3 Reasons Canadian Mortgage Rates Will Never Hit 5%

Marci • October 19, 2017

Canadian regulators may soon force borrowers to qualify at interest rates two percentage points above the contract rate.

With many posted mortgage rates now approaching and even surpassing 3.00% (depending on the term), this means borrowers will soon need to show they can afford payments based on rates of 5.00%+.

The justification is that regulators want Canadians to be prepared when interest rates rise, but that’s a hollow excuse. It’s a punitive macroprudential rule that is disconnected from reality.

Interest rates can only rise if inflation accelerates, but every force in the world is pushing in the other direction. We’re in an age of no inflation and it will completely change borrowing, lending and how the mortgage market works.

Here are three reasons you will never have to pay 5.00% on a typical 5-year fixed mortgage, but why you could be paying more in other ways:

1) There Is No Inflation

There is only one kind of inflation that matters to the Bank of Canada: wage inflation. Prices might rise on everything for a year or two, but if wages don’t go higher with them, the cycle hits a wall because people won’t have the money to pay those higher prices. Demand falters and prices flatten.

The classic wage-price spiral of the ‘70s and ‘80s will never return and here’s why:

The simple Economics 101 model is supply and demand. As the economy grows and companies expand, the supply of idle workers eventually runs out. That means more bargaining power for workers and wages rise. It’s something the Bank of Canada calls the “output gap” or “slack”.

This paradigm is now forever broken. The first reason why is that globalization means the supply of workers is no longer limited to where you are. Factories and many service industries can move to where workers are cheapest, and until there are jobs for the billions of workers on the planet there will always be slack.

Even if all those workers could find jobs it still wouldn’t matter because automation is a far bigger driver of disinflation. Workers everywhere are being replaced by technology. It’s not just robots, but also computers, algorithms and improved processes adopted from abroad. We are still in the very early stages of this change and it’s accelerating daily.

Add in de-unionization, Amazon-style competition, precarious labour, other technology and the lingering collective psychological shock of the financial crisis and it’s a Quantitative Easing-miracle that prices haven’t fallen already.

This isn’t just a Canadian phenomenon. It’s not even a developed market phenomenon; inflation is low virtually everywhere. Even emerging markets that are growing far faster than Canada’s economy aren’t generating runaway inflation.

China’s economy continues to grow at a nearly 7% annually, but inflation is just 1.8% and has been below 3% for four years. Average mortgage rates for homebuyers there remain under 5.00%, and until rules were tightened this year, borrowers were typically paying less than 4.00%.

2) The Pain Would be Catastrophic

The second reason that rates will never rise to beyond 5.00% in Canada is that there are now far too many people who wouldn’t be able to make their payments. The government’s last round of new mortgage rules was a noble effort to reign in the housing market, but the horse has already left the million-dollar barn. Many borrowers would be forced to sell their homes, and those who could afford to stay would have their spending power cut dramatically.

A two-percentage-point rate increase on a $500,000-mortgage boosts the payment by at least $500 per month. A 5.00% rate on a million-dollar mortgage means $50,000 spent per year in interest alone. That’s a devastating bite out of a household’s disposable income, which is crucial for sustaining the economy.

Canada is often described as a resource economy, but it’s far more dependent on the health of the consumer than the price of oil. If consumers begin to suffer, it will quickly show up in the economic data and the Bank of Canada would be forced to do a quick U-turn on rates.

Even if Canadians could afford those higher rates, it would be a disaster politically for any governing party. Making people feel poorer is a sure-fire way to find yourself voted out of Parliament.

3) Rules Are the New Rates

While there is no inflation in the classic sense, prices are rising. You don’t need to look any further than soaring real estate or sizzling global stock markets.

The crux is that there are two types of inflation. There’s the classic consumer inflation, which is tied to industrial, commercial and labour prices that are doomed to stay low forever.

Then there is asset-price inflation. Low rates have changed the economics of borrowing and investing. If you can borrow at 3.00%, virtually anything that returns more than that is a viable investment. So asset prices rise until even meagre returns are no longer economical. Add in scarcity, tighter land-use rules, foreign capital and the growing desire to live in urban centres and it’s a perfect storm for housing.

Ultimately, this is a big political problem. People want to live in cities and it’s unpopular for voters to be spending all their money on mortgage payments. It’s also bad for business to have workers commuting unreasonable distances.

There are two real solutions and two that governments will try first.

The ultimate solution to high house prices is to make it easier and cheaper to build more housing. That’s politically unpopular now but could change someday. For now, governments continue to make it tougher to build the homes people want at prices they can afford.

The other way to cool house prices is to raise interest rates, however that’s far too blunt of a tool. Forcing businesses or rural homeowners to borrow at higher rates would be an unnecessary blow. The Bank of Canada has already gone too far.

The two solutions governments are trying first are the two things they always do in a market crisis: blame foreigners and blame the speculators.

So far the execution has been sloppy, but politicians have sent a powerful signal that they are now part of the equation. So don’t worry about interest rates, worry about what’s coming from regulators.

 

 

This article was written by Adam Button , Chief Currency Analyst and Managing Editor of  ForexLive.com , one of the most-visited sites for foreign exchange news and analysis. It was originally posted here.

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Home Reno Dreams? Let’s Talk Mortgage Financing

By Marci Deane • May 27, 2026
How to Use Your Mortgage to Finance Home Renovations Home renovations can be exciting—but they can also be expensive. Whether you're upgrading your kitchen, finishing the basement, or tackling a much-needed repair, the cost of materials and labour adds up quickly. If you don’t have all the cash on hand, don’t worry. There are smart ways to use mortgage financing to fund your renovation plans without derailing your financial stability. Here are three mortgage-related strategies that can help: 1. Refinancing Your Mortgage If you're already a homeowner, one of the most straightforward ways to access funds for renovations is through a mortgage refinance. This involves breaking your current mortgage and replacing it with a new one that includes the amount you need for your renovations. Key benefits: You can access up to 80% of your home’s appraised value , assuming you qualify. It may be possible to lower your interest rate or reduce your monthly payments. Timing tip: If your mortgage is up for renewal soon, refinancing at that time can help you avoid prepayment penalties. Even mid-term refinancing could make financial sense, depending on your existing rate and your renovation goals. 2. Home Equity Line of Credit (HELOC) If you have significant equity in your home, a Home Equity Line of Credit (HELOC) can offer flexible funding for renovations. A HELOC is a revolving credit line secured against your home, typically at a lower interest rate than unsecured borrowing. Why consider a HELOC? You only pay interest on the amount you use. You can access funds as needed, which is ideal for staged or ongoing renovations. You maintain the terms of your existing mortgage if you don’t want to refinance. Unlike a traditional loan, a HELOC allows you to borrow, repay, and borrow again—similar to how a credit card works, but with much lower rates. 3. Purchase Plus Improvements Mortgage If you're in the market for a new home and find a property that needs some work, a "Purchase Plus Improvements" mortgage could be a great option. This allows you to include renovation costs in your initial mortgage. How it works: The renovation funds are advanced based on a quote and are held in trust until the work is complete. The renovations must add value to the property and meet lender requirements. This type of mortgage lets you start with a home that might be more affordable upfront and customize it to your taste—all while building equity from day one. Final Thoughts Your home is likely your biggest investment, and upgrading it wisely can enhance both your comfort and its value. Mortgage financing can be a powerful tool to fund renovations without tapping into high-interest debt. The right solution depends on your unique financial situation, goals, and timing. Let’s chat about your options, run the numbers, and create a plan that works for you. 📞 Ready to renovate? Connect anytime to get started!

Fixed vs. Variable Mortgage Rates in Canada

By Marci Deane • May 20, 2026
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Divorce and Your Mortgage: What You Need to Know

By Marci Deane • May 13, 2026
Going Through a Separation? Here’s What You Need to Know About Your Mortgage Separation or divorce can be one of life’s most stressful transitions—and when real estate is involved, the financial side of things can get complicated fast. If you and your partner own a home together, figuring out what happens next with your mortgage is a critical step in moving forward. Here’s what you need to know: You’re Still Responsible for Mortgage Payments Even if your relationship changes, your obligation to your mortgage lender doesn’t. If your name is on the mortgage, you’re fully responsible for making sure payments continue. Missed payments can lead to penalties, damage your credit, or even put your home at risk of foreclosure. If you relied on your partner to handle payments during the relationship, now is the time to take a proactive role. Contact your lender directly to confirm everything is on track. Breaking or Changing Your Mortgage Comes With Costs Dividing your finances might mean refinancing, removing someone from the title, or selling the home. All of these options come with potential legal fees, appraisal costs, and mortgage penalties—especially if you’re mid-term with a fixed-rate mortgage. Before making any decisions, speak with your lender to get a clear picture of the potential costs. This info can be helpful when finalizing your separation agreement. Legal Status Affects Financing If you're applying for a new mortgage after a separation, lenders will want to see official documentation—like a signed separation agreement or divorce decree. These documents help the lender assess any ongoing financial obligations like child or spousal support, which may impact your ability to qualify. No paperwork yet? Expect delays and added scrutiny in the mortgage process until everything is finalized. Qualifying on One Income Can Be Tougher Many couples qualify for mortgages based on combined income. After a separation, your borrowing power may decrease if you're now applying solo. This can affect your ability to buy a new home or stay in the one you currently own. A mortgage professional can help you reassess your financial picture and identify options that make sense for your situation—whether that means buying on your own, co-signing with a family member, or exploring government programs. Buying Out Your Partner? You May Have Extra Flexibility In cases where one person wants to stay in the home, lenders may offer special flexibility. Unlike traditional refinancing, which typically caps borrowing at 80% of the home’s value, a “spousal buyout” may allow you to access up to 95%—making it easier to compensate your former partner and retain the home. This option is especially useful for families looking to minimize disruption for children or maintain community ties. You Don’t Have to Figure It Out Alone Separation is never simple—but with the right support, you can move forward with clarity and confidence. Whether you’re keeping the home, selling, or starting fresh, working with a mortgage professional can help you understand your options and create a strategy that aligns with your new goals. Let’s talk through your situation and explore the best path forward. I’m here to help.