Fixed Mortgage Rate Widens Gap with Variable in Canada

Canada's fixed mortgage rate has widened its gap with variable rates after the Bank of Canada held its policy rate unchanged at 2.25%. The lowest advertised five-year fixed mortgage rate is now 4.09%, while the comparable variable offer remains at 3.30%. This 79-basis-point premium matters more than the unchanged central bank headline, as it adds about C$211 to the monthly payment on a C$500,000 mortgage.

The gap between fixed and variable rates has split into two pricing channels. Variable loans follow bank prime rates and overnight policy, while fixed loans track government bonds, where investors price inflation and term risk. The five-year government yield closed at 3.415% on Thursday, after rising to a high of 3.42% on Wednesday.

CMHC Deputy Chief Economist Aled ab Iorwerth pointed out that 'pockets of significant stress' remain in the mortgage market, particularly in Toronto and Vancouver. The next scheduled policy decision arrives October 28, with bond pricing potentially moving sooner in response to inflation, oil prices, and Friday's U.S. payrolls report.