Fixed Mortgage Rates Under 4%: A Rare Opportunity or the New Norm?

In a surprising shift in Canada’s real estate market, fixed mortgage rates under 4% are becoming increasingly accessible, marking a significant development for borrowers. Once considered nearly extinct, these rates are now making a comeback, with mortgage brokers reporting sporadic offers of five-year fixed loans at 3.99%.
This recent trend is generating optimism among prospective homebuyers and those approaching mortgage renewals. As borrowing costs continue to decline, the competition among lenders is intensifying, resulting in better rates for consumers.
Mortgage agents across Canada, including Tuli Parubets of Mortgage Scout in the Greater Toronto Area, are witnessing this shift firsthand. Parubets recently assisted a client in securing a 3.99% rate on a five-year fixed uninsured mortgage, a substantial decrease from the initial offer of 5.09% from the same lender.
Frances Hinojosa, CEO of Tribe Financial Group, predicts that more borrowers will lock in rates below 4% by the end of the year, provided economic conditions remain favorable. The Bank of Canada’s recent decision to lower its trend-setting interest rate for the third consecutive time underscores this shift. Economists anticipate additional rate cuts through the end of this year and into the next.
The central bank’s adjustments directly influence variable-rate mortgages but also affect fixed rates, which are tied to five-year bond yields. As these yields have decreased to levels last seen in 2022, lenders are now offering substantial discounts on fixed rates.
However, while lower rates are beneficial, the primary impact is being felt by those nearing mortgage renewal. Homeowners who secured low rates during the early stages of the pandemic are now facing a shrinking gap between their previous rates and the new, higher rates they will encounter upon renewal.
Competition among lenders and savvy borrowers are driving down rates, particularly for renewals. Many homeowners are motivated to shop around and negotiate, given the financial strain of renewing at higher rates. This has led to significant concessions from lenders, including major banks, which are now actively seeking to retain clients.
Typically, Canada’s largest banks would send automatic renewal letters with less competitive rates. However, many are now making follow-up calls and offering more attractive rates to keep customers. This shift reflects the banks’ efforts to retain clients amid intense competition and pressure on loan profit margins.
Max Shiffman, a real estate lawyer from Cambridge, Ont., recently experienced this shift when he received a renewal offer of 5.04% from Toronto-Dominion Bank. After consulting with a mortgage broker and exploring other options, Shiffman secured a 4.49% rate on a three-year mortgage. While a longer term might have offered a lower rate, Shiffman valued the flexibility to renegotiate sooner.
Shiffman’s experience highlights an important point: borrowers should not solely focus on the lowest rate but should also consider their overall mortgage strategy. Penalties for breaking a mortgage are expected to increase as rates fall, with major banks often imposing higher penalties.
As Hinojosa advises, while competitive rates are appealing, borrowers should prioritize finding a solution that best fits their financial strategy. The key is to approach mortgage renewals with a well-thought-out strategy rather than simply chasing the lowest rate.
For Chestermere residents navigating the current mortgage landscape, these developments offer both opportunities and challenges. As fixed mortgage rates approach and dip below the 4% mark, homeowners and potential buyers should remain informed and proactive in their mortgage decisions. Engaging with mortgage professionals and exploring all available options will be crucial in maximizing financial benefits in this evolving market.