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When it comes to savvy mortgage rate strategy, variable-rate pricing – and whether the Bank of Canada will cause rates to rise or fall – tends to hog the spotlight.
Borrowers looking for the lowest rate monitor the central bank’s rate decisions, and the economic factors that influence them, with a laser focus. They’ll pounce when both borrowing costs and lenders’ spreads to the prime rate are most attractive.
Fixed mortgage rates, meanwhile, tend to inspire less of a fuss. Traditionally priced higher than variable rates as because of their locked-in nature – payments never change during the mortgage term, providing financial stability and peace of mind – they’re an option for those who want to “set it and forget it,” without the bother of watching the market.
But fixed mortgage rates just got a whole lot more exciting. The lowest five-year fixed option in Canada dropped to 3.79 per cent this week. That’s the lowest since this spring, and a scant nine basis points above the lowest five-year variable rate of 3.7 per cent.
The decrease comes as the five-year government of Canada bond yield – which lenders use as a pricing floor for their five-year fixed rates – has sat in the 2.6-per-cent range since Oct. 15, and even briefly fell hit 2.5 per cent on Wednesday.
Yields have not been this low since early April, when investors reacted to the immediate aftermath of U.S. President Donald Trump’s “Liberation Day” tariff announcement by piling into safe haven investments.
The current cause for low bond yields is the expectation that the U.S. Federal Reserve will cut rates this month, and that a resolution may be nearing for the U.S. government shutdown.
The week’s best fixed and variable mortgage rates
That has sent the U.S. 10-year Treasury yield, which is the global benchmark for debt pricing, to fall to the 3.9-per-cent range – again, a low not seen since April’s trade upheaval era. That in turn has a downward effect on Canadian yields, giving lenders here the room to discount their fixed-rate mortgage products.
Regardless of the reason, though, today’s strategic mortgage shopper has a tempting reason to lock in. That case is perhaps made even more compelling as the outlook for variable mortgage rates has gotten murkier.
Market consensus is that the central bank will cut its benchmark rate by another 25 basis points at its next rate announcement on Oct. 29. This seemed especially likely after this week’s release of the central bank’s third-quarter Business Outlook Survey, where business owners expressed pessimistic hiring and investment intentions.
However, the release of September’s stronger-than-expected inflation report has dimmed rate-cut hopes. In the wake of those data, money markets reduced the chance of a cut from 87 per cent to 77 per cent.
Those are still solid odds that variable-rate borrowers will see some pricing relief later this month – but whether that will continue into 2026 is up for debate.
The most recent rate forecasts released by the economics departments of Canada’s Big Six banks are a mixed bag. The most dovish take, from Bank of Montreal, calls for at least two more cuts, bringing the rate down to 2 per cent by March.
On the other end of the spectrum is Bank of Nova Scotia, which expects rates to increase back to 2.75 per cent by year-end as trade uncertainty and rising inflation could force the central bank to hike.
That means trying to time the market to get the lowest variable mortgage rate could be tricky, and since fixed and variable mortgage rates are nearly at par, it may be an ideal time to lock in. The bottom line for any mortgage rate shopper is to seek out a rate hold or preapproval.
Today’s fixed 3.7 rate may not stick around for long, given bond yields are as predictable as the Jays’ run in the World Series. We can be optimistic, but it remains to be seen. Seeking out a preapproval now will secure a guarantee to access today’s lowest rate or best spread to prime, regardless of where markets turn next.
Penelope Graham is the head of content at Ratehub.ca
