How Canadian Borrowers Can Navigate the Rate Market Disruption

A Sudden Shift in the Market

The rate market just dropped like a ton of bricks, and that’s no exaggeration. What we’ve seen in the past few weeks is a major disruption to the Canadian rate market, driven largely by U.S. economic conditions. Here’s what’s happening:

1. Bond Yields Are Dropping
   Bond yields, which have been up and down like a roller coaster this year, are finally sliding downhill. This drop is largely influenced by several factors, including the recent U.S. jobs report.
2. U.S. Jobs Report Signals Trouble
   The U.S. jobs report was ugly. Joblessness is up, wage increases are flat, and unemployment is sky-high. The indicators are screaming “recession,” and that has a direct impact on Canada.
3. U.S. Fed May Cut Rates Significantly
   As a result of these economic shifts, many experts believe the U.S. Federal Reserve will drop rates significantly by September—up to 1%. And when the U.S. cuts, Canada follows.

Key Takeaway: Rates Are Going Down

The Canadian bond yields have been on a slow decline for months, but last week, they dropped off a cliff. This movement is expected to bring fixed rates down. Some banks are already anticipating a 0.25% decrease in 2-year fixed rates, with other terms following suit.

Expect rates to fall by up to 1% over the next six to twelve months.
If you have a variable-rate mortgage, this means relief is on the way. It’s possible to see rates drop by as much as 2% within two years. So if you're locked in at a high rate now, hang in there—better days could be just around the corner.

What You Should Do Right Now

Don’t focus solely on getting the lowest rate. The strategy you employ in managing your mortgage is more important than a single rate. Here’s what you need to consider:

1. Review Your Mortgage Terms

• Prepayment Penalties: Are you aware of how much it will cost you to break your mortgage? Most people aren’t. If your bank says you’ll pay three months’ interest, think again. You could be looking at tens of thousands of dollars if you’re not careful.
• Flexibility to Borrow More: Can you borrow more money without penalties? Find out before you commit to any terms.

2. Consider a Shorter-Term Mortgage

Short-term options like a two-year fixed mortgage are looking more appealing as rates decline. This term could provide a balance between a lower rate and flexibility.

3. Stick With Variable Rates—If You Qualify

Variable rates may drop significantly over the next year, making them a great option. However, qualifying for one is tough, as you’ll need to meet the stress test requirements at around 7–8%.

Don't Miss the Strategic Conversations

This disruption should be a wake-up call for everyone involved in real estate—whether you’re buying, selling, or refinancing. Ask yourself and your advisor the tough questions:

• Is your current mortgage plan flexible enough to adapt to this market?
• Are you working with a broker who is proactively adjusting your strategy as the market changes?

"Focus on strategy, not just rate. The best mortgage plan is one that adapts to the market, your needs, and future opportunities."

Final Thoughts: The Time to Act Is Now

The market is shifting faster than anyone predicted. Rates are expected to decline, but the key is to be prepared with the right strategy. Ensure you’re working with an expert who is actively managing your mortgage plan and helping you take advantage of opportunities as they arise.

Quick Tips:

• Don’t lock into a mortgage without considering the long-term penalties.
• Shorter terms might give you more flexibility as the market evolves.
• Variable rates are likely to dip—make sure you're positioned to benefit.