2015 Mortgage rates

In October of 2013 then Bank of Canada (BoC) Governor Mark Carney left the overnight interest rate at 1%, a mark it had already stayed at for over two years at that time. Industry experts and economists clamoured for an increase and claimed Canada had no exit strategy from the low rates and, as a result, inflation would be rampant. Now, over four years later, the rate remains the same almost matching the longest period in Canadian history without a change, but many now predict that change is coming…

There are many factors that affect the overnight interest rate, but chief among them are inflation and the policies of the United States. In December of 2014 the BoC, in explaining why the overnight rate would remain at 1%, issued a statement: 1 “Inflation has risen by more than expected. The increase in inflation over the past year is largely due to the temporary effects of a lower Canadian dollar and some sector-specific factors, notably telecommunications and meat prices… The U.S. economy has clearly strengthened, particularly business investment, which has benefitted Canada’s exports. Growth in the rest of the world, in contrast, continues to disappoint, leading authorities in some regions to deploy further policy stimulus. Oil prices have continued to fall, due to both supply and demand developments. In this context, global financial conditions have eased further.”

The United States, seeing significant signs of recovery from The Great Recession, is staying firm with their 0% interest rate citing, among other things, the need for a further reduction in unemployment. This is, however, not expected to be the case for the duration of 2015. Most experts expect an increase in the US overnight rate in June of 2015 to .25%, but those same pundits also predict that rate will be 1% by year’s end. The question on the minds of Canadians is whether Canada will follow in lockstep on this US economic policy as they do with so many others from our friendly neighbours to the south.

For the time being Canada’s overnight interest rate holds strong at 1%. Significantly down from its record high of 16% a short time ago in February of 1991 and up from its record low of .25% in April 2009, the height of The Great Recession in the US. I predict an increase to Canada’s overnight interest rate in the summer to 1.25% and, if there is no great economic fallout, a further increase by year’s end of .25% to bring it to 1.50%. This will in turn raise the prime interest rate by .5% meaning variable rates, prime - %, will go up and fixed 5 year mortgages could go from currently hovering around the 3% mark to 3.5% before 2016 starts.




Scott Allan has been in the mortgage industry since 2008 when he worked at the Financial Institutions Commission, an agency of the the BC Ministry of Finance that regulates the mortgage industry in BC.  For many years Scott dedicated himself to making sure consumers in BC were protected from fraudulent mortgage schemes and unscrupulous brokers.

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