What to expect with mortgage interest rates in 2022

What to expect with mortgage interest rates in 2022.

After a 24 months of lower mortgage interest rates the slow and steady rise in 2022 is creating some unrest among home buyers and owners.

Just breath! Always talk to your independent mortgage broker to educate yourself and to review your specific needs.

Safe to say they will continue to rise on the variable and fixed side. But how you manage the shift can make all the difference.

How interest rates move differs from fixed and variable. When you listen to the news it can be confusing.

FIXED rates are tied to the bond yield. VARIABLE rates are tied to the PRIME rate and the PRIME rate is tied to the OVERNIGHT lending rate set by the Bank of Canada. If the Bank of Canada changes the overnight lending rate and the prime rate rises that doesn’t mean fixed rates will change. They can move at different times and in different ways.

The bond market has been under pressure in the past few months and as a result the 5 year fixed rates have risen. We expect rates may continue to rise in 2022. When will they drop again and settle? At this point that is unclear. However, we may have a bumpy ride for 2022 and 2023 till they correct. Will we see fixed rates below 2% again? Not likely as those were rates set in response to the pandemic economic conditions. But we may see rates reset to the 3% range as before the pandemic.

VARIABLE rates come with a discount from the PRIME rate. The bigger the discount the better for the consumer and that is where the conversation with your independent mortgage broker is important.

The Bank of Canada will meet 5 more times in 2022. It is expected they will increase the overnight lending rate again June 1st by .5% which will shift the PRIME rate from 3.2% to 3.7%. (PRIME was at 3.95% at the start of the pandemic). Can we expect the PRIME rate to rise past the pre pandemic rates? With the current inflation level of 6.7% (April 2022) the government will have to control this with higher interest rates. Their goal is for inflation to revert to 2%. These measures will take some time and we may expect pressure on rates into 2023. The war in Ukraine and pandemic supply chain issues play a factor so predicting any outcome of government policies is difficult.

Bank of Canada meeting schedule

Wednesday, June 1
Wednesday, July 13*
Wednesday, September 7
Wednesday, October 26*
Wednesday, December 7

Deciding how to manage your finances and estate planning is more important than ever. It is a good time to consult with your trusted advisors including your financial planner, your lawyer, accountant and independent mortgage broker. Together you can review your needs and set a plan for the changes happening today and to come out in a stronger position in the future.