Why do Mortgage Rates Change?

Understand why rates change and how you can adapt to increases.

There are many factors that influence the health of the economy: unemployment, inflation, consumer confidence and the housing market, are just a few for example. Let's look at how these factors can impact your mortgage rate.

Factors Affecting: Fixed Mortgage Rates

A fixed best mortgage rate typically moves in alignment with government bond yields of the same term.

Bond Prices and Bond Yields (Negative Relationship)

When bond prices increase, bond yields decrease, and when bond prices decrease, bond yields increase. Bonds are typically considered safer investments than stocks.

Bond Yield: the return an investor will receive by holding a bond to maturity.

Bond Yields and Fixed Rates (Positive Relationship)

Generally fixed rates have a positive relationship with bond yields and increase and decrease along with bond yields.

Stock Market is Booming – Bond Prices Decrease, Bond Yields Increase, Fixed Rates Increase

When the stock market is booming, investors are more likely to make a higher return on investing in equities (i.e. the stock market) than investing in bonds. Thus the demand for bonds decreases, meaning that the price of bonds decreases, and the bond yield increases. As such, fixed rates will likely increase.

Stock Market is Dipping – Bond Prices Increase, Bond Yields Decrease, Fixed Rates Decrease

When the Canadian economy becomes less stable, investors are more likely to invest in safer investments such as bonds. 

Factors Affecting: Variable Mortgage Rates

The overnight rate changes the cost of lending/borrowing short-term funds and therefore influences the Prime Canadian mortgage rate. The Bank of Canada regularly updates this rate based on economic conditions.

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