After years of warning that interest rates will increase, that finally started to happen in the in 2017 and really took hold the last half of the year. On January 17, 2018 the Bank of Canada announce its third 25 bases point increase in its overnight rate bringing it to 1.25%. Bond yields have been on the rise as well, affecting long term fixed mortgages.
In a release BCREA noted the Bank's motivation for the increase was due to strong economic data and rising inflation. While the Bank expects a slowing of the economy to 2.2% in 2018 and 1.6% in 2019, the employment numbers are strong. BCREA noted:
With the Canadian unemployment rate hitting a 40-year low and inflation ticking higher in recent months, the Canadian economy would seem to be operating at full capacity. That argues for a more hawkish approach to monetary policy in order to bring interest rates closer to what the bank estimates would be neutral for the economy, that is, a level in which the economy is neither running too hot nor too cold. While today's rate increase was widely anticipated, it did come earlier in the year than prevsiously expected and likely signals further rate increases to come in 2018.
Bond yields represent the costs for lenders for the funds they provide for longer term mortgages (4 year and up). As the chart indicates these rates started climbing at the end of 2016 and then significantly increased over the second half of 2017. See Canadian Bond Yields for the Bank of Canada for the data.
For a five year fixed term mortgage average rate has risen to 3.59% recently, up from around 2.59% in fall of 2015. The bank's posted rate for the same mortgage has recently increased to 5.14%, up from 4.64% January 2016, see data.
The posted rate, and in some cases a little higher, represents the qualifying rate for new mortgages. You may click on the graph
for a larger image.
Shorter term mortgages 1 to 3 years, plus variable mortgages are affected by the Bank of Canada overnight rates.
