Mortgage Basics

2024 Forecast for Mortgage Rates in Canada 

2024 Forecast for Mortgage Rates in Canada 
Written by
  • Ashley Howard
| 10 May 2024
Reviewed, 10 May 2024
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    It may take up to 4 fiscal quarters, equivalent to 1 year, for the effects of rate increases to be felt by the entire economy. The current economy is beginning to experience the consequences of the 10 interest rate hikes implemented by the BoC.

    According to recent reports, a significant number of Canadian mortgages (approximately 2.2 million) will reach their renewal period within the next 2 years. As a result, numerous homeowners may face the challenge of dealing with significantly higher mortgage interest rates during their renewal process.

    Key Takeaways

    • Predictions from the experts at Canada’s big banks suggest that interest rates could gradually decrease starting in Q2 of 2024. 
    • Inflation is the primary factor influencing the Bank of Canada’s monetary policy decisions.
    • Choosing a shorter-term fixed or variable-rate mortgage could help borrowers up for renewal or refinancing save when rates start to decline.

    Canada’s Mortgage Rate Forecast 2024 

    According to predictions, the mortgage rate forecast for Canada will remain unchanged until at least mid-2024. However, some forecasts suggest that the first rate cut may happen in Q2 2024. The Big 6 Banks are united in their predictions that interest rates will not decrease in time for the spring lending season but are expected to decrease sometime this year.

    Forecasts vary regarding the extent and timing of rate cuts. However, these forecasts are constantly influenced by geopolitical and macroeconomic factors. They are subject to change based on what the Federal Reserve announces for interest rates in the US and how under control inflation is in Canada.

    The following table shows the predicted changes in the policy rate in 2024 from the big banks in Canada.

    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%

    Forecast for Long-Term Mortgage Rates

    The impact of recent interest rate hikes is now being felt throughout the economy. This is because working through the economy typically takes up to 24 months. Previous rate tightening cycles have shown that the Bank has achieved its objectives within 12 to 18 months. However, this round of rate increases has been challenging for the Bank of Canada and other central banks in advanced economies.

    The housing market is realizing the impact of rising interest rates, resulting in a decline in sales volumes. Experts anticipate this trend to persist into 2024 unless sellers are open to reducing prices to offset increased borrowing costs or if interest rates decline. 

    The economy has begun to slow, although inflation has not declined as much as anticipated in the last year. Nevertheless, there are still signs of rising demand. Experts forecast rate reductions beginning in Q2 of 2024 and continuing until the end of the year, though we should expect these reductions to be gradual. 

    Factors Influencing the Bank of Canada’s Future Interest Rate Decisions

    Inflation

    Inflation is the primary factor influencing the Bank of Canada’s rate decisions. The inflation target is set at 2%, and the BoC will adjust the policy rate to manage inflation and bring it to within this target. 

    When inflation exceeds this target, the BoC raises the policy rate. This causes lenders to change their prime rates, increasing them for loans and mortgages, directly impacting borrowing and spending. This strategy aims to curb inflation and return it to the desired target of 2%. 

    The BoC will lower the policy rate when inflation is lower than this target. When this happens, lenders will change their prime rates, reducing them for loans and mortgages. This strategy aims to boost the economy by encouraging borrowing and spending. 

    Employment Data

    For the BoC to maintain the inflation target of 2%, the economy must operate at its maximum sustainable level. This indicates that the economy is running at peak productivity and can sustain itself without increasing inflation. 

    Many will struggle to find employment and experience declining income and savings when employment falls below the maximum sustainable level. This impacts spending behaviours, potentially leading to inflation falling below 2%. 

    When employment rises above the maximum sustainable level, employers face difficulties finding workers to meet demand, which increases prices and wages, potentially leading to inflation rising above 2%

    Striking the right balance between inflation and employment is challenging, as both factors are evaluated based on data from the previous month rather than real-time information.

    The United States Economy

    The economy in the United States and decisions made by the Federal Reserve (The Fed) impact the decisions made by the Bank of Canada. Since our economies are closely linked, Canada typically follows decisions made by the Federal Reserve to keep the Canadian dollar from devaluing against the US dollar.

    Ways to Save Money on Your Mortgage When Interest Rates Are High

    While previous interest rate increases are being realized, consumer demand will continue to be impacted. As this demand decreases, rates are expected to decline, and your individual circumstances will determine what strategy to use to save money while rates are high.

    In Canada, a significant amount (approximately $900 billion) of mortgages will be up for renewal within the next few years. As a result, individuals who are coming up for renewal should anticipate potential payment shock. This could limit household budgets significantly depending on interest rates at the time of renewal. 

    Fixed-Rate Mortgages to Mitigate Interest Rate Risk

    The traditional belief is that you should choose a fixed-rate mortgage when interest rates start to increase. However, considering that inflation is a lagging measure and bond yields are a predictive factor, it may be more appropriate to wait before locking in a mortgage rate.

    It’s advisable to position yourself to benefit from lower rates. As per the Bank of Canada’s statement, monetary policy measures typically take 18 to 24 months to impact inflation. As inflation still hasn’t reached the 2% target, interest rates could take longer to decrease. Opting for a shorter-term fixed-rate mortgage could provide stability and predictability in mortgage payments while you wait for rates to fall.

    Variable-Rate Mortgages for Minimizing Interest Rate Exposure

    If you can adjust your budget to account for potential fluctuations in interest rates, consider going for an adjustable-rate mortgage (ARM) to take advantage of lower rates. 

    If you are a well-qualified borrower, renew your mortgage into an adjustable-rate mortgage (ARM) instead of a variable-rate mortgage (VRM) during a decreasing rate cycle if you are comfortable with risk. By doing so, you can benefit from potential decreases in mortgage payments over time as the ARM adjusts immediately based on changes in the lender’s prime rate.

    Predictions for Mortgage Rates 2024-2026

    Foreseeing the direction of interest rates over the next few years is nearly impossible. However, interest rates are anticipated to gradually decline once inflation is brought under control and closer to the 2% target.

    There is a chronic lack of housing in Canada, which will continue to drive inflation. In the next few years, more households will feel the impact of higher interest rates, specifically those who secured mortgages with ultra-low rates during 2020 and 2021, when their renewal dates come up between 2024-25.

    The big banks have forecasted their predictions for 2025, giving us insight into where interest rates may be heading for those coming up for renewal. Additionally, the Bank of Canada market participants survey quarterly forecast provides insights on where we may expect interest rates further into the future, with expectations into the first half of 2026. 

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

    Tips for Finding the Best Mortgage Deals on Your Renewal or Refinance

    If your mortgage is due to renew in the next few years, choosing a new rate that aligns with your financial objectives will be a top concern, as many mortgages coming up for renewal currently have low interest rates. If you plan to switch lenders for a more competitive rate, your decision may be influenced by your ability to meet stress test qualification criteria. 

    Depending on where rates are at the time of renewal, you may opt for a shorter fixed-term or variable-rate mortgage in anticipation of rates falling further in the near future. We suggest an open discussion with a mortgage specialist to determine the most appropriate choice for your situation.

    Borrowers who are close to renewal or looking to refinance have the opportunity to benefit from a mix of fixed and variable options. For example, you could secure a portion of your mortgage at a fixed rate while taking the remaining balance at a variable rate to combine savings potential. 

    A hybrid approach can potentially decrease your total risk outlook and allow you to take advantage of potential decreases in interest rates. This would be most advantageous if the variable mortgage portion is an adjustable-rate mortgage (ARM). One challenge in utilizing this choice is that financial institutions that provide hybrid mortgages typically do not offer competitive rates compared to other lenders. 
    If interest rates remain unchanged and the outlook for rates to decrease changes, assessing the overall risk between choosing fixed and variable options is advisable. For individuals who have considerable home equity, net worth, and available cash flow, selecting an adjustable-rate (ARM) may be suitable. For first-time homebuyers (FTHB), it’s best to opt for a fixed rate to avoid significant increases in monthly mortgage payments should interest rates stay higher for longer or change course and increase again.

    Frequently Asked Questions

    Could we see a decrease in mortgage interest rates in 2024?

    Most experts suggest that interest rates will decrease this year gradually. However, there will be a balancing act between not lowering them too much to avoid inflation and raising home prices and lowering them enough to keep the economy strong.

    What can we expect in terms of interest rate increases within the next 5 years in Canada?

    While it’s hard to predict where interest rates may go, especially so far into the future, most experts predict they will decrease in the next few years. Interest rate expectations suggest that rates will decline rather than increase.  

    What will happen to my mortgage payment if it’s up for renewal in 2024?

    If your mortgage is up for renewal this year, you likely have a lower interest rate than what lenders are offering today. You should anticipate your mortgage payments to double or, in some cases, even triple unless rates fall significantly this year.

    Final Thoughts 

    Mortgage rates will continue to fluctuate, so the most important factor isn’t the rate itself but rather the portion of your disposable income that will be used to fulfill your mortgage obligations. As you navigate higher interest rates than we have seen over the past few years, you should aim for consistent and manageable mortgage payments that align with your budget and long-term financial goals. 

    If your mortgage is coming up for renewal or you’re looking to refinance, contact us today for advice on making the best mortgage rate decision.