Do you want content like this delivered to your inbox?
Share
Share

Will Mortgage Rates Go Down in Canada in 2023? Canada Mortgage Rates Forecast

AJ Hazzi, REALTOR®

After becoming a Realtor® in 2002, AJ Hazzi noticed a gap in the real estate market...

After becoming a Realtor® in 2002, AJ Hazzi noticed a gap in the real estate market...

Mar 6 7 minutes read

Mortgage rates fell to all-time lows in 2020. Now they’re more than double what they were, and everyone is asking the same question.

Will mortgage rates come down in 2023?

Let’s break it down.

Why are Canadian Mortgage Rates So High? Are Interest Rates Going Down in Canada?

Mortgage rates in Canada are influenced by several factors, the foundation of which is the overall state of the economy. When the economy is doing well and moving fast, rates are typically higher. When the economy is sluggish, rates are usually lower. Seem backward? Here’s why it works that way:

The Bank of Canada

Many people think that the Bank of Canada (BoC) sets mortgage rates, but that’s not quite true. The BoC sets the policy interest rate, also known as the overnight rate.

Then, Canadian banks adjust their prime lending rate accordingly. The prime rate is used as a benchmark by all major Canadian banks to set interest rates, including mortgage rates. While the overnight and prime rates are separate, Canadian lenders usually adjust their prime rates within a few days of BoC overnight rate changes. This is because a higher overnight rate means higher borrowing costs for banks. They raise interest rates to cover their own costs. 

So why does the BoC ever raise rates? Everyone likes a lower interest rate—right?

The Bank of Canada (BoC) follows an inflation-control target that guides its decisions. This target is set by the Bank and the federal government and reviewed every five years. The Bank’s objective is “to preserve the value of money by keeping inflation low, stable and predictable” (BoC, 2023). 

The target inflation rate for the bank of Canada is between 2 and 3 per cent. If inflation is higher than 3 per cent, the BoC will usually increase the policy interest rate. If inflation is lower than 2 per cent, they usually lower the policy interest rate.

For example…

When the economy is slow—like it was during the initial COVID-19 crisis—the BoC lowers its rates to increase cash flow and encourage consumer spending.

But when the economy is doing well and moving fast, borrowing, consumer spending, and demand are all elevated—which can cause inflation.

 A major problem with inflation is when prices rise at a rate with which salaries don’t keep pace, people suddenly can’t afford to buy things, and the economy grinds to a halt. For that reason, when the economy is moving too quickly, and inflation is growing unsustainably, the BoC increases the overnight rate to constrict cash flow.

Will mortgage rates drop in 2023?

2023 Mortgage Rates BC Predictions

Now that we know why rates are so high, we can make an educated guess about their future. Many experts suggest that 2023 will see a slowdown in the Canadian economy due in part to the BoC’s recent policy rate increases, high costs of living, and reduced household spending. But does that mean mortgage rates will go down in 2023? 

Here are the detailed answers from top industry experts:

Altura Financial

Analysts at Altura Financial predict that 3 and 5-year fixed rates will trend generally lower throughout 2023. According to the Canadian broker, “it’s not a matter of if, but when, there is another downturn for fixed rates, but it could take well into Spring 2023 before we see this.” 

As for variable rates, Altura predicts a “stabilization” in late 2023 or early 2024. For those who don’t want the risk of a variable rate, the broker suggests looking into a 3-year fixed rate. When it comes time to renew in 2026, rates will likely be down by 1% or more. 

British Columbia Real Estate Association (BCREA)

BCREA’s Chief Economist, Brendon Ogmundson, predicts that 5-year fixed rates have likely peaked at their December 2022 average of 5.5%. He expects the average to begin declining in early 2023, ending the year closer to 5%. Ogmundson also writes that variable rates will rise to 6.35% before decreasing in late 2023, in line with the Bank of Canada’s anticipated policy rate changes.

He explains, "we could see a significant downward trajectory for inflation in 2023, which would provide the Bank with the necessary support to begin lowering its policy rate.”

RBC

Economists at RBC are less optimistic, predicting that higher interest rates will continue to be a challenge for potential buyers throughout 2023—and possibly beyond.


True North Mortgage

True North Mortgage’s CEO, Dan Eisner, explains that mortgage rate predictions will ultimately depend on the BoC’s rate-hike campaign. He writes that if the Bank does rest its rate-hike campaign, fixed rates could slowly decline throughout 2023, “maybe as much as 0.50% for the commonly-chosen 5-year fixed term.” 

Overall, the broker sees “a positive year ahead” for Canadian home buyers. 


Mortgage Bankers Assocation Mortgage Rate Forecast

The Mortgage Bankers Association forecasts suggests that the 30-year fixed rate mortgage will decline to 4.6% in 2024 and 4.4% in 2025, while they predict the 10-year treasury yield to decline to 2.8% in 2024 and 2.5% in 2025.


Final thoughts | Are mortgage interest rates going down in Canada?

Most financial and real estate industry experts agree that mortgage rates will fall in 2023. By how much? That’s still up for debate, with some experts forecasting a 0.5% drop and others feeling like it’s too soon to tell.

No matter the number, lower mortgage rates represent relief for buyers struggling with affordability. If you’ve been waiting to buy due to high home prices and high mortgage rates, 2023 is shaping up to be a good year for you. The good news is that many experts predict moderate declines in home prices as well.

But even as rates come down, they’re not likely to hit 2020 levels—so you’ll want to do everything you can to reduce your rate on your own. That means working on your credit score and shopping around to find the lender with the best terms for you. 


Let’s buy your dream home in 2023

If falling mortgage rates are music to your ears and you’re ready to buy in 2023, get in touch. Not quite sure about the next steps? Our expert team can help. Click the button below so we can help you make your homeownership goals a reality.

Let's go
We use cookies to enhance your browsing experience and deliver our services. By continuing to visit this site, you agree to our use of cookies. More info

Terms of Use

This website is operated by Vantage West Realty Inc./AJ Hazzi, REALTOR®, a Brokerage who is a member of The Canadian Real Estate Association (CREA). The content on this website is owned or controlled by CREA. By accessing this website, the user agrees to be bound by these terms of use as amended from time to time, and agrees that these terms of use constitute a binding contract between the user, Vantage West Realty Inc./AJ Hazzi, REALTOR®, and CREA.

Copyright

The content on this website is protected by copyright and other laws, and is intended solely for the private, non-commercial use by individuals. Any other reproduction, distribution or use of the content, in whole or in part, is specifically prohibited. Prohibited uses include commercial use, “screen scraping”, “database scraping”, and any other activity intended to collect, store, reorganize or manipulate the content of this website.

Trademarks

REALTOR®, REALTORS®, and the REALTOR® logo are certification marks that are owned by REALTOR® Canada Inc. and licensed exclusively to The Canadian Real Estate Association (CREA). These certification marks identify real estate professionals who are members of CREA and who must abide by CREA’s By-Laws, Rules, and the REALTOR® Code. The MLS® trademark and the MLS® logo are owned by CREA and identify the professional real estate services provided by members of CREA.

Liability and Warranty Disclaimer

The information contained on this website is based in whole or in part on information that is provided by members of CREA, who are responsible for its accuracy. CREA reproduces and distributes this information as a service for its members, and assumes no responsibility for its completeness or accuracy.

Amendments

Vantage West Realty Inc./AJ Hazzi, REALTOR® may at any time amend these Terms of Use by updating this posting. All users of this site are bound by these amendments should they wish to continue accessing the website, and should therefore periodically visit this page to review any and all such amendments.