Canadian mortgage borrowers are going to be paying much higher rates soon. Desjardins’ latest consumer interest rate forecast shows the 5-year fixed rate mortgage climbing — a lot. Over the next few quarters, it can hit up to 7% — a rate that would have seemed impossible back in 2019. Elevated inflation may push borrowing costs to a generational high.
Canadian 5-Year Fixed Mortgage Rates Are Almost 5%
Canadian banks are raising rates aggressively to deal with rising funding costs. Desjardins’ posted rate for a 5-year fixed-rate mortgage is 4.99%, but 4.19% appears to be what brokers are offering. That brings up an important point about posted rates — almost no one pays them.
Today’s forecast looks at the 5-year fixed-rate mortgage, which is rarely charged. It typically exists for penalties, with a discount almost always applied for borrowers. The discount in this case is 80 basis points, which is typical for the market. Knowing this, few will ever pay the posted rate of interest. However, the discount isn’t very big as rates climb, and it’s still going to cost a lot more to borrow.
Canadian 5-Year Fixed Mortgage Rates Can Climb To 7%
Over the next year, the 5-year fixed-rate mortgage is expected to gradually climb. Interest costs are forecast between 5.3% and 6.3% by the second quarter of 2022 and rise to 5.3-7.0% in the fourth quarter. The low range isn’t much higher than today, but the high end would likely create an economic shock.
Here’s another curveball — they expect mortgage rates to peak by next year. The first quarter of 2023 is forecast at 5.30-7.15%, a slight climb on the high end of the range. By the end of 2023, the range falls to 4.85-6.75%, indicating an economic slowdown. That wouldn’t be too surprising since inflation or rising rates both lead to lower demand.
Many risk uncertainties exist right now. Even the Bank of Canada (BoC) no longer sees inflation cooling on its own, or in a reasonable amount of time. They see 2024 as the soonest inflation can hit the target range. This is in-line with other economists (finally), as long as the economy isn’t derailed.
A lot of uncertainty but one thing is for sure — the era of dirt-cheap rates is in the rear view mirror.