As the new year unfolds, Canadian borrowers may find themselves receiving a late Christmas present in the form of lower interest rates on specific mortgage types. Anticipation of central banks, including the Bank of Canada, lowering influential interest rates in 2024 has paved the way for mortgage rates of less than five per cent on certain fixed mortgages, marking the lowest rates since late spring.

Victor Tran, from ratesdotca, a platform comparing financial products for Canadians, highlighted that fixed mortgage rates, especially on insured, five-year terms with a down payment of less than 20 per cent, have seen a decline. This trend is attributed to lower returns from government bonds, as fixed mortgage rates are directly linked to government bond yields.

Experts suggest that Canadians considering this specific type of mortgage may experience cost savings if renewing in the coming months. The drop in government bond yields has influenced these fixed mortgage rates, but it does not directly impact those preferring variable mortgage rates. Variable rates depend on the Bank of Canada lowering the overnight interest rate, affecting prime rates and, subsequently, variable rates.

James Laird of Ratehub explained that while affordability has improved in some Canadian cities due to falling house prices, the recent drop in rates could boost enthusiasm for homebuyers to re-enter the market in the new year. Some mortgage brokers, like Jacob Sneg in Vancouver, noted that many potential buyers are awaiting lower mortgage rates before entering the market. However, he cautioned that delaying could lead to increased competition and higher purchase prices.

Despite the potential positive impact on the housing market, lower rates may not immediately translate to significant economic growth. The Bank of Canada’s efforts to control inflation through interest rate increases had led to higher borrowing costs, affecting business investment and consumer spending. Researchers at the Bank of Canada indicated that around 45 per cent of mortgages taken out before the rate increases experienced higher payments by the end of November. The expectation of continued rate hikes for this mortgage group’s renewals until 2026 may have a chilling effect on the economy, with forecasts suggesting weak economic growth in 2024 before a potential pickup later in the year.