The ongoing conflict in the Middle East is having an unexpected impact on mortgage rates in Canada. Recently, there has been a notable increase of 0.5 per cent in three- and five-year fixed mortgages within just three weeks, as reported by Marshall Tully, a mortgage broker based in Toronto. This trend of rising rates may persist in the near future.
The Canada Mortgage and Housing Corporation (CMHC) estimates that by the end of the year, approximately 1.4 million mortgages will be up for renewal, constituting about 23 per cent of all existing mortgages. Many individuals renewing their mortgages are facing higher rates compared to those from the previous year.
Fixed-rate mortgages have seen a rapid increase, mainly due to fluctuations in bond yields influenced by global events such as wars. The recent address by U.S. President Donald Trump did not provide much clarity on the duration of the conflict, leading to some lenders moving forward with rate hikes.
The current key interest rate set by the Bank of Canada stands at 2.25 per cent, with predictions of further cuts earlier this year now being revised due to the ongoing war and other economic factors. The closure of the Strait of Hormuz by Iran and continued U.S. tariffs are also contributing to the impact on fixed-rate mortgages in Canada.
Experts suggest that the uncertainty surrounding the conflict and its economic implications may lead to additional rate hikes by banks to mitigate future risks. The average rate for a five-year fixed mortgage has risen from around four per cent a few weeks ago to 4.95 per cent, with the three-year rate not far behind at 4.59 per cent.
Inflation is expected to rise further, especially in the aftermath of the Strait of Hormuz closure, affecting the costs of goods and services in Canada. Analysts predict that the Bank of Canada may need to raise interest rates to counteract the inflationary pressures.
Despite the uncertainties, it is advised that individuals renewing or initiating mortgages consider locking in rates to secure favorable terms. Financial planning and early communication with lenders are recommended to explore options for managing potential financial challenges in the current economic climate. Canadian homeowners have shown resilience in adapting to fluctuating mortgage rates, according to the CMHC.
In conclusion, the war’s lasting impacts on oil and gas prices may prolong inflationary pressures, emphasizing the importance of proactive financial management strategies for mortgage holders amid uncertain economic conditions.
