The Bank of Canada is holding the interest rate at 2.25%, here’s what that means for the housing market

What to know

• Holding the rate at 2.25 per cent means variable mortgage holders and lines of credit won’t see significant changes for now.
• Experts say homeowners nearing renewal should consider locking in early, as rising bond yields could push fixed rates higher.
• Many prospective homeowners are choosing fixed-rate mortgages over variable options to avoid uncertainty.
• Keeping rates steady isn’t expected to boost activity significantly, with many buyers waiting on the sidelines unless rate hikes are signalled.

The Bank of Canada is keeping its key interest rate at 2.25 per cent, but does that mean any changes for home buyers and mortgage payments? 

The maintenance of the interest rate was announced on Wednesday, prompted by economic uncertainty caused by changing trade relationships and the ongoing U.S.-Iran conflict. 

The bank says it is watching out for the impacts of the war, including the effects on oil price increase on inflation. If these keep going up, the rate could also be hiked moving forward. 

CPI inflation is expected to hike up to three per cent in April, and might come down to two per cent early next year, if oil prices stabilize. 

To understand how the announced rate will impact the housing market, Now Toronto spoke with Victor Tran, a mortgage and real estate expert with Rates.ca. 

How does the maintained interest rate impact mortgage payers? 

Tran explained to Now Toronto that the 2.25 rate was already anticipated by experts, as the bank attempts to understand the greater impacts of the ongoing economic uncertainty. 

Hence, the expert doesn’t expect the rate update to have a major impact on those who are currently paying mortgage. 

“Anytime the Bank of Canada makes an adjustment to the overnight lending rate, it impacts prime rates with the banks, which directly impacts anyone holding a variable rate mortgage, or anyone that has a line of credit, secured line of credit, for example, right? So, that’s all stayed the same. No impact there,” Tran said. 

According to him, the big focus on the real-estate industry this year has been mortgage renewals. After a real-estate boom during the pandemic years, several homeowners in the country are now approaching their mortgage renewal periods. 

With the global economy now marked by widespread uncertainty, Tran says it is in fact a good idea to secure a renewal sooner rather than later, otherwise, mortgage payers might face the risk of rates unexpectedly going up. 

“Especially since there’s been some new developments with this war, and that caused Canadian bond yields to spike, which will likely push up fixed rates again. So, anyone coming up for renewal, should certainly lock something in now, if they’re able to, because there’s really no positive sign that the war is going to end anytime soon,” he said.

What about buyers? 

With economic uncertainty expected to remain a factor in the next few months, Tran says a lot of buyers are now opting for fixed interest rates over variable mortgages to grant stability. 

Fixed interest rates mean that the rates stay the same for a longer period of time, usually a few years. In that case, even if the Bank of Canada’s key interest rates vary, the mortgage stays stable for that fixed period. 

Meanwhile, variable interest varies based on the lender’s key interest rate. So, if the key interest rate changes down the line, the mortgage can also fluctuate. 

“I find that at least with my portfolio of clients, most of them are going for fixed rates, for stability. So even though the Bank of Canada has not adjusted the rate at all, the clients I’m helping are not even interested in products that are tied to the Bank of Canada overnighting rate. They prefer stability,” Tran said. 

Although choosing between fixed or variable rates is an individual choice for every buyer, which varies depending on their financial situation and goals, the expert says, for the most part, he is currently recommending clients pick fixed rates, which can grant them some stability while the global economy adjusts. 

“There’s all these other fixed costs tied to housing that we cannot control, right, and we always have to expect them to rise, right, like property taxes, condo fees or maintenance fees, home insurance, utilities…so knowing that your largest housing cost, which is a mortgage payment, is fixed and locked in, and it’s not going to change for three to five years, that’s reassuring,” he added. 

Will keeping the rates at 2.5 per cent heat up the housing market? 

The Bank of Canada is not the only one using the wait-and-see approach. As the war goes on and trading partnerships fluctuate, many buyers are also standing on the sidelines of the housing market, and holding out on taking that step to purchase. 

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Meanwhile, Tran expects that holding up the interest rates will have little effect on moving more people back into the market. 

He explains that a lot of buyers are actually already pre-approved for a mortgage, and are just waiting for the right opportunity to come by as, for now, rates seem to be somewhat stable. 

However, things might change if rates suddenly go up. 

“I think that if the Bank of Canada signals any upcoming rate increase, in the short term, it will create higher demand. I think it’s going to push a lot of the buyers off the sidelines and force them to lock in something or secure a property quickly so they can get in at a lower rate,” Tran said. 

Will rates change anytime soon? 

The short answer is: probably. 

According to Tran, banks and economists around the world are predicting that the Bank of Canada will increase its interest rate at least once or twice by the end of 2026. But even then, the market is currently unpredictable. 

“Even just a month and a half ago, around March Break, when the whole conflict started in Iran, things just suddenly changed, right? And the forecasts from the banks had to quickly change as well, too. So, you just have to quickly adapt and pivot.”