Jay Arkani
IR Mortgage
The Mortgage Agents

Canadian Mortgage Rate in 2021

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2020 was a rather extraordinary year, and extraordinary circumstances require extraordinary actions and decision making. So what would be the impact of 2020 on the Canadian Mortgage Rate in 2021?
It isn’t until halfway through the year 2022 that the impact of COVID-19 is expected to reduce. The GDP is expectations are:

  • -7.8% for 2020
  • +5.1% for 2021
  • +3.7% for 2022
Inflation, on the other hand, is expected to be approximate:
  • 0.6% for 2020
  • 1.2% for 2021
  • 1.7% for 2022
Economic restrictions and shocks have resulted in an unusually low-interest-rate at 0.25%, and like most other countries’ central banks, the BoC does not expect to change it before or during 2023. On the 9th of December 2020, the BoC took this decision intending to absorb economic slack to the greatest extent possible. For the foreseeable future, BoC aims to maintain its rate to the ‘lower bound’ while taking timely actions to lower mortgage and loan rates. Although the economy is currently performing as per expectations and things seem to be in control, the future seems highly uncertain.

An era of low rates.

Except for the Royal Bank, no other statistics, surveys or institutions can see the economy reviving until at least the end of 2022 or the beginning of 2023. The Bank of Canada has rather firmly stated that it will not change the interest rate from 0.25% until the economy shows signs of recovery, the labor market is stable and inflation reaches a consistent 2%. Most recent estimates state that the mortgage rates will vary between 0.25% to 0.40%, calling it an era of low rates.

With the second wave of the deathly coronavirus, the economy should expect a second hit on its growth. The central bank has started and will continue to focus on its quantitative easing (QE) program; the purchase of at least five to ten-year bonds worth $4 billion weekly. These bonds are expected to increase the purchasing power of the citizens, reduce indebtedness, and give a stimulus to the presently slow economy.

While the country now is facing a recession, the Bank of Canada will continue to provide support to private financial institutions in 2021 and 2022. Along with the overall economic outlook, the BoC will reassess its mortgage interest rate towards the end of January 2021. Governor Tiff Macklem has assured prospective homebuyers that the central bank will maintain the record low rates until the economic recovery is underway. Through this reassurance, a decent amount of asset purchase is expected in early 2021.

A more positive note

On a more positive side, it is expected that the economy will bounce back to normal (a U-shaped growth curve) once the pandemic takes a backseat and the vaccines have been widely distributed. The economy drastically slowed in March 2020, but the third quarter did show some positive signs. The vaccine distribution may be seen as the potential end of COVID-19 and may no longer be seen as a direct threat, according to some economists. With this recovery, the BoC might also slow its bond purchase.