin to impact the whole economy. Even with all the crushing blows by surging interest rates that central bankers on both sides of the border have thrown at it, the economy has continued its relentless overflow of inflation and employment.

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Key Takeaways

• The prime rate is currently .
• Inflation in Canada is currently 3.1%.
• Interest rates are not likely to decrease in 2023 and may increase once more before the year ends.

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What Is the Mortgage Rate Forecast For Canada in 2023? (Updated November 2023)

The mortgage rate forecast for Canada through the end of 2023 is a rate hold at the 5.00% prime rate. This, however, is always subject to change depending on macroeconomic conditions. Based on inflation numbers, there is a chance that the country’s benchmark rate could increase to 5.25% at the final announcement this year.

Will Interest Rates Go Down in Canada in 2023? (November 2023)

Mortgage rates have increased by 75 basis points so far in 2023. We will not likely see interest rates go down at any point over the remainder of 2023. The target rate will likely be held at 5% for the remainder of the year, but we may see another 25 basis points increase this fall, bringing the target rate to 5.25% to close out the year. 

Will Interest Rates Increase More in Canada in 2023? (November 2023)

We may see one more rate increase in 2023. This would bring the target rate up to 5.25%. If the US Federal Reserve raises interest rates at any of their next scheduled meetings, the BoC will likely, in turn, increase rates by another 25 basis points to avoid devaluing the Canadian dollar.

December 2023 Canada Mortgage Rates Forecast: 

In December 2023, we anticipate that following the second Bank of Canada rate pause on October 25th, the prime rate will likely remain at 5% to close out the year. This will lead to a market where buyers may start to come out of their shells and look for homes. We saw this at the last announcement when rates were paused, and the resale market edged towards more balance.

Long-Term Mortgage Rates Forecast

The impact of rate increases takes several months to a year to make its way through the economy. Inflation still shows increasing demand due to economic growth as prices continue to rise, not indicating a slowdown so far. 

•  Home sales have continued to see gains in most provinces, proving that demand has remained resilient despite the increase in interest rates.
• Sales to new listings ratios (SNLR) have moved to a buyer’s market. 

Experts are now predicting that we will likely see gradual 25 basis points per quarter rate cuts starting in Q2 of 2024 instead of the end of 2023, as initially anticipated. 

Bank of Canada Interest Rate Hike Predictions for 2023 (November 2023)

Inflation has remained persistently stubborn, and work still needs to be done to reach the BoC’s target of 2%. We can anticipate that rates could be held at the Bank’s following announcement and for the remainder of the year. However, we may see one more rate hike before the year ends. 

Additionally, if the US Federal Reserve (the Fed) decides on further interest rate hikes over the coming months, the BoC may also consider an additional rate hike to prevent the Canadian dollar from devaluing.

Bank of Canada 2023 Rate Change Schedule

Date	BoC Rate Announcement Decision (%)	Target Rate (%)
January 25	+0.25	4.50
March 8	No Change	4.50
April 12	No Change	4.50
June 7	+0.25	4.75
July 12	+0.25	5.00
September 6	No Change	5.00
October 25	No Change	5.00
December 6	TBD	TBD

What Affects Future Bank of Canada Rate Decisions?

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

When inflation rises above this target, the BoC increases the benchmark rate. The Bank, in turn, raises interest rates on loans and mortgages to discourage borrowing and spending 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. The Bank, in turn, will decrease interest rates to encourage borrowing and spending.  

BoC rate decisions aim to support maximum sustainable employment levels while maintaining output growth by keeping inflation predictable, stable, and low. 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 higher and increases inflation. 

Consumer Price Index (CPI) Release Dates 2023

Date	CPI Index (Year-over-Year Change)
January 17	+6.3%
February 21	+5.9%
March 21	+5.2%
April 18	+4.3%
May 16	+4.4%
June 27	+3.4%
July 18	+2.8%
August 15	+3.3%
September 19	+4.0%
October 17	+3.8%
November 21	+3.1%
December 19	TBD

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

During the last recession in 2008, the financial system needed a bailout. This bailout worked, and we enjoyed lower interest rates, albeit with stagnant GDP growth. COVID-19, with its border closures and labour slowdowns, needed a more significant bailout. Since COVID-19 started, we have enjoyed record-low rates and so much cash infused into the economy that Canadians could increase spending on everyday items creating a surge in home prices.

_{Source: bankofcanada.ca}

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 existing homes, it became apparent that inflation was quickly running rampant. As a result, the BoC started ramping up the federal key policy interest rate to curb inflation quickly.

What’s different about these rate increases compared to the 1980s? In the 1980s, we did not have the same debt levels. Today, Americans make $1 for every $1 of debt, and Canadians make $1 for every $1.65; 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 – your monthly payment on your mortgage was likely less than $845 at 10% if you had a 35-year mortgage or, say, $1604 if rates increased to 20% on that same mortgage. And back then, credit cards and HELOCs were not as much in use, so likely, mortgage debt was all you had. 

So as rates jumped from 10% to 20%, their impact doubled. 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 only difference is that we no longer have 35-year prime mortgages or mortgages in the $100,000 range.

Navigating High-Interest Rates to Save Money on Your Mortgage

As the full effects of the interest rate hikes will be felt over the next year, it will impact consumer demand. As demand drops, so will the rates; navigating them to save money will depend on your situation. 

What goes up must come down – but might not come down fast enough for everyone. Mortgage rates are projected to come down but may not work perfectly into the timing of most mortgage renewals in Canada. Especially those variable-rate mortgage holders most affected by rate increases if they qualified in 2021.

Utilizing Fixed-Rate Mortgages to Reduce Interest Rate Risk

Conventional thinking is locking yourself into a fixed-rate mortgage at the first sign of downward rates. But as discussed above, 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 1.5 to 2 years to tame inflation, so riding out your mortgage on a shorter fixed term could be a good option, but then you may have to lock in again as the rates would not have hit their lowest point. Therefore, it makes strategic sense to lock in for a longer term, say 2 to 3 years, to give inflation more time to settle down.

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 – or as best as possible in your current financial situation.

Therefore, if you decide to take a variable-rate mortgage, it would be best to set your mortgage payment based on the current fixed rate offered. As long as your variable rate remains lower than the fixed rate you were being offered, you will come out ahead.

This way, once inflation starts heading down again and rates revert to their downward trajectory, you will be rewarded further as the BoC reduces its Key Policy Rate.

Mortgage Rates Forecast for Buyers and Sellers in 2023 ( Updated November 2023)

It’s probably best not to have specific expectations from the economy – even the experts keep missing the mark on predictions. The Bank of Canada (BoC) has been neck-in-neck with the US Federal Reserve (Fed) on the rate increase, which has kept the CAD devaluation to a minimum of 10% against the greenback this year. In contrast, other G10 economies have not been so lucky as their central banks did not advance rate increases as quickly as the Fed.

For homebuyers, the uncertainty and unpredictability of where interest rates may be headed, coupled with a shortage of housing, has many waiting on the sidelines for a correction. However, a correction back to prepandemic home prices is unlikely as supply and demand continue to keep home prices relatively stable. 

Sellers that have quite a bit of equity in their property and a healthy cash flow could benefit from deferring their decision to sell for a year or two while holding down a shorter-term mortgage option, which may make the most sense. We surmised that as soon as rates begin to decline, sellers could begin to see a resurgence in market activity and home prices.

Mortgage Rate Predictions Over the Next 5 Years (Updated November 2023)

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 in the coming years. 

Historical trends dictate that interest rates have peak and trough cycles that repeat. Future rates due to sticky inflation may remain elevated for longer as our economy experiences multiple constraints. One thing that remains certain is that there is an endemic lack of housing supply putting upward pressure on home prices. 

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

Interest Rate Forecast 2024-2028

Date	BoC Rate	Prime Rate (+2.2%)
March 2024	5.00%	7.20%
June 2024	4.75%	6.95%
September 2024	4.50%	6.70%
December 2024	4.50%	6.70%
March 2025	4.25%	6.45%
June 2025	4.25%	6.45%
September 2025	4.00%	6.00%
December 2025	3.75%	5.95%
March 2026	3.75%	5.95%
June 2026	3.50%	5.75%
September 2026	3.50%	5.75%
December 2026	3.25%	5.45%
March 2027	3.00%	5.00%
June 2027	2.75%	4.95%
September 2027	2.50%	4.70%
December 2027	2.50%	4.70%
March 2028	2.25%	4.45%
June 2028	2.50%	4.70%
Septemeber 2028	2.75%	4.95%
December 2028	3.00%	5.00%

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. Picking a lower rate to ride out the term can impact you with a higher rate if you have to renew again with the same lender, especially if the lender knows they have you pigeonholed due to stress-testing requirements. 

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.

If rates stay and don’t move down, 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 a variable 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

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 make them manageable for your budget and their longer-term feasibility for your financial plan. 

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

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