Five-Year Mortgage Rates Drop Below 4% Amid Trade Uncertainty

Mortgage rates in Canada have fallen below 4% as financial markets react to trade tensions between Canada and the U.S. Bond yields have dropped, leading to lower fixed rates. This decline presents an opportunity for homebuyers and those renewing their mortgages, but uncertainty remains over how long these rates will last.

Why Fixed Mortgage Rates Are Falling

Stock markets declined after the U.S. announced potential tariffs on Canadian imports. Investors sought safe-haven assets, leading to a drop in bond yields. The Government of Canada’s five-year bond yield fell to 2.5%, pushing mortgage rates lower.

By Tuesday, the lowest five-year fixed rate available in Canada had dropped to 3.89%. This is the lowest level since mid-2022. While bond yields rebounded slightly, they remain below previous highs, keeping rates down.

How Long Will Low Rates Last?

The mortgage market remains volatile. While a temporary delay in U.S. tariffs helped stabilize bond yields, rates are still trending lower. Analysts suggest that employment reports in Canada and the U.S. could influence yields further, leading to either more rate reductions or potential increases.

Borrowers should act quickly to secure lower rates. A preapproval or rate hold can lock in today’s rates for up to 120 days, providing a hedge against future fluctuations.

Variable Mortgage Rates and Future Projections

The trade dispute could also lead to a cut in the Bank of Canada’s benchmark rate. The two-year bond yield, which reflects expectations for future interest rate cuts, has dropped to 2.45%, its lowest point in three years.

Economic forecasts suggest the Bank of Canada may cut rates by 0.25% in upcoming meetings, possibly continuing through October. If this happens, variable mortgage rates could drop to 2.7%. If fewer cuts occur, rates could remain in the 3.7% range.

What Borrowers Should Consider

More buyers are considering variable rates in anticipation of future cuts. At mortgage brokerages, variable-rate inquiries have increased significantly compared to late 2024. However, economic uncertainty remains a factor. If tariffs lead to stagflation—rising inflation without growth—the Bank of Canada may reverse course and raise rates.

For those unsure about market conditions, shorter-term fixed rates (such as three-year mortgages) provide a balance between stability and flexibility. Five-year fixed mortgages remain the most popular choice for borrowers seeking predictability.

Impact on the Housing Market

Lower mortgage rates generally increase homebuying activity by boosting affordability. With rates dipping into the 3% range, market demand could rise, encouraging more buyers to act before rates increase again.

However, uncertainty about tariffs and economic stability may keep some buyers on the sidelines. A prolonged trade war could slow economic growth, affecting job security and consumer confidence.

Falling rates offer potential savings for buyers and homeowners renewing their terms. However, market conditions remain unpredictable. Borrowers should secure a rate hold and monitor upcoming economic reports for further changes. With uncertainty in trade policies, mortgage rates may continue to fluctuate in the months ahead.

More…

• https://financialpost.com/real-estate/mortgages/mortgage-rates/falling-fixed-mortgage-rates-could-be-booster-juice-for-buyers
• https://www.msn.com/en-ca/money/finance-real-estate/fixed-mortgage-rates-see-some-easing-amid-trump-tariff-threats-here-s-why/ar-AA1yu1zs
• https://www.theglobeandmail.com/investing/personal-finance/article-five-year-mortgage-rates-sink-below-4-per-cent-amid-trade-uncertainty