Late July, and the Mortgage Market Is Heating Up
It's late July. Summer weather might be mellow, but the mortgage market is heating up — just not in the way you were hoping.
New inflation data has once again put the brakes on rate-cut optimism. Lenders have already started nudging up fixed mortgage rates. If you were hoping for more relief by fall, it's time to take a closer look at what the numbers really mean.
June Inflation Stayed Stubborn — And Bond Markets Noticed
Last week's inflation readings for June didn't deliver the cooling we needed — not in Canada, and not in the U.S. While overall inflation ticked up slightly to 1.9% year-over-year, core inflation (the number the Bank of Canada really watches) stayed stubbornly at 3%. In other words, we're still not where the Bank feels comfortable pulling the trigger on another rate cut.
Bond markets reacted fast. Canadian bond yields jumped, especially after U.S. data showed similar upward trends — driven in part by new tariff-related price pressures. That matters because fixed mortgage rates move with bond yields. Sure enough, lenders have bumped up fixed rates across the board.
What's Next for Rate Cuts?
For variable rates, the market's no longer expecting multiple cuts this year. Right now, the forecast is just one small quarter-of-a-percent cut in 2025 — if the economy allows.
But I still think the Bank of Canada will need to go further. Shelter costs — one of the main drivers of inflation — are finally starting to cool, and our overall economic momentum is slowing. If that continues, we may need a more supportive rate closer to 2% to keep things moving.
Insider Strategy: Use Your Prepayment Privileges
You have more mortgage flexibility than you might think. Most mortgages come with built-in prepayment privileges — usually up to 15% or 20% annually. That means you could slash years off your mortgage and save thousands in interest, simply by topping up your payments when you can. Definitely worth reviewing.
You can learn more about prepayments in this post: Don't Forget About Your Prepayment Privileges: They Can Unlock Savings & Save You Thousands.
Fixed or Variable? Here's How to Think About It
Right now, five-year fixed rates are priced about the same as three-year terms. That gives you the option of locking in longer-term stability without paying a premium.
If you're starting fresh and value predictability, a fixed rate might be your best call. It shields you from future increases and brings peace of mind in an unpredictable market.
But if you're already in a variable rate, now is not the time to lock into a fixed. Fixed rates have recently climbed, and switching now could mean locking in at the top — not ideal if rates are expected to fall over the next 12 to 24 months.
Variable rates could still come out ahead in the long run — if inflation cools and the Bank of Canada continues to cut. That path won't be without bumps, so it only makes sense if you're financially comfortable riding it out.
Bottom line: Fixed is the safe bet if you're buying or refinancing now. Variable might still win if you're already in it — just don't make a move out of fear. Take a look at your own comfort level, your timeline, and what you can handle if things stay bumpy for a bit longer.
