2023 Mortgage Rate Forecast


Buying a home is a big deal, and securing this purchase often requires a mortgage. The amount you pay in interest depends on factors that may be out of your control, like the current economic conditions. You may have heard about Canada’s heightened inflation rate over the past few years. If you haven’t, you’ve likely experienced it in your everyday life — rising prices for gas, groceries, and houses. To curb this inflation, the Bank of Canada raises its key policy interest rate, leading to increasing mortgage rates. We’ve seen this hike happen over the past 12 months. But what does this mean going into the new year? Let’s explore the 2023 mortgage rate forecast together.

The Current Situation

Record-low mortgage rates were the norm throughout the pandemic because of the weakened economy. These rates increased consumer spending because they put more money in people’s pockets. However, more buying power leads to more demand, which creates inflation (rising prices). We’ve witnessed this in the Canadian housing market — more consumer spending leading to inflation and a surge in home prices.

The Bank of Canada tries to curb this inflation by increasing its key policy interest rate. At the beginning of 2022, this rate was 0.25%. As we end this year, this figure has risen to 4.25%. A hike like this makes sense when we compare this year’s inflation rate. At the beginning of 2022, inflation was at 5.1% and peaked at 8.1% in June. To combat this rapid escalation, the Central Bank increased its rates, which led to higher mortgage rates. It’s important to note that the Central Bank doesn’t determine your prime mortgage rate but instead influences lenders' decisions. 

Predictions for 2023

While we have seen a slight cooling of inflation since June, we still may see a rising key policy rate in 2023.

Mortgage Rates Should Eventually Fall

Spending is decreasing in Canada due to pricier goods and services and higher interest rates on loans, credit cards, and mortgages. This is leading to an economic slowdown. In theory, prices should adjust downward when consumers reduce spending. So, inflationary housing costs will eventually cool off, and mortgage rates will fall once again.

The question that’s less straightforward to predict is when.

When Will Mortgage Rates Fall?

Canadians have not yet seen the full effects of the Bank of Canada’s interest rate hikes in 2022, which is why we may see additional increases into early 2023. Remember, if we don’t see an improvement in inflation, rates will continue to rise to “put the brakes” on the economy and lead us into a recession. And unfortunately, while a recession may be financially painful, it’s necessary to “reboot” the economy.

We often don’t see the impact of anti-inflationary measures for an entire year. The Bank of Canada predicts inflation to fall to 3% in late 2023 and 2% in 2024. Realistically, we may not see lower mortgage rates until 2024, when the Central Bank tries to stimulate the economy and bring us out of the recession. If the economy slows faster, though, we may see this happen by the end of the year.

How to Save the Most on Your Mortgage

At a time of higher rates, there are some things you can do to take advantage of eventual lower rates. 

You can opt for a short-term fixed rate of one to three years. This will lock you in but protect you from further Bank of Canada increases that may happen in 2023. Then, when your term renews, you can take advantage of those future projected lower rates. 

Another option is to choose a variable rate, which fluctuates with the Central Bank. The word of caution here is that while this option doesn’t lock you in, an increase with the Bank of Canada will directly impact your variable rate. And if early 2023 projections are correct, we may still see slight climbs before finally coming down. On the other hand, if predictions are accurate, we will eventually see lower rates as inflation settles and the economy slows down and brings variable mortgage rates below fixed rates. 

As I mentioned above, planning your mortgage around projections is all a matter of timing.

Dealing with Increasing Mortgage Rates

According to economists, we know for sure that inflation is still higher than normal. This means that if you have a variable mortgage, you’ve likely seen increased interest rates that mirror the Bank of Canada’s hikes. And, as outlined previously, these increases may not have ended just yet. Learn more about how you can protect yourself from variable interest rate increases.

Getting Professional Advice

With these 2023 mortgage rate predictions in mind, you might wonder what this means for you, whether you have an existing mortgage or are looking to get one in the near future. As a mortgage broker with more than 15 years of experience, I have helped many people navigate and find the best options in various market conditions. Borrowing money to pay for your home in this current economy can seem daunting — and I’m here to bring you peace of mind! Connect me today to make an appointment to get started on selecting the perfect solution out of the myriad types of mortgages.

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About Andrew Thake

Andrew Thake is a seasoned mortgage broker with over 15 years of industry experience. He’s assisted more than 2,200 clients in finding their ideal mortgage solutions. Recognized for his excellence, Andrew has received high honours and awards, including the National Rookie of the Year from TD Canada Trust and recognition as a Top 10 Ottawa Mortgage Broker in 2023. He has also been inducted into the Hall of Fame at Dominion Lending Centres and has consistently received their Platinum Award during his tenure as a mortgage broker.

Andrew’s dedication lies in serving his clients and prioritizing their needs with an empathetic approach. Throughout the application process, he provides tailored, informed, and efficient services to ensure the best mortgage solutions for his client’s unique circumstances. The best part of Andrew’s job is when he gets to see the joy on his clients’ faces following their mortgage approval.

Why not make your mortgage experience a comfortable one?

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