Fixed rates unlikely to fall much beyond current offerings

By
Millicent Wong
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Bond traders took to the Bank of Canada's 50 basis point interest rate cut on Wednesday like a Vegas bookie knowing the solution has arrived. Canada's lowest nationally advertised variable interest rates have now fallen to 4.70 percent (insured) and 5.10 percent (uninsured).

Compare these to the lowest publicly quoted five-year fixed rates, which are a middling 4.09 percent (insured) and 4.64 percent (uninsured), respectively.

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It's questionable what progress we'll make on inflation in the next quarter or so. The number of jobs has exceeded expectations, and the more the North American economy flexes its muscles, the less likely it is that the key interest rate will fall by more than 50 basis points.

However, fixed interest rates are a different issue that is not directly controlled by the Bank of Canada. For fixed interest rates to fall even further, markets must assume that inflation will be well below target and unemployment will skyrocket. The jury is still out on that.

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Even if the central bank plays Santa Claus with interest rates, it doesn't make it any easier to qualify for a mortgage. The government's stress test still requires borrowers to prove they can afford an interest rate in the region of six percent, depending on the home loan. For the real estate market to really take off, it needs borrowers who can get approved for significantly larger loans. This would require a stress test rate in the mid-five range or lower.

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.

Mortgage interest rates

The interest rates shown below are updated at the end of each day and come from MortgageLogic.news' Canadian Mortgage Rate Survey. Postmedia and imagination. Online Inc., parent company of MortgageLogic.news, will be compensated by certain mortgage providers if you click on their links in the charts.

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