Canada’s inflation report for January has led to a sharp decline in the chances of the Bank of Canada cutting rates in March.
Canada’s headline inflation rate rose by 1.9% year-over-year in January, a slight increase from December’s 1.8% and in line with expectations.
The increase in headline CPI was largely driven by higher energy prices, notably gasoline (+8.6%) and natural gas (+4.8%).
The Goods and Services Tax (GST) holiday, which ran from mid-December to mid-February, provided some relief. This temporary measure helped reduce prices for food purchased at restaurants (-5.1% y/y), alcoholic beverages (-3.6% y/y), and toys, games, and hobby supplies (-6.8% y/y).
Core inflation measures, which are closely monitored by the Bank of Canada, showed a more mixed picture. CPI excluding food and energy remained stable at 2.2% y/y, but the seasonally adjusted annualized rate of CPI excluding food and energy slowed to 1.6% in January from 4% in December.
However, the Bank of Canada’s preferred core inflation measures, CPI-Trim and CPI-Median, both edged higher to 2.7% y/y, signalling that underlying inflation pressures remain. Moreover, the three-month annualized trend of core inflation has been tracking above 3%, suggesting that core inflation “could continue to rise in the coming months “should continue to grind higher,” noted TD economist James Orlando.
Impact on Bank of Canada rate cut expectations
Following today’s release, market odds of a 25-basis-point rate cut at the Bank of Canada’s March 12 policy meeting dropped to under 30%.
“There is too much underlying inflationary pressure in Canada to warrant an inflation-targeting central bank easing monetary policy further,” wroteScotiabank‘s Derek Holt.
“The state of the job market also does not merit further easing,” he added, referencing January’s higher-than-expected job growth. “Canadian inflation remains too warm for the Bank of Canada to continue easing.”
However, economists remain divided on the Bank of Canada’s next move. Some, like Oxford Economics, still expect the Bank to continue cutting rates in the months ahead.
“The Bank of Canada will be in a bind as it weighs competing concerns over higher prices from the tariffs with the drag on economic growth,” noted Tony Stillo, Director of Canada Economics at Oxford.
“We believe the BoC will look through the temporary price shock and instead focus on the negative implications for the Canadian economy and heightened trade policy uncertainty, leaving it on track to lower the policy rate another 75bps to 2.25% by June 2025,” he added.
TD’s Orlando also underscored the challenge the Bank of Canada faces in balancing competing priorities.
“Does it weigh the downside risks to the economy in the face of U.S. tariffs, or does it focus on recent economic strength and the impact this is having on inflation?” he questioned, while acknowledging that much can change between now and the next BoC policy meeting.
“There is plenty of time between now and March 12, and if the President’s first few weeks are anything to go by, a lot could change before then,” he added.
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
After the Bank of Canada’s latest rate reduction 5-year variable mortgage rates are now on par with their fixed-rate counterparts, raising the question: Is now the time to go variable?
With additional Bank of Canada rate cuts expected, variable-rate mortgages are becoming an increasingly attractive option.
But choosing flexibility comes with its challenges—borrowers must weigh potential savings against heightened market volatility and the growing uncertainty surrounding a possible trade war with the U.S.
Ron Butler of Butler Mortgages told Canadian Mortgage Trends that this is the most volatile time he’s seen in the bond market “in forever.”
“It’s literally like 2008, during the Global Financial Crisis, it’s so wild,” he said.
Butler notes that the Canadian 5-year bond yield, which typically leads fixed-mortgage rate pricing, fell from a high of 3.85% in April to 2.64% last week, a significant change in such a short period of time. As a result, following six consecutive Bank of Canada rate cuts, 5-year variable rates are now nearly on par with fixed equivalents.
Clients opting for variable rates in droves
Look past the volatility—and the threat of devastating U.S. tariffs —and variable rates present a compelling case.
Markets are still pricing in at least two more quarter-point Bank of Canada cuts this year, which could push variable mortgage rates down at least another 50 basis points.
Some forecast even more aggressive rate-cut action will be required to counter the ecnoomic shock of a trade war with the U.S.
“I don’t think it’s a stretch to believe that the Bank will reduce its policy rate from its current level of 3.00% down to at least 2% during the current rate cycle,” David Larock of Integrated Mortgage Planners said in a recent blog.
However, he cautions that there is also the risk that rate hikes come back into play should inflationary pressures re-emerge.
“While I expect variable rates to outperform today’s fixed-rate options, I caution anyone choosing a 5-year variable rate today to do so only if they are prepared for a rate rise at some point over their term,” Larock added. “Five years is long enough for the next rate cycle to begin, and for variable rates to rise from wherever they bottom out over the near term.”
Still, it’s a risk more and more borrowers are willing to take. Data from the Bank of Canada shows that as of November, nearly a quarter of new mortgages were variable-rate, up from less than 10% earlier in the year.
Butler says this trend has only accelerated in recent months, noting that the share of variable mortgages he’s originating has surged from 7% last year to 40% now.
“We advise clients to take variable because we now have actual reporting from marketplace analysts that it will go down,” he says. “The fee benefit of variable is a guaranteed penalty amount; you just don’t know what penalty you’re really going to get with fixed.”
Unlike fixed-rate mortgages, which often come with interest rate differential (IRD) penalties that can amount to tens of thousands of dollars, variable-rate mortgages typically carry a much smaller penalty—just three months’ interest—making them a more flexible option for borrowers who may need to break their mortgage early.
Butler argues that if tariffs are imposed, their impact on the mortgage market won’t be immediate, as inflation would primarily rise due to retaliatory counter-tariffs. This lag, he says, could give variable-rate borrowers a window to switch to a fixed rate before higher inflation forces the Bank of Canada to reverse course and hike rates.
“This kind of trade war means that in the beginning, the economy deteriorates, and interest rates go down; it takes nine months or a year for the inflation to really lock into a point where the Bank has to raise rates,” he says. “The inflation spiral takes time. The Bank of Canada will cut long before costs start to increase.”
Tracy Valko of Valko Financial, however, suggests that in such a trade war inflation becomes secondary to more immediate economic indicators, like unemployment. That, she warns, could skyrocket following a tariff announcement as companies brace for impact.
“‘Inflation’ was the word last year; this year I think it will be ‘employment,’ because tariffs will drive unemployment, and people won’t be able to afford housing, which will put a lot of pressure on the government infrastructure,” she says. “I don’t think it will be like inflation, which is a lagging indicator, because businesses will have to adjust quite quickly, and we could see massive unemployment in certain sectors.”
Even Trump’s latest tariff threat on aluminum and steel imports could have devastating impacts on Canadian workers in those industries within days.
Valko adds that high unemployment would potentially drive interest rates down faster—potentially even triggering an emergency rate cut, as National Bank had suggested—to blunt the effects of high tariffs. That potential scenario, Valko says, adds to the variable rate argument, but also adds to the widespread feeling of uncertainty in the market.
“A lot of people are really pessimistic right now on the future; we’ve had clients and homeowners that have had a lot of shocks in the mortgage market and the real estate market, and are not interested in having any more instability,” she says. “People are more educated than they’ve ever been before, so they are really looking at their financing—which is great to see—but people are very cautious, so to take variable, it has to be a very risk-tolerant client.”
Rate options for the more risk-averse borrowers
Valko notes that borrowers wary of economic uncertainty are increasingly choosing shorter-term fixed rates, offering stability without locking in for the long haul.
“Three-year fixed has been probably the most popular because it’s not taking that higher rate for the traditional five-year fixed rate term,” she says. “They’re hoping in three years we’ll see a more normalized and balanced market.”
For more cautious borrowers, hybrid mortgages—which split the loan between fixed and variable rates—are another option and are currently available through most major financial institutions.
“There are some people that are in the middle of that risk tolerance, and if they could put a portion in fixed and a portion in variable—and to be able to adjust it quickly—I think it would be a really good option,” Valko says.
Butler, however, disagrees.
“A hybrid mortgage means you are always half wrong about mortgage rates,” he says. “If the balance of probability clearly indicates variable is the correct short-term answer, take variable and carefully monitor the movement of fixed rates.”
Jared Lindzon is a freelance journalist and public speaker based in Toronto. He is a regular contributor to the Globe & Mail, Fast Company and TIME Magazine, and has been published in The New York Times, Rolling Stone, The Guardian, Fortune Magazine, and many more.
The Bank of Canada (BoC) reduced the overnight rate by 25 basis points this morning, bringing the policy rate down to 3.0%. The market had anticipated a nearly 98% chance of this 25 basis point reduction, and consensus aligned with this expectation. The Federal Reserve is also set to announce its rate decision this afternoon, where it is widely expected to maintain the current policy rate. As a result, the gap between the US Federal Funds rate and the BoC’s overnight rate has widened to 150 basis points. This discrepancy is largely attributed to stronger growth and inflation in the US compared to Canada. Consequently, Canada’s relatively low interest rates have negatively impacted the Canadian dollar, which has fallen to 69.2 cents against the US dollar. Additionally, oil prices have dropped by five dollars, now at US$73.61.
The Bank also announced its plan to conclude the normalization of its balance sheet by ending quantitative tightening. It will restart asset purchases in early March, beginning gradually to stabilize and modestly grow its balance sheet in alignment with economic growth.
The projections in the January Monetary Policy Report (MPR) released today are marked by more-than-usual uncertainty due to the rapidly evolving policy landscape, particularly the potential threat of trade tariffs from the new administration in the United States. Given the unpredictable scope and duration of a possible trade conflict, this MPR provides a baseline forecast without accounting for new tariffs.
According to the MPR projections, the global economy is expected to grow by about 3% over the next two years. Growth in the United States has been revised upward, mainly due to stronger consumption. However, growth in the euro area is likely to remain subdued as the region faces competitiveness challenges. In China, recent policy actions are expected to boost demand and support near-term growth, although structural challenges persist. Since October, financial conditions have diverged across countries, with US bond yields rising due to strong growth and persistent inflation, while yields in Canada have decreased slightly.
The BoC press release states, “In Canada, past cuts to interest rates have begun to stimulate the economy. The recent increase in both consumption and housing activity is expected to continue. However, business investment remains lackluster. The outlook for exports is improving, supported by new export capacity for oil and gas.
Canada’s labor market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months after a prolonged period of stagnation in the labor force. Wage pressures, previously sticky, are showing some signs of easing.
The Bank forecasts GDP growth to strengthen in 2025. However, with slower population growth due to reduced immigration targets, both GDP and potential growth will be more moderate than previously anticipated in October. Following a growth rate of 1.3% in 2024, the Bank now projects GDP to grow by 1.8% in both 2025 and 2026, slightly exceeding potential growth. As a result, excess supply in the economy is expected to be gradually absorbed over the projection horizon.
CPI inflation remains close to the 2% target, though with some volatility stemming from the temporary suspension of the GST/HST on select consumer products. Shelter price inflation remains elevated but is gradually easing, as anticipated. A broad range of indicators, including surveys on inflation expectations and the distribution of price changes among CPI components, suggests that underlying inflation is near the 2% target. The Bank forecasts that CPI inflation will remain around this target over the next two years.
Aside from the potential US tariffs, the risks surrounding the outlook appear reasonably balanced. However, as noted in the MPR, a prolonged trade conflict would most likely result in weaker GDP growth and increased prices in Canada.
With inflation around 2% and the economy in a state of excess supply, the Governing Council has decided to further reduce the policy rate by 25 basis points to 3%. This marks a substantial (200 bps) cumulative reduction in the policy rate since last June. Lower interest rates are expected to boost household spending, and the outlook published today suggests that the economy will gradually strengthen while inflation remains close to the target. Nevertheless, significant and widespread tariffs could challenge the resilience of Canada’s economy. The Bank will closely monitor developments and assess their implications for economic activity, inflation, and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.Nevertheless, significant and widespread tariffs could challenge the resilience of Canada’s economy. The Bank will closely monitor developments and assess their implications for economic activity, inflation, and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.
Bottom Line
The central bank dropped its guidance on further adjustments to borrowing costs as US President Donald Trump’s tariff threat clouded the outlook.
Bonds surged as the market absorbed the central bank’s decision not to guide future rate moves. The yield on Canada’s two-year notes slid some four basis points to 2.79%, the lowest since 2022. The loonie maintained the day’s losses against the US dollar.
In prepared remarks, Macklem said while “monetary policy has worked to restore price stability,” a broad-based trade conflict would “badly hurt” economic activity but that the higher cost of goods “will put direct upward pressure on inflation.”
“With a single instrument — our policy rate — we can’t lean against weaker output and higher inflation at the same time,” Macklem said, adding the central bank would need to “carefully assess” the downward pressure on inflation and weigh that against the upward pressure on inflation from “higher input prices and supply chain disruptions.”
In the accompanying monetary policy report, the central bank lowered its forecast for economic growth in 2025 due to the federal government’s lower immigration targets. The bank expects the economy to expand by 1.8% in 2025 and 2026, down from 2.1 and 2.3% in previous projections. The central bank trimmed business investment and exports estimates but boosted its consumption forecast.
The bank estimated that interest rate divergence with the Federal Reserve was responsible for about 1% of the depreciation in the Canadian dollar since October.
We expect the BoC to continue cutting the policy rate in 25-bps increments until it reaches 2.5% this Spring, triggering continued strengthening in the Canadian housing market.
The federal government’s launch of the Secondary Suite Refinance Program on January 15 was largely met with optimism, but some brokers note that questions remain.
The program, first unveiled in October, allows homeowners to refinance up to 90% of their property’s value (capped at $2 million) to build secondary suites intended for long-term rental use, specifically excluding short-term rentals like Airbnb.
In a previous post, Canadian Mortgage Trends examined the pros and cons of the program, concluding that it appears to offer significant benefits for homeowners looking to boost their investments or ease financial pressures by adding a tenant. The initiative also holds potential to create jobs and contribute to the broader housing supply.
However, the program’s details remain unclear, creating uncertainty that has made some brokers hesitant to fully support homeowners seeking to refinance.
“It’s very bare bones,” says Connor Green, a mortgage agent with Concierge Mortgage Group, referring to the limited information and criteria available for the program so far. “Typically with a product of this nature you’d see something much more fleshed out.”
There has also been limited information available to homeowners eager to take advantage of the program, particularly regarding the application process.
The Canada Mortgage and Housing Corporation (CMHC), which is overseeing the program, told Canadian Mortgage Trends, “Interested homeowners should reach out to their lender or mortgage provider.”
Overall details of who will qualify remain vague
Since the program’s January 15 launch, key details remain unclear, including financing logistics, timelines, permit and zoning requirements, and inspection criteria, critics say.
“I think there needs to be more direction on how the funds are going to be managed,” notes Tracy Valko, Principal Mortgage Broker and Founder of Valko Financial. “They’re saying it’s a refinance, but typically with a refinance you give funds on closing … we know that won’t be the case with this but then there needs to be some rollout about what that expectation is.”
Young happy couple examining blueprints during home renovation process in the apartment.
Even the program’s very definition of a “distinct secondary suite” remains unclear.
With the core incentive open to interpretation, homeowners face uncertainty when deciding on specific development options, such as a basement suite, laneway house, garden suite, or a simple partition within the home. Each option carries the risk of not aligning with potential future clarifications provided by the government, critics say.
“‘Distinct secondary suite’ is very vague,” notes Green. “Is that an addition? A detached unit? A basement apartment? Is it splitting a basement apartment into two units, three units? … It’s all vague in that sense where I’m not exactly sure what they are looking to finance under this program.”
Opportunity for multi-generational home owners unclear
One demographic that appears to have been overlooked in the initial planning and follow-up information for the program is homeowners seeking to refinance for the creation of multi-generational homes—households that accommodate at least three generations of the same family.
A 2021 Statistics Canada report revealed a sharp rise in multi-generational homes over the past two decades, with their numbers increasing by 50% between 2001 and 2021.
Such homes would also benefit from support to expand but are more likely to focus on projects that accommodate additional family members rather than tenants, such as creating in-law suites or undertaking “non-distinct” expansions.
However, since the federal government’s new Secondary Suites Refinancing Program is specifically geared towards the creation of rental units, it seems, at least for now, to overlook the opportunity to offer refinancing options for this rapidly growing demographic of homeowners.
Looming tariffs add to the uncertainty
Another source of uncertainty is the looming U.S. tariffs, which could drive up the cost of labour and materials needed for renovations under the program.
Shortly after being sworn in on January 20, U.S. President Donald Trump announced plans to impose a 25% tariff on goods imported from Canada, set to begin February 1. While the tariffs might not directly impact renovation projects in Canada, the potential for retaliatory measures and an escalating trade war could disrupt supply chains and increase costs.
“Materials are expensive, labour is expensive in Canada now,” says Valko. “And there’s also the timeline—you don’t want to have a unit half completed and not be able to finish it by the end of the year … I think that’s why lenders are reluctant.”
Dylan Freeman-Grist is a freelance journalist based in Toronto covering a variety of topics including finance, art, design and technology. You can follow him on X or Bluesky @freemangrist.
The Canadian Housing Market Ends 2024 On a Weak Note
Home sales activity recorded over Canadian MLS® Systems softened in December, falling 5.8% compared to November. However, they were still 13% above their level in May, just before the Bank of Canada began cutting interest rates.
The fourth quarter of 2024 saw sales up 10% from the third quarter and stood among the more muscular quarters for activity in the last 20 years, not accounting for the pandemic.
“The number of homes sold across Canada declined in December compared to a stronger October and November, although that was likely more of a supply story than a demand story,” said Shaun Cathcart, CREA’s Senior Economist. “Our forecast continues to be for a significant unleashing of demand in the spring of 2025, with the expected bottom for interest rates coinciding with sellers listing properties in big numbers once the snow melts.”
New Listings
New listings dipped 1.7% month-over-month in December, marking three straight monthly declines following a jump in new supply last September.
“While housing market activity may take a breather over the winter with fewer properties for sale, the fall market rebound serves as a good preview of what could happen this spring,” said James Mabey, CREA Chair. “Spring in real estate always comes earlier than both sellers and buyers anticipate. The outlook is for buyers to start coming off the sidelines in big numbers in just a few months from now.”
With sales down by more than new listings on a month-over-month basis in December, the national sales-to-new listings ratio eased back to 56.9%, down from a 17-month high of 59.3% in November. The long-term average for the national sales-to-new listings ratio is 55%, with readings between 45% and 65% generally consistent with balanced housing market conditions.
There were 128,000 properties listed for sale on all Canadian MLS® Systems at the end of 2024, up 7.8% from a year earlier but still below the long-term average of around 150,000 listings.
There were 3.9 months of inventory on a national basis at the end of 2024, up from a 15-month low of 3.6 months at the end of November but still well below the long-term average of five months of inventory. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months and a buyer’s market would be above 6.5 months. That means the current balance of supply and demand nationally is still close to seller’s market territory.
Home Prices
The National Composite MLS® Home Price Index (HPI) rose 0.3% from November to December 2024 – the second straight month-over-month increase.
The non-seasonally adjusted National Composite MLS® HPI stood just 0.2% below December 2023, the smallest decline since prices dipped into negative year-over-year territory last April.
The non-seasonally adjusted national average home price was $676,640 in December 2024, up 2.5% from December 2023.
Bottom Line
The Bank of Canada’s aggressive rate-cutting and regulatory changes that make housing more affordable have ignited the Canadian housing market. While the conflagration isn’t likely to peak until spring, a seasonally strong period for housing, activity already started to pick up in the fourth quarter.
Today, we saw a welcome dip in US inflation in December. Softer core US CPI inflation in December will give the Fed some breathing room ahead of the uncertain impact of tariffs. With the coming inauguration of Donald Trump, there is an inordinate amount of uncertainty. If Trump imposed tariffs on Canada in the early days of his administration, the Canadian economy would slow markedly, and inflation would mount. This could curtail the Bank of Canada’s easing and even trigger a tightening monetary policy if inflation rises too much.
Market-driven interest rates have risen sharply in recent weeks, pushing the interest rate on 5-year Government of Canada bonds upward. US ten-year yields are at 4.67%, up considerably since early December. Canadian ten-year yields have risen as well, but at 3.44%, they are more than 120 basis points below the US, well outside historical norms.
The central bank meets again on January 29 and will likely cut the overnight policy rate by 25 bps to 3.0%. Canada’s homegrown political uncertainty muddies the waters. The Parliament is prorogued until March as the Liberals decide on a new leader. The subsequent election adds to the volatility and uncertainty. We hold to the view that overnight rates will fall to 2.5% by midyear, triggering a strong Spring selling season.
Homeowners across Canada should prepare for significant increases in insurance premiums. Experts attributed the rising costs to record-breaking losses from natural disasters, inflation, and labour shortages in the construction industry, a report from CTV News highlighted.
The Insurance Bureau of Canada (IBC) reported $8.5 billion in insured losses in 2024, nearly tripling the previous year’s total. Severe weather events such as Calgary’s hailstorm, Quebec’s flooding, and the Jasper wildfire contributed to these staggering figures. Claims have increased by 115% over the past five years, while the cost of replacing personal property has surged by nearly 500%.
“2024 was the most devastating year on record in Canada for severe weather events,” said Jason Clark of the IBC. He emphasized the need for better disaster prevention measures, including investment in risk mitigation, infrastructure, and first responders.
Struggling to keep up
The rising premiums reflect insurers’ struggle to cope with mounting claims. Daniel Ivans, an insurance expert with Rates.ca, explained, “Insurance is a pooling of risk, and so when claims go up, costs go up.” While premium increases will vary by region, Ivans expects them to be substantial nationwide.
Inflation and rising construction costs compound the issue. Statistics Canada reports that residential building costs have increased by 66% since 2019, with home replacement costs up 24% during the same period.
High-risk areas under threat
The challenges faced by homeowners in high-risk regions, such as British Columbia and California, highlight a growing problem. In California, many wildfire victims were unable to secure insurance due to their location. British Columbians now fear a similar situation.
During periods of imminent wildfire threat, insurers in BC may temporarily restrict the sale of new policies, although renewals continue. The provincial government and the BC Financial Services Authority are monitoring the issue to improve insurance availability and affordability.
Peter Milobar, BC’s Conservative finance critic, warned of the strain these rising costs could place on households. “These are cost pressures that are going to be very difficult to manage for the average household,” he said, noting that many Canadians are already financially vulnerable.
Protecting livelihoods
Experts urge homeowners to maintain comprehensive insurance coverage despite the rising costs. Ivans cautioned against cutting corners, saying, “There’s a concept called saving pennies to lose dollars. We’ve seen a lot of instances where houses are fully burned down or demolished as a result of forest fires, as a result of flooding, where the foundation of the home is displaced. That’s somebody’s entire livelihood that they’re putting at risk for, something that they have no control over.”
To manage rising premiums, Ivans recommends shopping around for better deals and considering insurers outside one’s immediate region.
With extreme weather events on the rise, the future of home insurance remains uncertain. However, Clark stressed the importance of addressing the risks now: “The risk is present. It’s escalating, and we want to ensure that what we see happening south of the border doesn’t happen here.”
The new initiative aims to simplify the credit-building process for immigrants by recognizing financial histories from their home countries.
When Rebecca Oakes emigrated from the UK to Canada in 2017, she never anticipated that one of the first challenges she’d face would be securing a quality Canadian credit card.
Rebecca Oakes, Vice President of Data & Analytics, Equifax
The trouble stemmed from her lack of a recognized credit history in Canada, a challenge she had to tackle with a sense of irony, considering she was arriving as a vice president with Equifax Canada – one of the world’s leading credit reporting agencies.
”Despite working for Equifax, that didn’t help me get a credit file,” she recalls with a laugh.
Oakes, of course, had the tools to navigate the dilemma, but her situation is a common one faced by thousands of newcomers each year who arrive in Canada with limited credit histories.
For those seeking access to essential financial services, such as mortgages to help them lay down roots, the lack of a credit history can lead to added stress, unexpected expenses, and uncertainty.
Equifax’s Global Consumer Credit File: A game changer for newcomers
It’s a key reason why Equifax recently introduced its new Global Consumer Credit File. The initiative allows newcomers to Canada to extend their new Canadian credit files back to their countries of origin, creating a corroborated snapshot of their financial history prior to arrival.
“One of the big beliefs that Equifax stands for is that we strive to create economically healthy individuals and financially inclusive communities,” says Oakes, Vice President of Data & Analytics at the agency. “When you look at Canada in particular, there are many newcomers arriving in Canada each year, and often they are arriving with credit histories in their home countries that go unseen by Canadian financial institutions.”
Previously, many newcomers were forced to rebuild their credit histories from scratch before gaining full access to essential services like starting a business, securing student loans, or purchasing their first home in Canada. Under the current system, this process can take time, potentially delaying their plans and hindering their ability to fully contribute to Canada’s economy for years.
The product’s arrival is timely. According to Immigration, Refugees and Citizenship Canada, Canada is expected to welcome 500,000 new immigrants annually by 2025. While recent political unease and shifting policies may temper these figures, Canada is likely to remain one of the top destinations for migrants globally for the foreseeable future.
Addressing the needs of lenders and consumers alike
A significant portion of these newcomers are from India, which, as of 2021, was the country of origin for nearly 1 in 5 immigrants to Canada. India will be the first country where the Global Consumer Credit File is activated. Subsequent phases will expand to South America, with Brazil, Argentina, and Chile being the next targets. Overall, the program is set to roll out in 18 countries over the coming months, focusing on regions where Equifax already has a global presence.
While this is great news for newcomers planning their financial futures in Canada, the product also aims to address the needs of lenders.
“We are constantly talking to lenders and financial providers, it’s part of what we do day-to-day, just to understand what their needs are,” said Oakes. She added that lenders have long recognized the growing population of newcomers to Canada but have struggled with limited information to support them.
“They know that they don’t have much information to help immigrants when they first arrive to Canada, and therefore that has limited the products that are offered,” she noted.
How it works
Each global affiliate collaborating with Equifax Canada to consolidate information is a foreign Equifax entity. When individuals request the expanded report, these entities will be contacted to coordinate and share information with Equifax Canada.
The process is designed with thorough verification and security to ensure reliability. Additionally, Equifax has worked to understand and translate the complexities of its global partners’ credit systems and scoring criteria, ensuring their relevance in the Canadian market.
As a result, rather than simply sharing an individual’s foreign credit score, the program will generate a more accurate, calibrated Canadian score, offering more comprehensive information to potential lenders.
“We’re hoping this is going to be a win-win for everybody here, the lenders get more information, and the consumers can get better access to credit and finances,” adds Oakes.
Dylan Freeman-Grist is a freelance journalist based in Toronto covering a variety of topics including finance, art, design and technology. You can follow him on X or Bluesky @freemangrist.
Despite low bond yields, banks and other lenders are continuing to raise rates. We talked to several rate experts to understand why.
Bond yields have plunged over 30 basis points (0.30 percentage points) over the past two weeks.
As regular readers of Canadian Mortgage Trends know, bond yields typically influence fixed mortgage rate pricing. However, that’s not the case right now. Several lenders, including three of the Big 5 banks, have recently raised rates on some of their fixed-rate products.
CIBC, Royal Bank, and TD raised their 3-, 4-, and 5-year fixed rates by 15-35 bps last week, while RBC also increased its 5-year insured and uninsured variable rates by 10 bps.
And they weren’t alone. Many other lenders across the country have also raised fixed rates, with the biggest increases typically seen in the 3- to 5-year fixed terms. At the same time, others have been reducing select rates slightly.
Government of Canada 5-year bond yield – 2024
If yields are down, why are rates going up?
There is no single factor that drives rates; instead, they are influenced by a combination of market conditions, geopolitical events, domestic data, and the broader outlook for the future.
Mortgage broker and rate expert Dave Larock noted in his latest blog that the current rate changes are “counter-intuitive,” as lenders are “concluding a round of increases to their fixed mortgage rates in response to the previous bond-yield run-up.”
He’s referencing the jump in bond yields since early October, from a level of 2.75% up to a high of 3.31% on Nov. 21.
Larock added that the rate increases could be reversed in the coming week if bond yields remain at current levels or fall further. “That outcome is far from certain,” he cautions.
Rate expert Ryan Sims agrees that banks are being slow to adjust to the rise in yields in November. “Although the [increases] are done, they are still more elevated than they were,” he said. “If bond yields stay lower, or seem to find a happy resting spot, then I could see some rate wars starting up,” he continued.
He added that since more borrowers are opting for variable-rate mortgages, he suspects lenders “are going to have to sacrifice some spread on fixed rates to get people to bite.”
If too many clients opt for variable rates, “banks could quickly get offside on term matching,” Sims says.
Lenders face a risk if they have too many variable-rate mortgages because of potential mismatches between short-term liabilities and long-term assets. If interest rates rise, it can disrupt their profitability and lead to higher costs, especially if they haven’t properly balanced their portfolio.
That, Sims says, is why some lenders have been decreasing their variable rate discounts on prime even as prime keeps falling with each Bank of Canada rate cut.
Are Canada’s big banks pulling back on competition?
As we’ve reported previously, Canada’s Big 6 banks have been unusually competitive with their mortgage pricing this fall, a trend John Webster, former CEO of Scotia Mortgage Authority, called a “silly business” as the big banks strive to meet quarterly revenue targets.
At an appearance last month Webster said a “confluence of circumstances” had driven the big banks to be more competitive with their mortgage pricing. However, he also suggested that this was unsustainable and expected more rational pricing to return by the first quarter.
Could this be the start of more rational pricing from the big banks?
Ron Butler of Butler Mortgage said there’s an aspect of seasonality to the recent increases.
“It’s the time of year when all banks end mortgage marketing campaigns, so rates always go up in December,” he told Canadian Mortgage Trends.
However, he also echoed comments from Larock and Sims, noting that despite the recent drop in bond yields, 3- and 5-year yields remain higher than they were since October.
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
As a follow-up to last week’s announcement, the federal government has unveiled a more detailed framework for its updated mortgage rules, which are set to take effect on December 15, 2024.
These changes are part of the government’s larger effort to make housing more affordable, giving first-time buyers and those purchasing new homes more options, while also increasing the price limit for homes that qualify for insured mortgages.
Tiered insurance structure remains in place as insured mortgage price cap increases
As part of the changes, the federal government is raising the price cap for insured mortgages, increasing the limit from $1 million to $1.5 million. This allows buyers within that range to qualify for high loan-to-value mortgage insurance, provided their loan-to-value ratio is at least 80%.
The government confirmed that the down payment structure will remain unchanged for loans under the new price cap, requiring:
5% for the portion of the purchase price up to $500,000, and
10% for the portion between $500,000 and $1.5 million.
This change is particularly significant for buyers in major urban markets like Toronto and Vancouver, where home prices often exceed the previous $1-million cap.
These details confirm that starting December 15, buyers will be able to purchase a $1.5-million home with just a $125,000 down payment, a significant reduction from the current $300,000 requirement for uninsured borrowers.
Expanding eligibility for 30-year amortizations
Another key change is the expansion of 30-year amortization periods for insured mortgages. This longer amortization option will now be available to all first-time homebuyers and those purchasing new builds, provided the loan-to-value ratio is 80% or higher.
Eligibility for first-time homebuyers includes the following criteria:
The borrower has never purchased a home before.
The borrower has not owned or occupied a principal residence in the last four years.
The borrower has recently experienced a breakdown in a marriage or common-law relationship, in line with the Canada Revenue Agency’s approach to the Home Buyers’ Plan.
For new builds, the home must not have been previously occupied, though newly constructed condominiums with interim occupancy periods will still qualify.
The goal of this change is to make homeownership easier by giving buyers the option for lower monthly payments with longer amortization periods, helping to ease the burden of today’s high interest rates.
These reforms are set to apply to all high-ratio mortgages on properties that are owner-occupied or occupied by a close relative. The government also emphasized that the current eligibility criteria for government-backed mortgage insurance will remain in place.
Lenders and insurers will be able to offer mortgages under these new rules starting December 15, 2024, and prospective buyers can begin submitting applications to insurers from this date onward.
“It is absolutely essential that the dream of homeownership be a reality for young Canadians,” said Deputy Prime Minister and Finance Minister Chrystia Freeland on Tuesday, emphasizing the need for the new mortgage rule changes.
“We are, quite intentionally, giving them an advantage, giving them a leg up in the property market.”
Changes expected to bolster housing demand
The federal government’s latest mortgage rule changes are expected to “incrementally bolster demand” in the housing market, according to a recent report from BMO.
While extending 30-year amortizations for new builds may not have a huge impact, other changes could be more significant. Raising the mortgage insurance cap from $1 million to $1.5 million will open the single-family home market to more buyers, while extending amortizations from 25 to 30 years could also increase purchasing power by around 10%, similar to a 0.90% mortgage rate cut, according to BMO senior economist Robert Kavcic.
Falling fixed mortgage rates are further fuelling the market, and Kavcic suggests these factors together may encourage households to take on more debt and longer-term mortgages.
He notes that if the economy stays stable, these changes—along with the Bank of Canada’s easing—could set the stage for a stronger housing market next year.
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
September 16, 2024 – Ottawa, Ontario – Department of Finance Canada
Canadians work hard to be able to afford a home. However, the high cost of mortgage payments is a barrier to homeownership, especially for Millennials and Gen Z. To help more Canadians, particularly younger generations, buy a first home, new mortgage rules came into effect on August 1, 2024, allowing 30 year insured mortgage amortizations for first-time homebuyers purchasing new builds.
The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, today announced a suite of reforms to mortgage rules to make mortgages more affordable for Canadians and put homeownership within reach:
Increasing the $1 million price cap for insured mortgages to $1.5 million, effective December 15, 2024, to reflect current housing market realities and help more Canadians qualify for a mortgage with a downpayment below 20 per cent. Increasing the insured-mortgage cap—which has not been adjusted since 2012—to $1.5 million will help more Canadians buy a home.
Expanding eligibility for 30 year mortgage amortizations to all first-time homebuyers and to all buyers of new builds, effective December 15, 2024, to reduce the cost of monthly mortgage payments and help more Canadians buy a home. By helping Canadians buy new builds, including condos, the government is announcing yet another measure to incentivize more new housing construction and tackle the housing shortage. This builds on the Budget 2024 commitment, which came into effect on August 1, 2024, permitting 30 year mortgage amortizations for first-time homebuyers purchasing new builds, including condos.
These new measures build on the strengthenedCanadian Mortgage Charter¸ announced in Budget 2024, which allows all insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test. Not having to requalify when renewing with a different lender increases mortgage competition and enables more Canadians, with insured mortgages, to switch to the best, cheapest deal.
These measures are the most significant mortgage reforms in decades and part of the federal government’s plan to build nearly 4 million new homes—the most ambitious housing plan in Canadian history—to help more Canadians become homeowners. The government will bring forward regulatory amendments to implement these proposals, with further details to be announced in the coming weeks.
As the federal government works to make mortgages more affordable so more Canadians can become homeowners, it is also taking bold action to protect the rights of home buyers and renters. Today, as announced in Budget 2024, the government released the blueprints for a Renters’ Bill of Rights and a Home Buyers’ Bill of Rights. These new blueprints will protect renters from unfair practices, make leases simpler, and increase price transparency; and help make the process of buying a home, fairer, more open, and more transparent. The government is working with provinces and territories to implement these blueprints by leveraging the $5 billion in funding available to provinces and territories through the new Canada Housing Infrastructure Fund. As part of these negotiations, the federal government is calling on provinces and territories to implement measures such as protecting Canadians from renovictions and blind bidding, standardizing lease agreements, making sales price history available on title searches, and much more—to make the housing market fairer across the country.
Quotes
“We have taken bold action to help more Canadians afford a downpayment, including with the Tax-Free First Home Savings Account, through which more than 750,000 Canadians have already started saving. Building on our action to help you afford a downpayment, we are now making the boldest mortgages reforms in decades to unlock homeownership for younger Canadians. We are increasing the insured mortgage cap to reflect home prices in more expensive cities, allowing homebuyers more time to pay off their mortgage, and helping homeowners switch lenders to find the lowest interest rate at renewal.”
– The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance
“Everyone deserves a safe and affordable place to call home, and these mortgage measures will go a long way in helping Canadians looking to buy their first home.”
– The Honourable Sean Fraser, Minister of Housing, Infrastructure and Communities
Quick facts
The strengthened Canadian Mortgage Charter, announced in Budget 2024, sets out the expectations of financial institutions to ensure Canadians in mortgage hardship have access to tailored relief and to make it easier to buy a first home.
Mortgage loan insurance allows Canadians to get a mortgage for up to 95 per cent of the purchase price of a home, and helps ensure they get a reasonable interest rate, even with a smaller down payment.
The federal government’s housing plan—the most ambitious in Canadian history—will unlock nearly 4 million more homes to make housing more affordable for Canadians. To help more Canadians afford a downpayment, in recognition of the fact the size of a downpayment and the amount of time needed to save up for a downpayment are too large today, the federal government has:
Launched the Tax-Free First Home Savings Account, which allows Canadians to contribute up to $8,000 per year, and up to a lifetime limit of $40,000, towards their first downpayment. Tax-free in; tax-free out; and,
Enhanced the Home Buyers’ Plan limit from $35,000 to $60,000, in Budget 2024, to enable first-time homebuyers to use the tax benefits of Registered Retirement Savings Plan (RRSP) contributions to save up to $25,000 more for their downpayment. The Home Buyers’ Plan enables Canadians to withdraw from their RRSP to buy or build a home and can be combined with savings through the Tax-Free First Home Savings Account.
