Mortgage Basics

Canada Mortgage Rate History

Canada Mortgage Rate History
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  • Tvine
| Aug 30, 2023
Reviewed, Sep 21, 2023
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    Looking to buy a house in Canada? Understanding the country’s mortgage rate history can help you make informed decisions about financing your home. The Bank of Canada’s prime rate has a significant impact on mortgage rates, as it influences how much interest lenders charge borrowers. By examining the trends in the prime rate over time, you can gain insights into how mortgage rates have fluctuated and potentially predict future changes. In this article, we dive into Canada’s mortgage rate history, exploring how the prime rate has evolved and the factors that have influenced it. 


    Key Highlights

    • The Bank of Canada’s overnight rate was established in 1996 and directly influences the prime mortgage rates offered by banks and lenders.
    • The Bank of Canada rate reached a record high of 20.03% in 1981, during the global oil crisis. 
    • Conversely, the Bank of Canada rate reached record lows during the COVID-19 pandemic, dipping down to 0.25%. 

    History of Mortgage Rates in Canada

    The history of mortgage rates in Canada speaks to a larger picture of the country’s economic development over the decades. Created as a response to economic conditions of the Great Depression era, the Bank of Canada was founded in 1935 as a private institution and then nationalized as a public institution in 1938. Since its inception, the Bank of Canada has played an important and influential role in Canada’s economy and the state of housing in the country.

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    Who Historically Determines Mortgage Rates in Canada?

    Ever since its establishment in 1935 and that of the overnight rate in 1996, the Bank of Canada has been the main determinant of mortgage rates in Canada.

    Banks and lending institutions update their prime rates based on the fluctuations of the Bank of Canada’s overnight rate. Different banks and lenders will offer varying rates to borrowers, but typically, when the overnight rate increases, banks and other lenders in the country follow suit.

    Posted Historical 5-Year Mortgage Rates (1950s – present)

    Over 60% of mortgage renewers choose the 5-year fixed rate mortgage, making it the most common mortgage in Canada. 

    The 5-year fixed rate mortgage also plays the role of an important indicator, due to its popularity, but also because it is determined by 5-year government bond yields. Banks calculate fixed mortgage rates based on the interest rates they’re receiving from their investments in bonds. 

    Posted Historical 3-Year Mortgage Rates (2000 – 2023)

    While less popular than the 5-year fixed rate mortgage, the 3-year fixed rate mortgage is preferred by holders who want a shorter mortgage term, notable during high interest climates. 

    As the historical overview above indicates, the 3-year fixed rate mortgage roughly follows the fluctuations of the BoC Prime Rate, but also tends to sit slightly higher. Because 3 years is such a short term, banks and lenders post the 3-year fixed rate higher than the 5-year. For this same reason, some borrowers who are interested in a 3-year fixed rate mortgage are often advised to look into variable and adjustable rate mortgages. Of course, this will strongly depend on your personal circumstances.

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    Chronological Dive into Mortgage Rate Trends

    Here are some key moments in history and in Canada’s economy that affected the Bank of Canada rate, as well as housing in general.

    Post-WWII Era: Baby Boomer Housing Demand

    In light of Canada’s role in WWII as a key supplier of natural and manufactured resources, the country’s economy emerged stronger after the war ended. Employment rates were high, especially with women entering the workforce, increasing buying power across the board. Demand was high and the Bank of Canada’s decreased rate at 2.0% made it so that many could invest in housing.

    The 1970s and 1980s: Inflation and Stabilization

    This period in the Bank of Canada prime rate’s history was severely marked by the global oil crisis and the OPEC oil embargo. In the late 1970’s, the prime rate reached double digits (10.25%) for the first time and continued to increase well into the 1980’s, reaching a record high of 20.03%.

    The 1990s: Economic Recession and Recovery

    In the following decade, the Canadian economy recovered from the 1980s recession and the Bank of Canada rate decreased in turn. In the aftermath of the crisis, the inflation-target rate was put into place. 

    2000s: Global Financial Crisis and its Aftermath

    The 2008 recession, also known as the Great Financial Crisis,  made a huge impact on the Bank of Canada rate. In stark contrast to what happened in the 1980s, the rate decreased below 1% during the crisis, bottoming out at 0.5% in March of 2009.

    2010s-2020s: Digital Revolution and Modern Challenges

    In the early 2010s, Canada’s economy saw a minor recovery before being hit by yet another recession caused by dipping oil prices. Once again, the rate dropped below 1%, reaching as low as 0.75%.

    The late 2010s (namely, 2018-2019) were marked by some economic growth, but low inflation rates kept the Bank of Canada rate at a low of 1.75%. This trend was quickly shattered by the onset of the pandemic.

    2020 – 2023: COVID & Inflation

    Due to the economic shutdown caused by the COVID-19 pandemic in March 2020, the Bank of Canada took another dive below 1% and reached close to its lower limit at 0.25%. The rate was stuck  at this low throughout 2020 and 2021, as reduced consumer spending maintained a rate of deflation.

    With the world economy deeply disrupted and supply chains at a halt, the tailend of the pandemic saw inflation rising above 5%. In March 2022, this marked the start of the Bank of Canada rate hikes in an attempt to curb what they had thought was simply transitory inflation. This trend in rate hikes has persisted into 2023. 

    FAQ

    What was the highest mortgage rate ever in Canada?

    The highest mortgage rate ever in Canada was during the 1980s global oil crisis. During this economic recession, the Bank of Canada rate skyrocketed to 20.03% in August of 1981.

    How high can mortgage rates go in the future?

    From a historical perspective, there’s really no telling how high mortgage rates can go. That being said, the historical trend places Canadian mortgage rates in the 3% range. 

    As for recent changes to mortgage rates, it is likely that mortgage rates will continue to increase as long as inflation is still high in Canada. 

    Conclusion

    Understanding historical mortgage rates in Canada and the impact of Bank of Canada Prime Rate on mortgages can provide buyers with important insights into the current market and what is to come in terms of the Canadian housing market. This knowledge can help potential buyers plan their homebuying strategy, especially when paired with the advice of a mortgage expert.


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