Mortgage Rate Forecast Canada 2023 – 2024
The final 2023 Bank of Canada interest rate announcements are on:
Wednesday December 6
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The decisions Canadians make on their mortgage in 2023 largely depend on the mortgage rate forecast. It’s a decision that will affect homeowners for several years to come and could lead to thousands of dollars in mortgage interest savings.
Here, we will look at where mortgage rates are likely headed, based on a current October 22, 2023 review of economics, years of in-depth mortgage market study, and working with thousands of mortgage files.
These 4 main predictions will be reviewed (fully updated for Fall 2023):
- Historical context: Mortgage rates will likely gravitate lower over the long term, to a historical trend in the mid-high 3% range.
- The market consensus on the mortgage interest rate forecast in Canada (as of October 2023) is for the Central Bank to hold rates at 5%. However, one more .25% increase would not be a complete surprise.
- Signs of economic slowdown, with lower fixed mortgage rates near the end of 2023/early 2024 and a Central Bank of Canada rate drop in mid 2024.
- How to reduce your risk against mortgage interest rate increases, best position yourself in this rate cycle, and save the most on your mortgage.

Historical context: Mortgage rates in Canada are forecasted to gravitate towards historical lows for the long term of 5 – 10 years.
To help determine mortgage rate forecast, one of the best perspectives we have available is a historical one.
During the great recession of 2008, the financial system and economy as a whole required bailouts and stimulus as never before seen, just to keep running. Thankfully, the stimulus did its job, and the economy rebounded and got back on track. However, between 2008 – 2019, for over 10 years, there was very low or stagnant GDP growth, and interest rates remained low accordingly.
During the ecovid pandemic, in 2020 – 2022, we witnessed a similar massive economic bailout. This time the stimulus was far greater, with over 40% of dollars ever created between 2020 – 2022.
However, in part due to a literal shutdown of the economy and of supply chains at one point and difficulty rebooting these supply chains, combined with excess consumer demand from pandemic savings, there is much more inflation as the economy stabilizes.
This inflationary difference will be discussed in more detail below. However, the main point here is that historically, when a massive new government and private debt are layered upon already massive debt, this can perpetuate dependence on yet ever cheaper debt to stimulate the economy long term. It can lead to long term economic stagnation and, importantly, to a ‘magnifying effect’ of increased rates.
More specifically, with 5 times more debt in the economy today, adjusted to inflation, than in the 1980s and early 90s, a single 0.25% rate increase makes an approximately 5 times bigger impact than it did when debt levels were a fraction of current levels. Accordingly, there is significant long term pressure for rates to remain low.
From another historical perspective, when rates increased in the 1980s from a base point of 10% to a 20% high point, this represented a 2x rate increase. However, a rate increase in 2022 – 2023 from a base point 0.25% to 5% represents a 20x rate increase, which will have a much greater shock to the economy.
Finally, the ‘neutral rate‘ or ‘target rate’ at the Central Bank of Canada, which is the rate seen as neither repressing nor stimulating the economy, is currently 2.5% – 3%. Given this, we may have 2% of Central Bank rate decreases in store (5% current down to 3%), and this, too, infers fixed and variable rates to stabilize in the high 3% range.
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As of October 2023, the market consensus on the mortgage rate forecast in Canada is for the Central Bank to hold the prime rate at 5% at its October 25, 2023 meeting and will continue to hold until inflation is closer to 2%.
As of January 25, 2023 the Central Bank of Canada has indicated a conditional pause on increasing the prime interest rate. More specifically, this pause was conditional on economic activity and inflation declining over the first half 2023. However, as of March and April 2023, there were signs that the economy and inflation were accelerating. This has caused the Central Bank to reconsider how much hiking will be enough to tame inflation.
The main tool we have when reading the current mortgage rate market is the Government of Canada Bond Yield. The Canadian bond is a government debt security that pays a return to an investor. The ‘%’ based return is called the ‘yield’ and is considered one of the safest investments because the Government would have to go bankrupt for it not to pay its investors.
The Government of Canada 5 year Bond Yield factors in all known economic data on a day to day, and even a minute to minute basis. Simply put – when the market/ bond traders think that the Central Bank of Canada will increase rates, the Bond Yield increases. When the Bond market thinks the Central Bank rate will decrease, then the yield drops. In other words, the Bond yield trades or is priced in anticipation of where the Central Bank of Canada rates will move. The Central Bank of Canada makes its rate decisions based on how it sees the economy performing.
Currently, as of October 22, 2023, as seen in the Yield chart below, the Canadian Bonds are pricing in a pause in the Central Bank of Canada rates in the second-half of 2023. The market is also pricing in the first Bank of Canada rate drop in Summer 2024.
Ultimately, the Bank of Canada is determined to get the job done by cooling the economy and reducing inflation closer to the 2% range, so we expect the bond yield to revert lower towards the end of 2023/ early 2024.

A slowing economy, lower inflation and lower Bond Yields. What does this mean for mortgage interest rates?
With lower spending comes a slowing economy, lower inflation, and eventually, lower mortgage interest rates.
Current high rates will lead to lower rates – by design.
As of October 2023, big banks have a growing consensus that a recession in Canada will officially happen in late 2023 or early 2024. Based on the surprisingly low GDP data that came out in October, it looks more likely the Banks are correct about the recession forecast. Some leading economists point out that if we look at GDP per capita, Canada is already in a recession. More specifically, given this per capita measure there has been 4 quarters of economy/GDM. Given this, Canada has seen no Real GDP growth (economic growth after accounting for inflation) since 2018.


As consumer demand drops for goods and supply chains improve, prices of economic inputs such as copper, steel, silver, lumber, microchips, shipping costs and many other commodities have fallen drastically. These trends are very anti-inflationary. However, food costs continue to be inflationary, with energy/gas costs also generally higher. With a slowing economy, there likely will be a point later in 2023 or early 2024 when these more inflationary areas of the economy cool off.
It is known in economics and recently mentioned by the Central Bank of Canada that it takes 12-24 months for a single interest rate hike to ‘trickle through’ or have a full effect on slowing an economy. While the first small 0.25% interest rate hike in Canada happened in March 2022, as of September 2023, we have not seen the full effects of the rate hikes of 2022. More likely, we have only seen about half of the potential effects of current Central Bank interest rate hikes.
As 2023 comes to a close, we will likely see the effects of last year’s increases build momentum.
So it is important to keep in perspective that:
(1) The previous rate hikes we have seen have not had their full effect on slowing the economy, and we are already seeing a recession on the horizon.
(2) It is a matter of how long Canada can withstand such high rates before there is a significant negative economic impact.
Accordingly, the question is becoming more about how long these high rates will remain. The unfortunate answer is likely until the economic resilience we have been witnessing in discretionary spending is suppressed.
Once the economy slows to the point of recession, there is a better potential for inflation to drop to 2%, and at this point, there is an expectation of a sustained rate drop cycle. As of October 2023, the financial markets think it will take about 9 months. However, it could very well take more or less time.
So, what does this mean for mortgage rates?
What goes up to slow the economy will eventually come down to stimulate the economy.
The Central Bank of Canada (and the Federal Reserve in the USA) is determined to fight inflation, which is why they are seen as slamming the breaks on the economy as a whole. There is no doubt this, unfortunately, will be painful for many. However, low inflation is needed on a foundational level to enjoy another long-term run of low interest rates.
Eventually, the Central Banks will begin lowering rates again to stimulate the economy and pull us out of the recession. This means lower mortgage interest rates.
More specifically, after the Central Bank has reached its peak or ‘terminal rate’, historically, it takes on average 6 months for the Central Bank to start lowering rates again. However given the stickiness of current inflation, instead of increasing rates further, the Central Bank may decide to leave rates at 5% for longer.
In October 2023, Bond markets are projecting the first Central Bank rate drop in July 2024.
At this point, the expectation for the first Bank of Canada interest rate drop is projected out long enough that financial markets are essentially saying that they are waiting for conclusive evidence of a recession or major economic slowdown. In other words, markets may have gone from being overly optimistic, anticipating a rate drop, to a more cautious ‘wait and see’ type position. Given the current economic data, a recession could happen at any point in late 2023 or early 2024, prompting a sudden drop in bond yields and fixed mortgage rates.
It’s important to note that once rates begin to fall – this can spur inflation again. For this not to happen, the job market likely needs to cool further or for a more substantial correction.
Also, Canada needs to work in step with the US economy and their Fed rates. Otherwise, the Canadian dollar could sink substantially, which can cause inflation. In other words, even though Canada will likely enter recession before the US, the Central Bank of Canada may hold out a bit longer to drop the overnight rate, until a US recession is imminent.
While the variable rate mortgage is directly affected by the Central Bank decisions, we will likely see 3-5 year fixed rates generally trend lower in late 2023/early 2024. Because fixed rates are ‘pegged’ to the Government of Canada Bond Yields and Bond Yields trade in anticipation of Central Bank rate decisions, we will likely see rates float lower, but not in a straight line.
For example, fixed rates were mostly in the high 5% range in November – December 2022. But then dropped to the mid 4% range throughout January 2023 and remained in this range through to mid May. In June, fixed rates have mostly trended back into the 5% to low 7% range (depending on the term selected), as bond yields priced in the first rate drop further out into 2024.
It’s not a matter of if, but when there is another significant downturn for fixed rates, and as of October 2023 we may have another 2 – 6 months until lower fixed mortgage rates.
Rates will not normalize at the lowest levels seen during covid. However, as fixed mortgage rates generally remain in a restrictive 5-7% range, the expectation is that rate normalization may occur into the mid-high ‘neutral rate’ range or in the high 3% – low 4% range for mortgage rates.
The CIBC Capital Markets projection from April 2022, seen just below, illustrates a good representation of this forecasted rate trend. However, given stubborn inflation, the Central Bank rate peak will clearly be higher than in the numbers indicated in the chart:

Again, while the exact numbers are not coming in as was expected in April 2022, the main thing to note from the chart is that the rates and bond yields are increasing into 2023, but then, towards the end of 2023 and into 2024, the bond yields are forecasted to drop, prompting a decrease in the Central Bank of Canada rate. This bigger-picture rate trend is the primary idea behind the chart.
How to reduce your risk against mortgage interest rate increases and save the most on your mortgage.
Unfortunately, there is no ‘good’ mortgage rate to lock into at this time of higher rates. With this said, a calculated approach may be considered to position yourself to take advantage of lower rates once they begin to fall.
According to the Central Bank of Canada, it could take well into 2024 for inflation to fall substantially and until 2026 for the prime interest rate to drop to its ‘neutral rate’. In other words, there will not likely be a sharp drop in Central Bank rates but a gradual drop over 2 years.
A Fixed Mortgage Rate Strategy to Reduce Interest Rate Risk
The traditional thinking is that a 5-year rate is a safer bet. However, from the ‘rate drop’ perspective analyzed above, if you lock in a higher rate for too long, you risk paying too much.
Therefore, a shorter fixed rate term, such as a 1-3 year fixed rate, could help position you for lower rates in 2024-2026, assuming the economy weakens.
A 3 year fixed rate, is a more careful approach and could position you better to renew into a substantially lower fixed rate, perhaps up to 2% lower, in 3 years’ time. For example, if your rate today is locked in at 5.77%, you would not see further upside on your rate for the next 3 years. This zero upside potential for 3 years comes with the peace of mind many Canadians are looking for with a fixed rate. Also, the 3 year fixed rate may be broken in the last year of the term, potentially with a lower penalty if rates fall sooner.
A 1-2 year fixed rate can also make sense. It is likely that within 1 year, fixed rates will be lower. Fixed rates typically drop well ahead of the Bank of Canada driven variable rate, so a mortgage term renewing in 1 year could lead to a lower mortgage renewal rate, even if the Central Bank has not dropped rates yet or has just begun to. However, 1 year does not leave much room for error. There could be a resurgence in inflation or some other unknown event that keeps rates higher for longer. Additionally, the 1 year fixed is the highest % rate in 2023. So, this adds to the risk of paying too much.
A 2 year fixed rate is slightly lower than the 1 year and provides more time to allow rates to drop.
What about a 5 Year Fixed Rate?
As of September 2023, there is some concern that central bank rates will be higher for longer and that further increases may be needed to tame inflation. Or if there is a housing market correction, banks may price in substantially more losses and risk into mortgage rates. Although the financial market data does not currently support this view, it doesn’t mean higher rates can’t persist. So, for added comfort, it can be worth considering a 5 year fixed rate mortgage.
Additionally, 5 year fixed rates are currently about 0.50% lower than a 3 year fixed rate and over 1% lower than a 1-2 year fixed rate. So this lower rate moderates the risk of the 5 year fixed rate mortgage.
For those looking for the lowest rates today, and are comfortable if rates are, for example, 1% lower 2-3 years into their term, then a 5 year fixed rate in the low 5% range is worth considering.
A Variable Rate Strategy to Reduce Interest Rate Risk
For those with a higher tolerance for risk, a variable rate is worth considering.
As soon as the rate begins to fall, perhaps in mid-2024, the variable rate holder will benefit immediately. This ‘lower rate sooner’ potential could lead to more savings than locking in a shorter term, 2-3 year fixed rate.
Given over 40 years of historical rate data, as seen in a York University study on Canadian interest rates, the variable rate could lead to more significant savings over the long term.
There is certainly the potential for more savings with the variable rate, especially if rates fall sooner than expected. Still, with the potential for variable rates to increase further if inflation rebounds, it will take a thicker skin in 2023 to realize these savings over the next 5 years.
Connect with Altrua Financial to see what strategy may be right for you, or check out our other articles on the subject just below:
Major Bank Prime Interest Rates Canada

7.20%

7.20%

7.20%

7.20%

7.20%
Central Bank of Canada Prime Rate
