Canadian Mortgage Rates Jumped This Week, Pushed Up by US Yields

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Canadian mortgage rates surged this week — and the Bank of Canada wasn’t to blame. Instead, the pressure came from rising U.S. bond yields, which continue to influence Canada’s fixed-rate mortgage market. As U.S. inflation data came in hotter than expected, global investors pushed American yields higher, dragging up Canadian 5-year bond yields in the process. The result? Another jump in fixed mortgage rates for Canadian borrowers, even as domestic inflation trends lower and hopes of BoC rate cuts remain on the table.

Why Canadian Mortgage Rates Jumped This Week

Canadian mortgage rates saw a noticeable uptick this week, mainly due to rising US bond yields. Even with the US Federal Reserve holding its policy rate at a 16-year high, the American economy continues to show strength, pushing yields higher and inflating borrowing costs globally.

This has a direct impact on Canadian fixed mortgage rates. As Government of Canada bond yields track US movements, the cost of funding mortgages here in Canada increases — meaning higher rates for borrowers.

The takeaway? The strong US economy is keeping inflation fears alive, pushing up yields, and disrupting any hopes for faster rate relief in Canada.

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US Mortgage Terms vs. Canadian Mortgage Sensitivity

One reason US policy doesn’t bite as hard? American mortgages are mostly 30-year fixed, unlike Canada’s 5-year terms. This means US homeowners don’t renew frequently, insulating them from short-term rate spikes.

In Canada, frequent renewals mean more borrowers are exposed to higher rates sooner. So even modest rate movements hit harder and faster north of the border.

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Canada’s Debt Levels Amplify Rate Impacts

While Americans aggressively deleveraged after the 2008 recession, Canadians continued piling on debt — mostly in real estate. As a result, when the Bank of Canada began raising rates in 2021, the pain spread quickly.

The Canadian economy is more vulnerable to rate hikes due to this household debt exposure. That’s why the BoC’s policy moves carry more weight here than the Fed’s do in the US.

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US vs. Canadian Productivity Trends

The US economy is benefiting from increased business productivity, spurred by strategic borrowing and long-term investments. In contrast, Canada’s recent growth has leaned heavily on population increases and residential real estate, not capital investment.

That imbalance matters. Investments in productivity boost long-term output and resilience — while real estate-focused debt adds little to economic efficiency. As a result, Canada lags behind in competitiveness and growth potential.

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Fiscal Stimulus and Economic Divergence

The US economy is also receiving a major boost from massive fiscal stimulus, including initiatives like the CHIPS and Science Act, which is fueling tech growth and AI innovation. This targeted spending not only drives economic expansion but also attracts private investment.

In contrast, much of Canada’s stimulus has been aimed at temporary relief measures — like pandemic support, housing benefits, and carbon tax rebates. These have not produced the same economic momentum or return on investment.

The result? The US continues to outpace Canada in growth, productivity, and wage gains — and that divergence is now showing up in mortgage markets.

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What’s Next for Canadian Rates?

The US economy may be starting to cool, and bond markets are now pricing in a 100 basis point cut from the Fed by year-end. Meanwhile, the Bank of Canada is expected to move faster, with markets forecasting 150 basis points of cuts in the second half of 2024.

Governor Macklem has highlighted the role of mortgage rates in driving shelter inflation, which feeds into the Bank’s inflation metrics. That gives the BoC even more incentive to cut rates and relieve household pressures.

Still, as long as US yields remain high, Canada’s bond market — and its fixed mortgage rates — will remain under upward pressure.

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Final Advice for Borrowers

With volatility coming from both sides of the border, the best strategy is preparation over prediction. If your mortgage is up for renewal, or you’re buying in the next 120 to 150 days, secure a rate hold now to protect against rising yields.

The interconnectedness of the US and Canadian economies means decisions in Washington affect wallets in Toronto, Calgary, and Vancouver. And while Canada’s central bank may act first, its impact on fixed mortgage rates may be muted unless US yields also fall.

Bottom line: Be proactive, not reactive. Talk to a mortgage expert who can help you make sense of the current climate and find the best-fit strategy for your financial goals.

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