Canadian mortgage rates rise after Fed rate hike but sharp increases unlikely

Canadian fixed mortgage rates have risen following the U.S. Federal Reserve’s recent rate hike, but experts caution against assuming this signals a sharp upward trend for Canadian rates. The Fed unanimously raised its federal funds rate from 3.75% to 4% on September 16, despite opposition from President Donald Trump. This move coincided with a rise in the five-year Government of Canada bond yield, which hit a 52-week high of 3.711% on September 14, up from 3.448% just six days earlier. In response, Canada’s Big Six Banks and other major lenders increased selected fixed mortgage rates by 10 to 20 basis points, pushing the lowest five-year fixed mortgage rate from 4.09% to 4.24%.

According to Tracy Valko, founder and principal broker at Valko Financial, the Fed’s rate hike is unlikely to trigger another significant move in Canadian fixed rates. “Much of the Fed’s move was anticipated and already reflected in bond yields,” she explained, adding that volatility rather than a steady upward trend is expected. Valko emphasized that borrowers should not assume waiting will automatically result in better rates.

The influence of the Fed on Canadian mortgage rates is indirect, as fixed mortgage rates are tied to bond yields rather than the central bank’s overnight policy rate. Economic factors such as inflation, employment, and growth will shape how markets view future interest rates. For borrowers, the focus should be on building a mortgage that can withstand rate changes, ensuring flexibility and protecting cash flow.

Valko advised borrowers to look beyond headline rates when comparing mortgage options, considering how higher borrowing costs or changing circumstances might impact their budgets. While the Fed’s decision adds another factor for Canadian mortgage borrowers to monitor, it does not signal an imminent sharp rise in fixed mortgage rates.