Canadian Mortgage Rates Pull Back Ahead of Spring Market

Canadian Mortgage Rates Pull Back Ahead of Spring Market

Will Canada’s real estate market correction hit pause with an influx of cheap credit? CMHC data shows that 5-year conventional mortgage rates fell in February. Not huge, but the second consecutive month since the most aggressive climb in a generation. With credit costs plummeting even faster in March, it could provide a boost for the Spring market. 

5-Year Conventional Mortgage Rates 

Conventional mortgages are uninsured, meaning borrowers have at least 20% equity. Historically, it’s the most popular loan product when it comes to mortgage borrowing. It’s also influenced by a key indicator—the Government of Canada (GoC) 5-year bond yield. 

Since credit markets are competitive, capital for a 5-year fixed rate mortgage competes with the GoC 5-year bond yield. Recently, yields have been falling and are expected to bring fixed-term mortgage rates lower as well. 

Note, this is different from variable rate loans, which are influenced by short-term loans. In Canada, the Bank of Canada (BoC) overnight rate determines those, and we’ll discuss where that’s heading on another day.  

Canada’s 5-Year Mortgage Rates Are Falling 

Canadian mortgage rates aren’t exactly tumbling, but they are coming down. An average conventional mortgage with a 5-term fell 0.05 points to 5.81% in February. It’s not a huge pullback, but notable for being the second consecutive drop since rate hikes began. It was also the largest monthly drop since July 2021, but more importantly showed a change of direction during a steep climb. 

Canadian 5-Year Conventional Mortgage

The interest rate for an uninsured mortgage with a 5-year fixed term. 

Source: CMHC; Better Dwelling.

Mortgage Rates Are Still Significantly Higher Than Last Year

Even with the pullback, conventional mortgages with a 5-year term made one of the most aggressive climbs ever. Annual growth came in at 2.23 points in February, sliding from the peak, but still printing one of the largest climbs since the early 90s. Back then, interest rates were also significantly higher to begin with, meaning the shift wasn’t quite as violent. Borrowers weren’t nearly as indebted either. 

Canadian 5-Year Conventional Mortgage 12-Month Change

The 12-month change for an uninsured 5-year fixed rate mortgage in percentage points. 

Source: CMHC; Better Dwelling.

March data won’t be compiled for another month, but it’s likely to kick off a sharper drop. February preceded the banking liquidity crisis, which sent bond yields plunging. The GoC 5-year yield was no exception, falling over a half-point from the start of the month. While there’s some stabilization in the bond market now that the bank liquidity panic has passed, it’ll be harder to climb without a panic.