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Interest Rates, Inflation, Immigration, and Mortgages in Canada

IK Financial - Mortgage Articles
Inflation has been a concern for Canada's economy over the past year or two. The Bank of Canada has been working to manage it by consistently raising interest rates. This effort has had a positive impact on inflation, reducing it to 2.8% in June. However, it increased again to 3.3% in July. Interestingly, there is an unexpected element that contributes to inflation: immigration and mortgage costs.

Canada's population saw an increase of over a million people in 2022 alone. Immigration has been a strategy for Canada for many years, as it usually helps the economy bring in new workers and boost the economy. But this time, it might be causing some inflation triggers.

While inflation has come down from its highest point, food, mortgage, and rent prices keep increasing. Economists think that many newcomers might keep inflation higher for longer. The demand created by immigrants needing housing and jobs could make it harder for BoC to manage inflation.

With all that being said, the formula is simple:
Increase in immigration + Increase in housing demand = Rising prices

Fixed Interest and Variable Interest Rates

Fixed Interest Rates: These rates are locked-in deals, as they stay the same throughout your mortgage term. But here is the thing: they are closely connected to the bond market. When bond rates go up, so do fixed interest rates. The past few months have seen bond rates rise due to concerns about inflation and the Bank of Canada's stance. Result? Fixed mortgage rates have increased too.

Variable Interest Rates: These rates can change, as they are often linked to the prime rate set by the Bank of Canada. The Bank is not expected to lower this rate until inflation drops significantly, possibly not until the end of 2024 or the beginning of 2025. So, if bond rates rise, variable rates could follow suit.
If you are considering a fixed-rate mortgage, be aware that recent bond rate hikes could lead to higher rates. While this might provide protection against further rate hikes, you won't benefit if rates decrease. The decisions of the Bank and movements in the bond market could also influence variable rates. Currently, we recommend favoring short-term mortgages over long-term options.

Keeping an eye on the trends and considering your financial goals is important in each and every case. It is balancing between locking in a rate now and waiting to see if rates drop in the future. If you feel insecure about the current mortgage market, give us a call - book it today at ikfinancial.com.
IK Financial Mortgage Team operates on behalf of Mortgage Edge. Lic#10680

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