“We are being unusually clear…,” said Governor Tiff Macklem. “If you’ve got a mortgage…you can be confident that interest rates will be low for a long time.”
The BoC promised to provide monetary stimulus for “an extended period.” Based on its new forecasts, that means until at least 2023.
A second widespread lockdown (which the Bank is not expecting) would have “serious economic consequences” and extend the low-rate outlook.
The Bank sees the most serious pandemic impacts fizzling out by roughly mid-2022.
How to Play It
If the BoC’s forecast pans out, the next few years entail little risk of significant increases to bond yields (relevant for fixed mortgage rates) and the overnight rate (relevant for variable mortgage rates). On a related note, the all-important 5-year yield fell slightly this morning, following the Bank’s announcement.
If you don’t believe Governor Macklem’s tea leaves, and you’re still concerned that inflation and rates could surge before the next three years, you’ll be happy to know 5-year fixed rates are now:
approaching 2% for uninsured mortgages …at competitive lenders, that is. Sadly, many lenders either don’t have low enough funding costs or prefer targeting less price-sensitive borrowers who they think don’t comparison shop as aggressively. Fortunately, that doesn’t include you!
For would-be floaters in the crowd, unless you’re able to find a variable rate at least a half-point under the best 5-year fixed rates from fair-penalty lenders, the risk-reward of floating your rate isn’t overly attractive. Barring that sort of discount, if the BoC were to hike rates 100 bps in 2023, for example, you’d pay less in a 5-year fixed — assuming you didn’t break the mortgage early.
If you’re a real inflation hawk, you’ll find even longer terms, like 7-year fixed rates, now as low as 2.14% (a new record, as of yesterday). As a bonus, you can get these “lucky-7” mortgages from fair-penalty lenders. Just be warned, if you choose a lender with less favourable penalties and need to break the mortgage early, seven-year terms can have brutal IRD penalties and are anything but lucky.
The lowest rates are currently on 1-year fixed terms. In some provinces they’re now as cheap as 1.59% for insured mortgages or people with 35%+ equity. If you have a decent size mortgage, don’t mind renewing in a year, want maximum refinance flexibility and the lowest possible borrowing costs, one-year terms will do you right. That’s particularly true in a flat-for-long, COVID-depressed rate environment.