Canadian Mortgages To See The Largest Rate Hike In 40 Years As Bonds Go 90s-Style

Canadian mortgages are getting a lot more expensive as bond yields surge higher. The benchmark Government of Canada (GoC) bonds are climbing, influencing fixed-term mortgage costs. Canada hasn’t seen this kind of pressure on bond yields since the 90s, at the peak of the last tightening cycle. This cycle, however, is just getting started. Expect mortgage rates to climb like they haven’t in a whole generation.

Canadian Bond Yields Haven’t Climbed This Fast Since The 90s

Canadian benchmark bond yields climbed at one of the fastest rates ever, especially the 5-year term. The yield reached 2.47% on March 29, 2022, up 22.8 basis points (bps) from the week before. Over the past month, yields have climbed a massive 80.2 bps. This is the highest rate yield since May 2011, a level many thought would never be breached again.

The past year has seen yields go from close to record lows, to showing some of the fastest growth ever. The GoC 5-year has climbed 116 bps year to date and is up to 150 bps this past year. A whole generation of Canadians have never seen anything like this.

“That is the steepest one-year move in this key bond since the late 1990s and was last seriously topped in the great tightening cycle of 1994/95 (when yields popped by more than 400 bps in a year),” says BMO Chief Economist Douglas Porter. “That’s the largest five-year rise in five-year rates in 40 years of records.”

Canadian Mortgage Rates Are Climbing Fast

Higher yields will drive mortgage costs higher, at a rate not seen in decades. “In other words, those who took out a mortgage during the hot housing market of early 2017 are facing a big increase in rates,” says Porter.

Mortgage industry veteran Rob McLister mentioned this can mean paying more. He found over the past 5-years, the Big Six have only advertised higher 5-year fixed rates for 3-months. That was from October 2018 to December 2018, a very small window. There is a strong possibility borrowers renewing a 5-year will be paying higher rates. 

Though it’s important to remember, even at this rate mortgages are still dirt cheap. Interest costs are still minimal.

“…the only other time the five-year change was this large was in early 1990. This will indeed be a big test for the housing market,” says Porter.

10 Comments

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  • Alan 6 months ago

    Let the party begin!

    Nobody forced them to pay over a mil for a cottage in Barrie, Kawartha Lakes or Wasaga Beach as if they were the new Miami Beach with warmer weather.

    The government, federal and provincial froze or cut social safety nets for the poor while subsiding these greater fools and feudal investors.

    • M W 6 months ago

      Agreed, looking forward to some foreclosures hopefully soon!

    • Doomcouver 6 months ago

      Yeah when the sob stories start pouring in that people aren’t able to afford the $1.5 million mortgage on their McMansion I’ll be playing the world’s tiniest violin. Nobody forced anyone buy, there were always alternatives to buying a house. During a housing mania, among other options, you can move away, live in a van, or suck it up and rent. 99% of recent homebuyers chose to buy out of house-lust or greed, I won’t feel bad for them.

  • Mandrake the Musician 6 months ago

    Crazy to raise interest rates as it penalizes everyone with a mortgage, not just flippers. They should place a cap on home price appreciation, let’s say something like no more than 40 to 50% a year. That should cool off the market without killing the golden goose.

  • Alan 6 months ago

    A loan/mortgage is you borrowing your future income and cashflow at an interest. Stating the obvious again to all those who were high on euphoria. The BoC was forced to raise rates because gambling in houses was sucking the lifeblood out of consumption and the economy. Canada will be one of the slowest growing economies in the next decade or more unless housing prices crash drastically. And hearing the news about Epic Alliance collapse in Saskatoon, its just the beginning of the fireworks…

  • V 6 months ago

    What goes up must come down!

  • C.Rose 6 months ago

    This can get pretty ugly really fast! Remember you can’t lose in real estate , repeat over and over and maybe your wish will come true!

  • Rob Ridley 6 months ago

    Wow, some cold and heartless souls on here. The people who bought those homes qualified on stress tested approvals for rates well above what they were paying. It would be reasonable to assume the bank was comfortable with the stress test, so the buyer would be too.

    Why would you wish a bad outcome on someone?

  • gg 6 months ago

    My only concern is this government does anything it can to backstop this mess they’ve created. This of course is not fair for anyone who doesn’t own real estate because they thought even a decade ago it was overpriced, rightfully so too.

    Dumb and Dumber will do whatever it takes to levitate the bubble as their policies are self serving.

  • PatK 6 months ago

    This has all to do with the mad rush to protect money. Thanks to the fiat $, government policy has allowed the value to sink and people are desperate to secure savings in tangible assets. Housing appears to be holding, while the buying power of the dollars is falling through the floor. Investors are banking on renter cash & airB&B opportunities to save their future, while the next generation has no idea how to pay.

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