Last month, Ontario’s largest credit union, Meridian, began offering a 1.49% APR on 18 month mortgages. While this rate is only available on mortgage period that fall well below the average term of home loans in Canada, it still sets the record as the lowest mortgage rate the nation has ever seen.
This, especially in light of other signals in the Canadian mortgage market as discussed in earlier posts, suggests we might truly be seeing rock bottom mortgage rates that have nowhere to go but up.
A Slow But Sure Climb in Mortgage Rates is Inevitable
As mortgage rates have dropped throughout Canada over the past several years, home prices across the nation—and especially in key markets like Toronto—have risen. Cheap money attracts more buyers, more buyers mean higher prices, and money for mortgages is now the cheapest it has ever been.
This has driven many markets to a fever pitch, and rising home prices are putting the brakes on many home purchasing plans. Banks cannot sustain such low rates for long when the volume of borrowers is dropping, and the market must naturally begin to cool off. This means mortgage rates will increase and home prices will likely level off.
Given Canada’s broader economic picture, this cooling off will likely be very gradual, but it is almost certainly about to begin. Canadian homeowners seeking to refinance existing mortgages—or would-be homeowners thinking about making a purchase—are best advised to act quickly to secure the lowest rates in history.