Volatility has re-entered the mortgage market as conflict ramps up in the Middle East, sending bond yields and the price of oil upward.
The Canada five-year bond yield, which mortgage lenders use to set their fixed rates, reached its highest level since May this week as it hit the 3.28 per cent mark on Wednesday afternoon. The yield has increased by 14 basis points since Monday.
Mortgage shoppers could be in store for rate hikes in the coming days or weeks because of the spike. The lowest five-year fixed rates have been sitting just under 4 per cent for most of July.
The rise in yields comes as oil prices surge as a result of intensifying strikes between Iran and the U.S. in the Middle East. Iran-backed Houthi militants have threatened to shut down a major shipping route in the Red Sea, further adding to supply constraints from the closing of the Hormuz Strait.
The price of Brent Crude Oil rose above US$100 a barrel this week as a result, up from US$69 at the beginning of January when fighting was at a lull.
Higher oil prices could add to inflationary concerns. Statistics Canada reported this week that inflation reduced to 2.8 per cent, down from 3.2 per cent in May. But the decline was largely a result of dropping oil prices during a tenuous ceasefire between the U.S. and Iran. Those decreases have largely been reversed.
Market expectations of a Bank of Canada rate hike have slightly increased as oil prices rise. Bond swaps markets, which capture investor expectations on monetary policy, have almost completely priced in one rate hike by the end of 2026. It’s an increase from earlier this week when there was some doubt about whether a hike would take place this year.
A rate hike would immediately increase borrowing costs for variable mortgage holders.
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Mortgage rates are sourced by Ratehub.ca. For a comprehensive list of today’s mortgage rates for each term/type, visit ratehub.ca/best-mortgage-rates.
Ratehub.ca is a mortgage-rate comparison marketplace and mortgage brokerage. It helps millions of Canadians compare and obtain the best mortgage rates, credit cards, insurance, deposits and loan products.
Rates shown are the lowest available for each term/type and category (insured versus uninsured) as of market close on Thursday, July 23.
