U.S. inflation looms over Canadian mortgage market

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Millicent Wong
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It's a mixed picture for mortgage buyers this week.

The Bank of Canada's favorite economic indicator, average core inflation, finally fell below three percent for the first time in years. That earned applause from Gov. Tiff Macklem.

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The bugbear is the fear of inflation south of the border. It remains a thorn in our mortgage market and is driving up U.S. Treasury yields. And when U.S. interest rates rise, it's like a tractor beam for Canadian interest rates, given our economic interconnectedness.

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Canadian bond yields, which have a big influence on fixed-rate mortgage rates, are just below their 2024 peak. Don't flirt with fortune if you're looking for a fixed rate and need a mortgage before fall. Get a free fixed price somewhere. Then hope for more rate-friendly (slower) economic data ahead of the next interest rate decisions from the Federal Reserve and the Bank of Canada – which fall on May 1 and June 5, respectively.

Recent interest rate data from CanDeal DNA shows that the bond market expects the Bank of Canada to cut interest rates by 175 basis points over the next few years, starting in July or earlier. On June 5th there is a chance of a cut with a coin toss.

Leading nationally advertised fixed interest rates remain below five percent for default-insured borrowers. For example, with current terms of three years you will find 4.84 percent. If you drive without insurance, you're looking at 5.19 percent, which still won't break your budget – compared to the alternatives.

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We see modest improvements in the variable interest rate space. Still, the variables won't go away until borrowers see evidence of interest rate cuts from the Bank of Canada.

However, for insured borrowers there is an attractive offer for variable interest rate mortgages with prime interest rates of minus 1.30 percent (5.90 percent).

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

Click here to see the lowest nationwide mortgage rates in Canada today

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