What the December inflation report means for your rate
Last week brought the latest U.S. inflation numbers for December, and they matter more than you might think. Inflation is one of the big drivers behind bond yields — and bond yields shape the fixed mortgage rates you're offered. The report confirmed what most economists expected: prices aren't surging the way they were a couple of years ago, but they're still running hot enough that the U.S. Federal Reserve isn't ready to ease up.
Because of that, the market now expects the Fed to hold rates steady at its next meeting. That ripple effect keeps pressure on broader rate expectations, including here in Canada.
The numbers: steady year-over-year, rising month-to-month
The U.S. Consumer Price Index (CPI) held steady at 2.7% year-over-year, matching expectations.
Month-over-month, inflation increased 0.3% — higher than November's 0.1% and slightly above forecasts. That confirms prices kept creeping up in December, especially in the categories where you can't easily cut back (think groceries, rent, insurance).
All of this keeps inflation above the U.S. Federal Reserve's 2% target, and that's why the Fed isn't in a hurry to cut.
Bond markets barely moved after the CPI report. The data didn't show inflation accelerating sharply, but it also didn't make a strong case for near-term rate cuts. Markets are now assigning a very high probability that the U.S. Fed will pause at its next meeting on January 28.
What's happening with Canadian rates
In Canada, Government of Canada bond yields remained relatively stable last week, and fixed mortgage rates were mostly unchanged.
That said, fixed rates still carry some upward pressure in the background. The reasons: U.S. inflation staying sticky, volatility in U.S. trade policy, and elevated government spending (and its long-term impact on bond markets).
On the variable-rate side, the discounts lenders have been offering off Prime narrowed slightly last week.
Like the Federal Reserve, the Bank of Canada isn't widely expected to move its policy rate in the immediate term. However, recent communication from the BoC has leaned more dovish, and the next move is still expected to be a hold.
Tip: Closing costs add up faster than you think
One of the most common surprises for buyers is the total amount of closing costs required on possession day. Depending on your property and location, closing costs can include:
• Legal fees and disbursements • Home inspection • Property tax adjustments • Title insurance • Condo document review fees (if applicable) • Moving costs
If you're planning to buy in the near future, it's worth building a closing-cost estimate into your budget early so there are no surprises later. This calculator will help you estimate them, and this blog post provides a detailed breakdown of each category.
Your options: fixed vs. variable, three-year vs. five-year
My recommendation is unchanged from last week.
Fixed rates are currently close to long-term average levels, and both three-year and five-year fixed terms remain popular choices.
Recently, the premium for longer fixed terms has been increasing. As long as the spread between three-year and five-year fixed rates remains minimal, the five-year fixed term can offer slightly better value if you want stability.
Variable rates may still produce the lowest borrowing cost over the full term if the Bank of Canada cuts rates over time. However, variable rates are only a fit if you're comfortable with potential payment or interest-cost swings — and if you have enough financial flexibility to handle higher costs if rates move in the opposite direction.
