If you saw that the Bank of Canada decided to leave its interest rate unchanged and thought, “Great, mortgage rates should stay where they are,” there’s something important you should know.

That isn’t necessarily how fixed mortgage rates work.

In fact, we’ve already seen some fixed rates start to move higher, and if bond yields continue in the same direction, more lenders could follow.

The reason has less to do with the Bank of Canada and more to do with what’s happening in the bond market.

Bond Yields Surging This Week

Bond yields have been moving higher, and that matters because higher yields can create upward pressure on fixed mortgage pricing. They are the highest they’ve been since May 2024, sitting in the 3.64% range. Back then, fixed rates were upwards of 4.4%.

The reason yields are rising isn’t just one thing. Markets are dealing with a combination of concerns, including inflation, government borrowing, economic uncertainty and geopolitical events.

When investors become less interested in holding bonds, they may sell them. Japans bond yields also rose to the highest levels in 10 years, and that indirectly affects Canadas bond yield market too.

So what does this have to do with your mortgage?

Think of bond yields as one of the important reference points lenders use when deciding how to price fixed mortgage rates.

When yields are low, lenders generally have more room to offer lower fixed rates.

When yields climb, that room can start to disappear.

It doesn’t mean that every time a bond yield moves up by 0.05%, your mortgage rate immediately changes.

Mortgage lenders don’t adjust their rates second by second.

They have their own funding costs, profit margins, competitive pressures and business strategies to consider.

But if yields keep moving higher or remain elevated for a sustained period, eventually lenders may need to adjust their pricing.

That’s why rising bond yields can put pressure on fixed mortgage rates even when the Bank of Canada hasn’t changed its overnight rate.

How High Could Fixed Rates Go?

This is where things get interesting.

Mortgage lenders are competing aggressively for business.

Sometimes that means lenders are willing to offer rates with tighter margins than they would normally prefer. They may do this to attract new borrowers, maintain lending volume or because they believe the increase in bond yields could be temporary.

But competition can only do so much.

A lender may be willing to sacrifice some margin temporarily.

They’re probably not going to continue doing it indefinitely if their underlying costs remain high.

That’s why some of the lower fixed rates available today may not necessarily be around forever. Some lenders are still holding the line when it comes to fixed rates, but not for long.

Case in point, TD has already announced rate increases of 0.15% effective tomorow, and other banks will likely follow suite.

When It Makes Sense to Break Early For A Fixed Rate

If you’re buying a home, refinancing, or coming up for renewal and you’re considering a fixed mortgage, it may be worth looking at your options sooner rather than later.

A rate hold can potentially protect you if lenders increase their fixed rates before your mortgage closes or your renewal date arrives.

And a rate hold doesn’t necessarily mean you have to stop watching the market.

Depending on the lender and the situation, you may still have the opportunity to access better pricing if rates improve before closing.

The important thing is understanding what options are available to you and how much time you have.

Rate holds are typically for 120 days, and the great thing is that you can secure a rate hold even if your renewal is 9-12 months out.

If, in 120 days, rates are signficantly higher and it makes sense to break your mortgage early to switch, then you could do so.

If the interest savings outweigh the costs to break, and rates being offered in 120 days are significantly higher with no sign of potential downturns, you could break your mortgage early and take advantage of the interest savings.

This even applies for fixed rates; some lenders have a penalty of 3 months interest if you break your mortgage within 9 months.

Lets say you were to lock in a 3.89% 5 year fixed today, on a $500,000 mortgage. If rates rise to 4.31%, thats $10,000 more in interest cost. Paying a 3 months interest cost of around $4800 is definitely worth the $10,000 in interest savings if you break early and take the 3.89% rate hold, especially if there is little sign of rates coming down.

The Takeaway

The Bank of Canada holding its rate steady does not automatically mean fixed mortgage rates will remain unchanged.

Variable rates and fixed rates are influenced by different factors.

Right now, bond market movements are creating pressure on fixed mortgage pricing.

That doesn’t mean everyone should panic and rush into a mortgage decision, but protecting yourself with a rate hold is free, and will keep you peace of mind.