Your Ultimate Guide to Ontario Mortgage Rates

I'm a principal broker at RateShop Mortgage and we work with clients from across Canada and even in the US who want to understand the mortgage rate mystery myths, so I simplify the concepts for my clients. It all boils down to the client situation and their needs. While it's common knowledge that getting the best rate is a top priority for most borrowers, there's a secret many miss: the mortgage rate is just one piece of the puzzle when it comes to crafting a successful mortgage savings strategy. This guide is designed to help you navigate the mortgage landscape and save thousands of dollars on interest, while also securing your best rate. We'll start with a current January 2025 mortgage rate outlook and walk through everything you need to know to make an informed decision on the mortgage that's best for you.

Here's what we'll cover:

• 2025 Ontario Mortgage Rate Forecast: What to expect as rates gradually trend down.

• Fixed vs Variable Rate Mortgages: Which could save you more in 2024?

• Mortgage Fine Print Minefield: What hidden details you need to watch out for.

• Lender Types and Benefits: A breakdown of Banks, Credit Unions, and Mortgage Finance Companies.

• Top Tip to Minimize Risk: How to lower your rate during pre-approval.

Each section of this guide is a quick 1-2 minute read, packed with the most important information you need. For those who want to dive deeper, links to detailed pages on altrua.ca are included for further reading.

Ontario Mortgage Rate Forecast - January 2025

Forecasting mortgage rates can be tricky, and nothing in economics is ever a sure thing. However, by looking at historical trends, Current economic conditions, and market data, we can get a pretty good idea of what to expect in the coming months. The main tool we use for this is the Government of Canada Bond Yield, which gives us a glimpse into future rate movements. In a way, bond yields act like a crystal ball for predicting mortgage rates.

Understanding Fixed Mortgage Rates: The Bond Yield Connection

Here's an important takeaway: fixed mortgage rates don't follow the Bank of Canada's prime rate directly. While variable mortgage rates are influenced by those rate changes (which you often hear about in the news), fixed rates are primarily driven by the movements in the Government of Canada Bond Yields, which trade daily on global financial markets. So, what's a bond yield? It's the rate of return an investor earns on a Government of Canada Bond, a government-backed investment. Fixed mortgage rates are usually priced about 1%-2% higher than the bond yield. For example, if the bond yield is 3%, we'd typically see 5-year fixed mortgages around 4% – 4.5%.

Essentially, fixed-rate mortgages are "pegged" to bond yields. When bond yields go up, fixed mortgage rates tend to rise, and when bond yields drop, fixed mortgage rates follow.

But here's a key point: bond yields often move in anticipation of the Bank of Canada's future rate decisions. This means bond yields adjust months in advance, based on where traders believe the Bank of Canada is headed with its rates usually about 6 months to a year ahead. So, in a way, fixed mortgage rates are priced based on what the bond market expects the Bank of Canada to do next.

What Does This Mean for Mortgage Rates Today?

As of January 2025, the Bank of Canada's rate sits at 3.25%. Looking at the bond yields, we expect the Bank of Canada to cut rates by 0.25% on January 29, bringing the rate down to 3%. After that, financial markets are predicting a pause in rate changes for 2-3 months, giving time to assess the impact of the 3% rate, particularly on inflation.

Looking ahead, there's a good chance we'll see further rate cuts of 0.25% –0.50%, depending on how the Canadian economy is performing.

Fixed vs. Variable Rate Mortgages in Ontario: Which is Best for You in 2025?

The question of whether to choose a fixed or variable rate mortgage in Ontario is one of the most important decisions when selecting your mortgage. It can make a huge difference in how much you pay in interest over the life of your loan. If you're still unsure after reading through this, don't worry we have a more detailed guide on Fixed vs. Variable Mortgages.

Variable Mortgage Rates

Looking at the bigger picture, history shows that over the past 40 years, variable-rate mortgages have been the better choice 80% of the time, offering lower rates and more savings. But it's not just about the rate. A variable mortgage comes with other key advantages, such as:

• Lower penalties: If you need to break your mortgage, the penalty is usually just 3months of interest.

• Flexibility: You can switch to a fixed-rate mortgage at any time, making this option ideal if your plans or economic conditions change.

The variable rate is tied to the prime rate of the big banks (which is typically 2.2% higher than the Bank of Canada's prime rate). So, if the Bank of Canada changes its rate by 0.50%, your variable rate will increase or decrease by the same amount.

Choosing a variable-rate mortgage can be a smart long-term strategy, especially if you're looking for flexibility and the potential for lower borrowing costs. With rates having fallen through 2024, variable rates are becoming more attractive again. Based on historical trends and today's market situation, a variable rate is likely to be lower than current fixed rates over the next 2-3 years.

However, the catch is that right now, variable rates are about 0.25% higher than some fixed-rate mortgages. While the long-term savings might be higher, there's no guarantee. The advantage of a fixed mortgage right now is that you can lock in a lower rate today, and even though fixed rates (like 3.99%) might be slightly higher than variable rates in the near future (like 3.50%), the difference is probably not going to be much-maybe only 0.50% to 0.75%.

The Risk of Variable Rates

That said, there's a bit more risk with a variable rate, especially with inflation potentially making a comeback. If inflation rises again, or if the Bank of Canada pauses rate cuts, your variable rate could stay the same or even go up.

So, if you're looking for peace of mind and a more predictable payment plan, a fixed rate might be the way to go. Fixed rates offer stability and consistency, while variable rates are more of a "higher risk, higher reward" strategy kind of like the difference between conservative and growth investing.

Summary:

• Variable rates offer more flexibility and the potential for long-term savings, but they come with a bit more risk, especially in times of economic uncertainty.

• Fixed rates provide stability and predictability, making them a safer bet if you prefer consistency in your mortgage payments.

If you'd like more details on how each fixed mortgage rate compares, look through to our in-depth analysis.

5 Year Fixed - 4.29%

4 Year Fixed - 4.44%

3 Year Fixed - 4.44%