Major Bank Prime Interest Rates Canada
Central Bank of Canada Prime Rate
The Canada Prime Rate and Mortgage Interest Rate Forecasts are Closely Intertwined – But Are Not Exactly the Same
Here We Will Take a Close Look at Where Rates are Likely Headed, and How You Can Benefit From These Analysis
As we settle in to 2021, in a brutal era of COVID, the housing market in Ontario continues to strengthen mainly due to historically low and economically stimulating mortgage interest rates. To this extent, many leading economic thinkers are equating the availability of such low-interest rates to a sort of borderline ‘free money’ phenomenon. In addition to low rates, a rebounding job market and a lower supply of homes available for sale in Canada and Ontario continue to provide upside pricing pressure.
This strength can be seen across the province – in GTA where most regions are showing accelerating growth and substantial month over month increases in value – and in other areas across Ontario such as Waterloo Region, Barrie and Ottawa where all-time housing price records are seen.
As we look ahead into 2021, 2022, and even 2023 we can a continuation of this driven by dynamic economic stimulation, that overall point to an era – not a trend but an era – of low mortgage rates. Specifically, we can see the prime rate in Canada remaining at low levels of .25% until 2023, but as importantly, mortgage rate trends show fixed rates within a 0.25% – 0.40% bandwidth of late 2020 rates.
In other words, the lowest mortgage rates offered today are in the 1.49% range for 5 year fixed rates, and should not exceed 2.00% for the best mortgage rates as we move into 2021 and 2022.
Here we will expand on these ideas and others, concerning this era of ULTRA low-interest rates.
We are in and continue to move into an economic era of massive, unprecedented stimulus and experimentation. The ideas that are supportive of continued economic and inflationary stability and growth are in large part unprecedented and are similar to those seen within the ‘Modern Theory‘ economic camp.
More specifically, as GDP growth rates remain low or even negative, and as employment rates remain at recessionary type lows, our main markets – stock markets and housing markets continue to reach new highs. How can this be? The answer comes down to the amount of stimulus pouring into the economy. Our main consideration here is a continued economic stimulus, in the form of low, low – low interest rates.
The Bank of Canada has said that it is committed to maintaining its Central Bank rate at .25% until at least 2023. So borrowers can remain confident of low borrowing costs until at least this time. However, ahead of Central Bank interest rates, the market/ trader driven Government of Canda Bond Yield will continue, independently of the Central Bank Rate, to be more closely tied/ correlated to fixed mortgage rates. Accordingly, the 5-year government of Bond Yield chart seen below mirrors the five year fixed mortgage rate pricing almost to a tee.
What we can see here is that, as of December 2020, bond yields are plateauing or bottoming out, so we may see a general short term sideways movement in fixed rates, aside from some potential mortgage lender discretionary discounting or bank rate promotions.
As economic conditions in Canada continue to improve we may see some lift in the bond yield many steps ahead of a decision from the central bank to increase their rate. This is a central idea to understand – as a result of the market driven bond yield movement, the fixed rates react ahead or in anticipation of Central Bank moves.
Given this, we are likely to see increases in fixed-rate into the low 2% range towards the middle and end of 2021 and a solid move into the 2% range in 2022.
Then in 2023, we may see an increase in the Central Bank rate.
The two things that may change this likely case are (1) A new version of ‘COVID 2.0’ that the vaccines are not capable of treating or (2) Many more bankruptcies than the Government is expecting. These issues, or a similar economic setback, could hit the economy hard enough to put the central bank rate to 0% (or possibly negative), and corresponding fixed and variable rates closer to 1%. However given where things are going, we are not expecting this as a likelihood.
From a mortgage rate perspective, there are two ways to play this. For now, as of December 2020 we are recommending a fixed mortgage rate between 1.39% and 2% at the highest. We do not believe in most likelihoods, rates have much if any further to drop.
On the other hand, the variable-rate also looks good because in a worst-case scenario you may benefit, and also variable-rate mortgages have certain features that make them more flexible and feature-rich than fixed rates.
Connect with me, Brent Richardson, CFP and Principal Broker at Altrua for a discussion on rates and how we can provide the best mortgage options for your needs and goals.