Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers
The interest rate on Canada’s most popular mortgage, the five-year fixed rate, has fallen to its lowest level in history. In early June, HSBC made headlines when it began offering Canadians a five-year fixed-rate mortgage below 2%. Multiple brokers followed suit, and some are now advertising even lower rates.1 And while many Canadians have rushed to take advantage of this unprecedented opportunity, others question the hype. Are today’s mortgage rates really a bargain?
While discounted five-year fixed mortgage rates have hovered between 2% and 4% for the past decade, they haven’t always been so low.2 For a period of 18 years, from 1973 to 1991, the posted five-year mortgage rate never fell below 10%. At the time, the Bank of Canada was hiking interest rates to try to stem a rising tide of inflation. It’s hard to imagine now, but the five-year fixed rate peaked at over 21% in 1981.3 Fortunately for home buyers, inflation began to normalize soon after, sending mortgage rates on a downward trajectory that has helped make homeownership more affordable for millions of Canadians.
So what’s causing today’s five-year fixed rates to sink to unprecedented lows? Economic uncertainty.
Fixed mortgage rates move in sync with the yield offered on government-backed bonds.4 As the coronavirus pandemic continues to dampen the economy and inject volatility into the stock market, a growing number of investors are shifting their money into low-risk bonds. This increased demand has driven bond yields—and mortgage rates—down.1
Quantitative easing measures taken by the Bank of Canada are also helping to bring down mortgage rates. The federal bank dropped its overnight lending rate to .25%, and it continues to inject billions of dollars into the economy, giving financial institutions the confidence and ability to continue lending.1
HOW LOW COULD MORTGAGE...