Big Increases to Fixed Mortgage Rates - Best Mortgage Broker Rates

Big Increases to Fixed Mortgage Rates

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Just last week, I wrote about mortgage rates falling faster than expected, but today we’re facing a sudden spike in fixed mortgage rates. So, what’s behind this shift?

Last week, the lowest 3-year fixed rate for an insured mortgage dropped to 4.09%. Rates this low weren’t anticipated until 2025. This came on the heels of the Bank of Canada reaching their 2% inflation target about a year earlier than expected, prompting faster rate cuts, which aligned with expert forecasts.

But as I often remind you, forecasts are just educated guesses and can change quickly.

In my last blog, I advised not to wait for rates to drop further before locking in, stating, “Even when rates are trending downward, there can and will be fixed mortgage rate increases along the way.” I just didn’t expect the increase to come so quickly—or by so much.

Why Are Fixed Mortgage Rates Rising?

Fixed mortgage rates are largely influenced by bond yields, which had been inching up slowly since mid-September—nothing significant enough to impact rates. That changed on Friday, October 4th, when the U.S. released a surprisingly strong jobs report.

While strong employment numbers are good for the economy, they’re bad for inflation. For mortgage rates to continue falling, inflation needs to stay low. The bond market reacted swiftly, with yields jumping more than 5% that same day—and they’ve been rising every day since.

The impact?

The lender offering the lowest 3-year fixed insured rate increased it by a whopping 0.70% to 4.79%, an unusually large hike. The next lowest 3 year fixed insured rate is now 4.29%… 0.20% higher than what it was before. But this doesn’t mean that this rate won’t increase further.

Similarly, the lowest 5-year fixed rates have also jumped by 0.20%, bringing most lenders’ rates to 4.24%. Again, this applies to insured mortgages.

Will the Bank of Canada Cut Rates in October?

Many are expecting the Bank of Canada to cut its rate by 0.50% at its next announcement on October 23rd, with some economists forecasting a total of 2.00% in cuts by the end of the third quarter of 2025.

Since the U.S. jobs report on October 4th triggered the recent rate hikes, two of Canada’s big six banks—BMO and CIBC—have updated their forecasts. Thankfully, neither bank has revised its outlook for the Bank of Canada. BMO still predicts another 0.50% in cuts by the end of this year, with a further 1.25% by the end of Q3 2025. CIBC also maintains its forecast of 0.75% in cuts by the end of 2024 and an additional 1.25% by the middle of 2025, totaling a 2.00% reduction by next summer—if their predictions hold.

I’ll keep you posted on updates from all six major banks in future blogs, but for now, this is the outlook. As always, things can change, especially with the ongoing reaction to the U.S. jobs report. It’s unclear if the Bank of Canada will stick with aggressive cuts or take a more cautious approach.

Final Thoughts

As I’ve mentioned before, the path to lower mortgage rates is rarely smooth. Rate increases, even during a downward trend, are part of the journey. One piece of economic news can cause bond yields to spike, pulling fixed mortgage rates along with them.

While rates are still expected to decline, the question remains: will they climb even higher before they do?

As I often say, time will tell and anything can happen as the financial world is full of surprises.

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Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank – How to Win The Mortgage Game in Canada, and has ranked as one of the top 75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage Broker of the Year in 2018 - 2021, 2023, and can be seen as the exclusive mortgage broker on season 2, 5-7 of TV’s Top Million Dollar Agent.(Global, Slice TV and Rogers)