The conflict in the Middle East is impacting an unexpected aspect for many Canadians: the cost of certain mortgages. Within just three weeks, fixed mortgage rates for three and five years have risen by 0.5 per cent, as reported by Marshall Tully, a mortgage broker based in Toronto. Tully expressed concern that this trend might continue going forward.
According to the Canada Mortgage and Housing Corporation (CMHC), approximately 1.4 million mortgages will be up for renewal by the end of the year, representing about 23 per cent of all mortgages. Many of these renewals are facing higher rates compared to those from 2021, catching borrowers by surprise.
The surge in fixed-rate mortgages is primarily attributed to fluctuations in bond yields, influenced by global events such as wars, including the current Middle East conflict. The recent address by U.S. President Donald Trump did not provide clarity on the duration of the conflict, prompting some lenders to proceed with rate hikes that were previously on hold.
The ‘uncertainty premium’ is a term used to describe the impact of uncertainties like ongoing wars and trade tensions on financial markets. The Bank of Canada’s key interest rate, set at 2.25 per cent since October 2025, was expected to decrease further this year before the war and subsequent events altered predictions. Benjamin Tal, a deputy chief economist at CIBC World Markets, highlighted the influence of the war and trade issues on fixed-rate mortgages in Canada.
The average rate for a five-year fixed mortgage has climbed from around four per cent to 4.95 per cent as of April 2, with the three-year rate trailing closely at 4.59 per cent. This increase is notable when compared to the average variable rate, currently at 4.2 per cent. Inflation is also anticipated to rise following the Strait of Hormuz closure, impacting the costs of Canadian goods and services.
Economists foresee potential Bank of Canada rate hikes in response to rising inflation and economic uncertainties. As a result, mortgage holders are likely to face higher rates due to the prevailing uncertainty in the market. Experts suggest considering rate holds and exploring options offered by financial institutions to navigate through the evolving mortgage landscape.
Despite the challenges posed by increasing rates and inflation, Canadian homeowners have demonstrated resilience in handling fluctuating mortgage rates, according to the CMHC. Seeking advice from financial planners and engaging with banks early in the process are recommended strategies to mitigate risks associated with mortgage renewals or new agreements.