When the prime rate falls, homeowners and buyers are often quick to ask their mortgage broker: ‘What’s the win on my rate?’
Variable-rate mortgage and HELOC holders get the good news — that their rate will be lowered because it’s directly affected by Bank of Canada and bank prime rate cuts.
But if you have a fixed-rate mortgage or a pre-approval hold ahead of buying or renewing a home? Think of a stubborn dog that's plopped down, done with going for a walk — it ain't budging.
Here's what does move fixed mortgage rates and when they may move next.
Fixed rates are fixed (if you’ve already locked into one)
Just so there's no confusion, your fixed rate is locked for your chosen term (e.g. 5 years) and won't budge until renewal — which means you watch prime-rate drops from the sidelines until then.
Or you can break your mortgage to take advantage of a better rate, but you'll have to pay a potentially hefty pre-payment penalty. (Sometimes, this scenario can make savings sense.)
Fixed rates are pushed around by the bond yield market, not prime
Canada's bond yields and fixed mortgage rates compete on similar terms (e.g. 3 years, 5 years) to attract bank capital. Fixed rates are typically set at a spread of 1-2% above bond yields.
Economic factors and forces, such as inflation and unemployment rates, the growth forecast, fallout from global conflict and weather events, and even elections south of the border, can push bond yields up or down, informing where banks move their fixed mortgage rates (not instantly; usually within a few days if the trend holds).
The bond yield market tries to predict where prime will go
Bond traders trade government bonds all day, every day. Half believe the 5-year bond yield will trade higher, and the other half think it'll trade lower.
The market lands in the middle ground (supply and demand finding an equilibrium) to anticipate where the prime rate is headed.
So, bond yields typically move down well before any ‘expected’ prime rate drops.
When the prime rate falls, fixed-rate declines are yesterday's news
You've probably noticed that the best-advertised 5-year fixed rates have come down over the past several months as interest rate drops became imminent — from being in the high 5’s to the low 4’s (or occasional deals in the high 3's).
The only reason you'd see fixed rates changing around the timing of prime rate drops is if the bond yield market reacted to something it didn't expect.
What were fixed mortgage rates before the pandemic hit?
The ‘best’ fixed mortgage rates are currently hovering in the low 4’s. (These rates usually apply to good credit clients with traditional income sources and straightforward mortgage needs.)
True North Mortgage, a top Canadian brokerage known for supplying the lowest rates in Canada, shows in its historical rate chart that its best average 5-year fixed rate was 2.60% in January 2020.
It hit its lowest point in January 2021 during the pandemic — at around 1.45% (pause here for a nostalgic sigh) — before being pushed to new highs of about 5.65% in October 2023.
Fixed mortgage rates may have a bit more leash
Say, about another 0.25% in drop-room over the next few months, according to True North’s founder and CEO, Dan Eisner.
You may also see them rise slightly in reaction to volatility in bond yields, which in turn can react to anything 'economic' walking by — including what's going on with the U.S. economy.
Or, if our economy weakens further than expected and the prime rate predictions go lower, fixed rates could fall again ahead of those changes.
Call up a rate whisperer to help you save
To help your rate move in the right direction, the highly trained brokers at True North speak the language of your best mortgage rate (in your preferred language).
Their salaried, non-commissioned experts don’t promise rates you can’t get. They pass along a volume discount and go the distance to help you save in other ways, too.
Like a happy pup proudly carrying a big stick, you’ll know the joy of securing a great rate and the right mortgage fit, dodging ‘made up’ fees or costly changes later.
Think your rate can’t budge? Give True North a shout for exceptional mortgage service that secures your lowest rate possible. Contact Canada's No. 1 Mortgage Broker today.