Are Mortgage Rates Going Up In 2021?

With the pandemic affecting many in different ways, the surprising consistency and growth of the Canadian housing market throughout 2020 and early 2021 has experts stunned. Though many factors play a part in this, the outcome is as expected: home prices have skyrocketed in urban centers and local markets are running red-hot! 

According to BNN the average sales price for a home in Toronto exceeded the average of $1 million for the first time ever in February 2021. This culminates in a 14.9% growth compared to the pre-pandemic February of 2020. But Toronto is not alone, in February 2021 Vancouver has seen a huge 73% year-over-year rise in residential home sales compared to last year’s February, as reported by the Vancouver Sun. How did we get to this point? The answer: deceptively low Mortgage Rates. Canadian Mortgage Trends annual revues for 2019 and 2020 offer a deeper understanding of how mortgage rate fluctuations may have driven a strong market despite the pandemic:


What was the average Canadian mortgage rate in 2019?

The average Canadian prime mortgage rate at the end of 2019 was 3.95%. This is the rate used by prime lending establishments such as banks, but let us also consider other indicative rates:

Rate Indicator Rate At The End Of 2019
Bank of Canada Overnight Rate 1.75%
Prime Rate 3.95%
Avg. 5-Year Discounted Fixed Rate 2.61%
Avg. Discounted Variable Rate 2.77%
5-Year Posted Rate 5.19%

Source: Canadian Mortgage Trends


What was the average Canadian mortgage rate in 2020?

The average Canadian prime mortgage rate at the end of 2020 was 2.45%. This small 1.5% difference actually represents a fall of 37.98% year-over-year. To compare, let us look at the same indicative rates for 2020:

Rate Indicator Rate At The End Of 2020 Change From 2019
Bank of Canada Overnight Rate 0.25% 85.71%  
Prime Rate 2.45% 37.98%
Avg. 5-Year Discounted Fixed Rate 1.52% 41.76%
Avg. Discounted Variable Rate 1.17% 57.76%
5-Year Posted Rate 4.79% 7.71%

Source: Canadian Mortgage Trends

As you can see from the direct end of year comparison, the fall in mortgage rates last year was dramatic, so much so that they look more like a Black Friday Flyer than interest rates! That is not all, according to RateHub the Historical Discounted 5-year Mortgage Rates actually fell to 1.39% in February


Are Canadian Mortgage Rates Going To Keep Dropping?

Unfortunately, Canadian mortgage rates are not likely to drop any further than this. In fact, they have already started to increase. From the direct comparison above, it may seem like this is the time to buy; imagine saving almost 40% on your interest. According to the Canadian Government’s Mortgage Calculator, this means that if you took out a $1 million, 5-year fixed mortgage in 2020 instead of 2019 you would have saved up to $25.000 on interest rates at the end of your term!

This is why the market is running hot. Many people, especially younger generations, have been able to save disposable income due to pandemic closures, which they have now invested in real-estate, since the rates have hit historical lows! This means that in today’s market, cash is king: click here to discover the other trends driving the BC Real-Estate market in 2021!

That being said, RateHub found that though the 5-year fixed mortgage rates fell to 1.39% in February, they have risen again to an average of 1.60% at the beginning of March 2021. Many other news outlets, such as CTV News, BNN, or Global News, have already started to urge buyers and borrowers to be cautious of suddenly rising rates in the coming weeks and months.


Is Now A Good Time To Get A Mortgage?

Considering the data and upcoming trends, right now is a good time to get a mortgage with a fixed rate, as this means that your interest rates won’t change during the term of your loan. Variable rates are a different story altogether. RateHub indicates that variable mortgage rates have actually dipped below 1% for the first time in history in January and February this year, BUT on March 1st 2021 the same variable rates have already started to increase to 1.25%. This means that if you took out a mortgage in February, and your first payment was $1,000, your March payment will be $1,250.

This is the reason as to why the variable rates dropped by 57.76%, compared to the much lower 41.76% drop on 5-year fixed rates, and why variable rates are now at a much lower interest percentage than fixed rates. Lenders are looking to lure you in with crazy low rates, which they can then increase to ‘normal’ levels once the economy and pandemic situations have stabilized.


How Can You Secure A Low Mortgage Rate Today?

With the crazy demand outpacing supply last month, getting your dream property will get more difficult, as many houses will sell well over their actual value (learn more about home value assessments here). With many places selling over asking prices, mortgage amounts and financing needs subsequently increase as well. This, coupled with deceptively low variable rates, can result in you going over budget when purchasing, and ending up with a sudden unpleasant surprise on your month to month mortgage bill.

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