3 Reasons Canadian Mortgage Rates Will Never Hit 5%

Anita Groves • October 24, 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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Anita Groves

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Your Guide to Successfully Navigating the Housing Market

By Anita Groves • January 14, 2026

Wondering If Now’s the Right Time to Buy a Home? Start With These Questions Instead. Whether you're looking to buy your first home, move into something bigger, downsize, or find that perfect place to retire, it’s normal to feel unsure—especially with all the noise in the news about the economy and the housing market. The truth is, even in the most stable times, predicting the “perfect” time to buy a home is incredibly hard. The market will always have its ups and downs, and the headlines will never give you the full story. So instead of trying to time the market, here’s a different approach: Focus on your personal readiness—because that’s what truly matters. Here are some key questions to reflect on that can help bring clarity: Would owning a home right now put me in a stronger financial position in the long run? Can I comfortably afford a mortgage while maintaining the lifestyle I want? Is my job or income stable enough to support a new home? Do I have enough saved for a down payment, closing costs, and a little buffer? How long do I plan to stay in the property? If I had to sell earlier than planned, would I be financially okay? Will buying a home now support my long-term goals? Am I ready because I want to buy, or because I feel pressure to act quickly? Am I hesitating because of market fears, or do I have legitimate concerns? These are personal questions, not market ones—and that’s the point. The economy might change tomorrow, but your answers today can guide you toward a decision that actually fits your life. Here’s How I Can Help Buying a home doesn’t have to be stressful when you have a plan and someone to guide you through it. If you want to explore your options, talk through your goals, or just get a better sense of what’s possible, I’m here to help. The best place to start? A mortgage pre-approval . It’s free, it doesn’t lock you into anything, and it gives you a clear picture of what you can afford—so you can move forward with confidence, whether that means buying now or waiting. You don’t have to figure this out alone. If you’re curious, let’s talk. Together, we can map out a homebuying plan that works for you.

How to Raise Your Credit Score and Unlock Better Rates

By Anita Groves • January 7, 2026

Want a Better Credit Score? Here’s What Actually Works Your credit score plays a major role in your ability to qualify for a mortgage—and it directly affects the interest rates and products you’ll be offered. If your goal is to access the best mortgage options on the market, improving your credit is one of the smartest financial moves you can make. Here’s a breakdown of what truly matters—and what you can start doing today to build and maintain a strong credit profile. 1. Always Pay On Time Late payments are the fastest way to damage your credit score—and on-time payments are the most powerful way to boost it. When you borrow money, whether it’s a credit card, car loan, or mortgage, you agree to repay it on a schedule. If you stick to that agreement, lenders reward you with good credit. But if you fall behind, missed payments are reported to credit bureaus and your score takes a hit. A single missed payment over 30 days late can hurt your score. Missed payments beyond 120 days may go to collections—and collections stay on your report for up to six years . Quick tip: Lenders typically report missed payments only if they’re more than 30 days overdue. So if you miss a Friday payment and make it up on Monday, you're probably in the clear—but don't make it a habit. 2. Avoid Taking On Unnecessary Credit Once you have at least two active credit accounts (like a credit card and a car loan), it’s best to pause on applying for more—unless you truly need it. Every time a lender checks your credit, a “hard inquiry” appears on your report. Too many inquiries in a short time can bring your score down slightly. Better idea? If your current lender offers a credit limit increase , take it. Higher available credit (when used responsibly) actually improves your credit utilization ratio, which we’ll get into next. 3. Keep Credit Usage Low How much of your available credit you actually use—also known as credit utilization —is another major factor in your score. Here’s the sweet spot: Aim to use 15–25% of your limit if possible. Never exceed 60% , especially if you plan to apply for a mortgage soon. So, if your credit card limit is $5,000, try to keep your balance under $1,250—and pay it off in full each month. Maxing out your cards or carrying high balances (even if you make the minimum payment) can tank your score. 4. Monitor Your Credit Report About 1 in 5 credit reports contain errors. That’s not a small number—and even a minor mistake could cost you when it’s time to get approved for a mortgage. Check your report at least once a year (or sign up for a monitoring service). Look for: Incorrect balances Accounts you don’t recognize Missed payments you know were paid You can request reports directly from Equifax and TransUnion , Canada’s two national credit bureaus. If something looks off, dispute it right away. 5. Deal with Collections Fast If you spot an account in collections—don’t ignore it. Even small unpaid bills (a leftover phone bill, a missed utility payment) can drag down your score for years. Reach out to the creditor or collection agency and arrange payment as quickly as possible . Once settled, ask for written confirmation and ensure it’s updated on your credit report. 6. Use Your Credit—Don’t Just Hold It Credit cards won’t help your score if you’re not using them. Inactive cards may not report consistently to the credit bureaus—or worse, may be closed due to inactivity. Use your cards at least once every three months. Many people put routine expenses like groceries or gas on their cards and pay them off right away. It’s a simple way to show regular, responsible use. In Summary: Improving your credit score isn’t complicated, but it does take consistency: Pay everything on time Keep balances low Limit new credit applications Monitor your report and handle issues quickly Use your credit regularly Following these principles will steadily increase your creditworthiness—and bring you closer to qualifying for the best mortgage rates available. Ready to review your credit in more detail or start prepping for a mortgage? I’m here to help—reach out anytime!