Recent rate cuts by the Bank of Canada have sparked a lot of excitement, and many people assume that fixed mortgage rates will drop accordingly. However, the relationship between the Bank of Canada’s key lending rate and fixed mortgage rates isn’t as straightforward as it seems. In this blog, I’ll break down how these rates work and what you need to know if you’re in the market for a mortgage. Check out my YouTube video for more information:

The Difference Between Variable and Fixed Rates

The Bank of Canada’s key lending rate primarily impacts variable mortgage rates. The goal of these rate adjustments is to control inflation, aiming to bring it as close to 2% per year as possible. When the Bank of Canada cuts rates, variable mortgage rates typically follow.

However, fixed mortgage rates are different. These rates are determined by the bond market, not directly by the Bank of Canada. The bond market is where traders buy and sell bonds, making predictions about where the economy is headed. This market operates every day that the stock market is open, which means that it reacts more quickly to economic news than the Bank of Canada, which only meets every six weeks to adjust its rates.

How the Bond Market Influences Fixed Mortgage Rates

Because the bond market is constantly in motion, it can anticipate changes in the economy and price them into bond yields, which dictate fixed mortgage rates. For example, if bond traders believe that the Bank of Canada will cut rates in their next announcement, they may start to adjust bond yields accordingly even before the announcement is made!

This means that when the Bank of Canada makes a move, you won’t necessarily see an immediate and corresponding change in fixed mortgage rates. In fact, depending on economic news—such as employment figures, GDP growth, or even economic news in the United States – bond yields may rise, causing fixed mortgage rates to increase instead of decrease.

Because of the close economic ties between Canada and the U.S., any major developments in the U.S. can have a ripple effect on our bond market, and by extension, on fixed mortgage rates.

I am here to navigate these complexities and find the best mortgage option for your unique situation. If you’re looking to get pre-approved for a mortgage to buy a property in Edmonton, fill out my online application. I’m here to help you every step of the way.

About Jason Scott, Edmonton Mortgage Broker

Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’ll be your trusted partner who will help you get the right mortgage for your family home or Investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.