Long-Term Mortgage Rate Forecast

Here are the latest long-term interest rate forecasts from Canada’s major banks.

Overnight Rate Forecast

Bank 2010 2011
BMO 1.35 3.35
CIBC 1.25 2.50
RBC 1.50 3.50
Scotia 1.50 3.00
TD   1.50   3.50  
Avg 1.42 3.17
Chg 1.17 2.92

5-Year Government Bond Yield Forecast

Bank 2010 2011
BMO 3.60 4.30
RBC 3.45 4.10
Scotia 3.80 3.95
TD   3.50   4.30  
Avg 3.59 4.16
Chg 0.62 1.19


Big bank economists, on average, are forecasting a 2.92% increase in the overnight rate in the next 19 months.  Their forecasts, if accurate, suggest that prime rate will rise to roughly 5.25% from its current 2.25%.

On the fixed-rate side, bond yields are expected to rise 1.19% in the same timeframe, according to bank estimates. (Bond yields drive fixed mortgage rates). Based on a typical 120 basis point spread above yields, this suggests deep-discounted 5-year fixed rates could rise to around 5.36% by year-end 2011.


Things To Note:  These forecasts are made by the banks and are subject to frequent change. This data is provided only for general interest.  Always discuss your needs and risk tolerance with a mortgage professional before acting on any information you read online. History has shown that it’s near impossible to accurately predict interest rates long-term so use these figures at your own risk. That said, while economist projections are often wrong, they are still one of the best sources of educated opinion on interest rates.

“Chg” = The expected change in rates from today. In other words, Chg is the average forecast minus today’s rates. All forecasts are based on the respective year-end.

Source:  BMO, CIBC, RBC, Scotia, TD  (CIBC’s 5-year bond forecast was not available at the time this was posted.)

  1. If the spread on a 5 year fixed mortgage is 120-125 basis points does that also apply to a 1 year and 3 year fixed mortgage?

  2. Adam – One and three year mortgages are funded with short term money and their spreads are smaller.

  3. Rob,
    Do you have records of similar (one and two year) forecasts made by these bankers in 2006 2007 & 2008 ?
    appreciate any comment, or urls.

  4. 5yr broker rates are currently running around 4.50% – 4.60% off a 2.90% – 3.00% bond yield. That’s a 160bp spread, so are you contending that the spread will throttle back to pre-crisis levels over the next 19 months?

  5. Hi John,
    I don’t have the bank’s historical forecasts but I’m going to look for them. It would be interesting to see how often the banks are on the mark. Research suggests that economists in general aren’t much better than 50/50 on their long-term forecasts. However, we’ve never studied the accuracy of the big banks. I’ll post whatever we can find.

  6. Hi there,
    The 120 bps spread is for deeply discounted broker rates. For example, as of today some brokers are offering 4.19-4.29% on a 5-year fixed.
    In March, the spread above GoCs got down to 70-90 bps.
    A 120 bps spread is therefore a good long-term guide, barring any more economic catastrophes. :)

  7. Yep, you’re right. I read the same report and then typed the wrong numbers. My only excuse is that I was typing one-handed with a crying infant in my lap and I hadn’t had my coffee yet.

  8. Hi,
    I got a variable mortgage on Oct 2009 @ prime rate.
    If prime rate will raise to 5.25% over the next 19 months, should I fix my mortgage now ??
    I am at National Bank, and on their website, they offer 5 Years for 6.100% ?
    What is the best strategy ?

  9. Waltereo,
    6.1% is their posted rate (and highway robbery if that is the conversion rate you are being offered). Here is what I would suggest:
    1. Figure out your penalty (on a VRM it will be 3 months interest).
    2. Get a quote from NB for converting to fixed and compare it to today’s rates – you can get 4.3% today if you are an A client.
    3. If NB’s conversion rate is higher than 4.3%, compare it to 4.3% + the penalty. You may be better off to discharge and go to a different lender.
    If that sounds confusing, call an independent mortgage agent/broker. There are plenty of good ones out there.
    As for whether or not you should convert, only you can answer that question. I wouldn’t base your decision solely on what the bank’s economists are saying, since they’re track record for predicting future interest rates is less than stellar. Also, these folks work for the banks, who make more money on 5 year-year fixed-rate mortgages, so there may be some bias. You can certainly find lots of other opinions out there that disagree with their predictions.
    Good luck!

  10. National Bank is notorious for this and one of the reasons I don’t like dealing with them. I was with Canadian Tire when they had mortgages and when I heard National was buying them I got out of my HELOC immediately before in transferred over.
    It would be interesting (no Pun intended) to see what the conversion rates would be on the National Banks HELOC’s that wer brought in from Canadian Tire.

  11. There’s something I don’t understand.
    You said: “prime rate will rise to roughly 5.25%”
    And then: “5-year fixed rates could rise to around 5.36%”
    So, 5 year fixed-rate = Prime + 0.11?
    What’s is the 5 year fixed-rate now?

  12. Based on bank projections, the 5-year rate by year-end 2011 would be approximately:
    2.97% [5-year bond yield on date of story]
    1.19% [projected 5-year yield increase]
    1.20% [approximate spread on a 5-year fixed]

  13. Thank you Rob.
    There’s something else I don’t understand.
    By year-end 2011 the prime (5.25%) and the 5-year rate (5.36%) will be practically identical. Is that normal? Will banks be giving 5-year mortgages at prime plus zero or even subprime?
    Today, the 5-year rate is much higher than the prime rate. Why don’t banks give 5-year mortgages at prime rate?

  14. It seems that even the so called experts are hedging their bets. I have the option on my $200,000 mortgage of going variable at prime minus 40 bps or 5 year fixed at 3.75 with the RBC since I started negotiating 2 months ago. Any takers as to which way to go?

  15. Personally speaking I’d take the fixed rate. However my circumstances may be very different than yours. You really can’t expect much guidance with the little information you have provided. Picking a mortgage takes a lot more analysis than a simple comparison of rates. D.

  16. Prior to the credit crisis it was not uncommon for deeply discounted 5-year fixed rates and prime rate to be close.
    The average differential between the two has been about 39 basis points over the last 10 years. In many cases, prime has exceeded deeply discounted 5-year fixed rates.
    5-year fixed mortgages are not priced off of prime rate. That’s why banks don’t offer them at prime.

  17. Wow, so much for the “Lock now” theory pushed by the banks a couple of weeks ago.
    The 5 yr bond rates are at 2.58% today (over 0.6% below it’s peak on april 20th).
    Now, when will the banks bring the 5 year rates down.

  18. I’m in the same situation as confused. Looking at a $192,000 mortgage with a guaranteed 5-yr fixed rate of $3.69 or taking a 5-yr closed variable of currently 1.65%. If I pay an extra $200/mth on the variable, reducing the extra payments as the variable rises to try to maintain the same monthly payments I would be making from the start. Which would be the best choice over the 1st 5 years of the mortgage? Any thoughts?

  19. Hi Confused / Sglowka,
    Would love to help but it’s impossible to make a snap recommendation based on limited information. The best bet is to chat with a mortgage professional (a skilled broker or bank rep that you trust) and have them do an amortization comparison, rate simulation, and a full review of your financial and risk parameters. The results of that analysis should help you determine the best path.

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