The recent US Election, with its sweeping results impacting the Senate, House, and White House, has many Canadians reflecting on how this shift could affect our financial landscape. One significant repercussion is the potential movement in bond yields and, subsequently, mortgage rates.
The Current Outlook Despite the Bank of Canada (BoC) cutting interest rates, there is a marked increase in the likelihood of Canadian bond yields either climbing or maintaining their current levels. This reaction is largely influenced by the outcomes of the US election, as political and economic shifts in the US can heavily influence global markets, including Canada.
Inflationary Risks and Global Uncertainty Inflationary risk is on the rise, and while the Canadian economy is not performing at its best, external factors such as potential tariffs, policies reminiscent of Trump’s economic strategies, and global uncertainty contribute to the pressure on financial stability. These risks can affect bond yields and mortgage rates, making it even more important to monitor the situation closely.
Variable vs. Fixed Rates
Variable Rates: Economists are anticipating that the BoC may cut variable rates by an additional 0.5% to 0.75% in the coming months to support economic growth and manage inflation. This could offer some relief to homeowners with variable-rate mortgages or those considering entering the market.
Fixed Rates: On the other hand, fixed mortgage rates are expected to hold steady or possibly rise due to the upward trend in bond yields. The Canadian 5-year government bond yield, a critical benchmark for fixed mortgage rates, has already shown an uptick in response to these external pressures.
Why Holding Rates Matters More Than Ever In times of economic uncertainty, maintaining stable rates is more important than ever. It provides a sense of predictability and stability for both homeowners and prospective buyers. Holding rates steady can support economic resilience by preventing sudden financial strain and allowing borrowers to plan with confidence. Stability in rates helps homeowners manage their budgets effectively and encourages market participation without the fear of sudden cost increases.
What Does This Mean for Homeowners and Buyers?
For those with existing variable-rate mortgages, potential rate cuts may mean lower monthly payments and interest savings. However, buyers looking for stability in fixed rates might face increased costs if bond yields continue their upward trajectory. Now may be an opportune time to consult with your mortgage professional to review your options and make decisions that align with your financial goals.
Rate Holds for Renewals, Purchases, and New Entrants For those considering renewing their current mortgage, purchasing a home, or entering the market in the coming months, securing a rate hold can be an essential strategy. Rate holds protect borrowers from potential rate increases and provide peace of mind during uncertain times. Consulting with a mortgage professional to secure a rate hold ensures you’re prepared for any market shifts and can lock in favorable terms.
Staying Informed: The current climate underscores the importance of staying informed about market changes. At Cultivate + Evolve Financial, we are committed to guiding you through these shifts and helping you understand their potential impact on your mortgage strategy.
If you have questions about how these developments, including rising inflationary risks and global economic uncertainties, might affect your mortgage or future plans, reach out to us today. Our team is here to provide insights, tailored advice, and the support you need to navigate this evolving landscape confidently. Let us help you make informed decisions and stay ahead in the changing market
