The ongoing war in the Middle East and the potential closure of the Strait of Hormuz are significantly affecting Canadian financial markets, particularly impacting homeowners facing mortgage renewals. Experts are warning that mortgage rates are increasing, even as the Bank of Canada maintains its key interest rate.

Global Events, Domestic Impact

This unexpected ripple effect from international events is hitting Canadian pocketbooks, forcing many homeowners to reconsider their financial strategies. The situation underscores the interconnectedness of global affairs and domestic financial stability.

Millions Facing Renewals

According to the Canada Mortgage and Housing Corporation (CMHC), approximately 1.4 million mortgages – around 23 per cent of all mortgages – are scheduled for renewal by the end of the year. Many of these were initially secured at much lower interest rates during 2021.

Rising Fixed Rates

Mortgage brokers are observing a rapid rise in fixed-rate mortgages, which are directly influenced by bond yields. These yields have become volatile in response to global events like wars and trade disputes.

Geopolitical Uncertainty & Inflation

The uncertainty surrounding the length and scope of the Middle East conflict, coupled with ongoing geopolitical tensions, has led to increased market volatility, directly impacting the cost of borrowing for Canadian homeowners. The potential for prolonged conflict and instability is creating broader economic uncertainty, adding to inflationary pressures.

Strait of Hormuz Concerns

The conflict’s influence on the Strait of Hormuz, a crucial global maritime chokepoint, further complicates the situation. Closure of the Strait could exacerbate supply chain disruptions and drive up energy prices, contributing to inflation.

Navigating the Economic Landscape

The current economic environment requires careful navigation by both financial institutions and individual homeowners. The “uncertainty premium” is a direct consequence of the war and geopolitical tensions, forcing lenders to factor in these risks and charge higher rates.

Expert Advice for Homeowners

Mark Ting, a partner with Foundation Wealth, explained that mortgage rates are based on bond markets, and bond yields are rising due to spiking energy prices. Marshall Tully, a Toronto-based mortgage broker, suggests considering a rate hold – most lenders offer a 120-day hold, though 30 days is typical when staying with the same bank.

Economic Outlook

The Canadian economy is currently on the verge of 0 per cent GDP growth, very close to a recession. Even if the war ended tomorrow, Moshe Lander, a Concordia University senior lecturer in economics, agrees it would take months for oil and gas prices to stabilize, meaning continued inflationary pressure. He notes that Iran effectively closing the Strait of Hormuz adds to the uncertainty.

Rate Increases Observed

The average rate for a five-year fixed mortgage was closer to four per cent. As of April 2nd, it’s at 4.95 per cent, with the three-year rate close behind at 4.59 per cent, compared to the average variable rate of 4.2 per cent.