According to financial experts, 2023 could be a more stable year for mortgages. That’s good news for many homeowners, who could use a break after the Bank of Canada’s (BOC’s) multiple interest rate hikes in 2022.

While it’s impossible to tell the future, there are some signs that calmer weather is ahead. Here we take a closer look at what 2023 might have in store for interest rates and mortgages.

Interest Rates

The BOC raised its policy interest rate eight times last year. The rate went from 0.25% in January of 2022 to 4.5% in January of 2023.

The BOC has hinted it may leave rates at current levels for the foreseeable future. According to Global News, BOC Governor Tiff Macklem said, “We’ve raised rates rapidly, and now it’s time to pause and assess whether monetary policy is sufficiently restrictive to bring inflation back to its two per cent target.”

The rate of inflation is currently just over 6%. It could take some time to bring it back down to the BOC’s 2% goal. So, interest rates may stay higher, but remain more stable throughout the year.

The higher rates will likely mean fewer people are able to qualify for mortgages. This could have a cooling effect on the housing market.

For those who do qualify, their mortgages may be processed faster because there are simply fewer applications going through the system.

Where are mortgage rates now? They are hovering from around 4.6% to just over 6% depending on the type.

Fixed Rate Mortgages

Those with fixed rate mortgages who are planning to renew this year should be prepared to pay more interest and possibly higher monthly payments.

However, fixed rate mortgages remain a good bet as the interest rates are typically lower. Many experts are advising people interested in fixed rate products to consider locking in for a shorter term (2-3 years) in case interest rates go down.

Variable Rate Mortgages

Those with variable rate mortgages likely felt a squeeze this year as the interest rates rose. According to BOC data, eight out of 10 people have hit their “trigger rate,” meaning they are paying more interest than principal on their loans. This typically results in higher monthly payments

The good news is that if the economy remains stable this year, rates aren’t likely to go much higher. Those with variable rate mortgages can be cautiously optimistic, knowing that their monthly budgets may be relatively stable over the course of the year.

Variable rate mortgages are a good option, especially with signals that rates may come down in the future. But some patience will be required.

The Takeaway

With these rate changes, the fever that gripped the Canadian housing market may finally have broken. This year promises a more measured approach to housing and mortgages.

Of course, mortgages come in many different packages. There are no one-size-fits-all solutions. If you’re going to be renewing this year, or if you’re thinking of getting into the market for the first time, don’t hesitate to reach out. We’re always happy to help!