Fixed mortgage rates are rising. Here’s what Canadian borrowers should know

Fixed mortgage rates in Canada are climbing again, putting pressure on borrowers and homebuyers across the country. After briefly dipping below 4% earlier this year, five-year fixed rates at major banks have now risen back above that threshold. This shift is largely driven by rising bond yields, which lenders use to set fixed mortgage rates. As of late May, the Government of Canada’s five-year bond yield has increased to around 2.85%, up from approximately 2.5% in April.

The increase in bond yields is influenced by global factors, particularly movements in U.S. Treasury yields. Bruno Valko, VP of National Sales at RMG, notes that Canadian bond yields are often affected by the U.S. 10-year Treasury yield, which has recently risen above 4.5%. This global economic uncertainty contributes to the upward pressure on Canadian fixed mortgage rates.

In response to these changes, several major Canadian banks have adjusted their mortgage rates. CIBC and RBC have each raised their five-year fixed rates by about 10 basis points, while TD has increased its three-year rate by 10 basis points and its five-year fixed rates by 15 basis points. These adjustments reflect the banks' efforts to align with the rising cost of borrowing in the bond market.

For Canadian borrowers, these rate increases mean higher monthly mortgage payments. According to the Financial Consumer Agency of Canada, it's advisable to pay down debt as much as possible to manage the impact of rising interest rates. Reducing expenses, consolidating high-interest debts, and avoiding unnecessary borrowing can help mitigate financial stress.

Looking ahead, forecasts suggest that fixed mortgage rates may remain elevated in the near term. While some experts predict gradual rate cuts by the Bank of Canada later in 2025, the current economic landscape indicates that fixed rates could stay above 4% for the foreseeable future. Borrowers are encouraged to consult with mortgage professionals to explore options like rate holds, which can lock in a rate for up to 120 days, providing some protection against further increases.

In summary, the rise in fixed mortgage rates underscores the importance of proactive financial planning for Canadian borrowers. Staying informed about market trends and seeking professional advice can help navigate the challenges posed by a shifting interest rate environment.