The Bank of Canada announced this week it will begin purchasing 10-year Canada Mortgage Bonds (CMBs), a move seen as paving the way for mortgage lenders to more easily offer lower-cost 10-year fixed mortgage rates to consumers.
A fixed mortgage rate means that your interest rate is set at the beginning of your term and will not change throughout the duration of your mortgage term. This mortgage type offers a predictable and steady payment structure as your interest rate and payment will always remain the same.
A variable mortgage rate means that your interest rate may fluctuate intermittently because it is based on the market (prime) rate. It can offer significant savings. A variable rate mortgage provides you with flexibility to take maximum advantage when interest rates fall. However, should interest rates rise, a greater portion of your payment amount will go towards the interest payment versus the principal of the overall mortgage.
Canadian interest rates
Below are charts showing the Bank of Canada’s Prime Interest Rate in (Blue), which is used by Canadian Banks for their Variable Rate Mortgage Products. The (Yellow), (Orange) and (Green) represent 1, 3, and 5 year Conventional Mortgage interest rates, which are used by Canadian Banks for their Fixed Rate Mortgage Products.
It is important to note that these are the Banks Posted Rates and are not necessarily the rates you would receive but act as a starting point. These posted rates are used by larger banks to calculate the penalty if you “break” or pre-pay your mortgage.
The 5 Year Conventional Rate, (Green), is used as the “Benchmark Rate” or commonly referred to as the qualifying rate, which is the rate used to calculate the approved mortgage amount.
Here are the Bank of Canada’s Interest Rates since 1980. As you can see there have been major changes when looking back in the 80’s and early 90’s with the highest rate coming in at 22.75%. In this era rates where high but the cost of homes were substantially lower. Within the last ten years we have seen the reverse, mortgage rates are at an all time low while the cost of homes have been on the constant rise. When comparing these two distinct times, the cost of borrowing is about the same. This is worth noting as it’s not always about the rate!
Historical Interest Rates, 1980 - Present
Last 5 Years
Here is a deep dive into the last 5 years of interest rates. The variable rate dictated by the Bank of Canada’s 8 prescheduled announcements and the fixed on Canadian bond yields. Each are derived independently and it’s worth notting that there has never been a time in Canadian history where the fixed rate has outperformed the variable option.
O.A.C. Terms and Conditions Apply. Rates are Subject to Change without notice