Historically low fixed rates have been one of the pandemic silver linings fueling the Canadian real estate market. However, in the last two weeks, we have seen fixed rates creep up twice since the pandemic began as a result of a rising yield on the Canada 5-year bond. The steeper bond yield reflects growing optimism among investors, who are pulling money out of relatively safe bonds and investing in stocks with higher earning potential. As optimism continues to build around the vaccine rollout and investors gain confidence in the economy, we could see further increases.

Record low mortgage rates have helped drive real estate sales, and it is unlikely that these modest increases will put a damper on the real estate market. But it does mean buyers will have larger fixed mortgage payments. For example, a homeowner with a 20% percent down payment on a $750,000 home, at a 5-year fixed rate of 1.69 percent, 25-year amortization (total mortgage amount of $600,000) has a monthly mortgage payment of $2,451.86. With an increase to 1.94%, their monthly mortgage payment has increased to $2,523.37. The rate increase would cost the homeowner $71.51 per month or $858.12 per year on their mortgage payments.

If you’re buying a home and worry about fixed rates rising further, you should get a rate hold for 90 to 120 days or consider a variable rate. There has been no change to Prime, the driver of variable rate mortgage rates and a great option in this market.