### Why Fixed Mortgage Rates Might Not Drop, Even if the Bank of Canada Lowers Its Rate

On October 31, 2024, the Bank of Canada reduced its key interest rate to 3.75%, sparking hopes among many Canadians for potential mortgage rate relief. However, while variable rates respond directly to changes in the key rate, fixed mortgage rates may stay high. Why? Because fixed rates are tied to bond yields, which are influenced by factors like future inflation expectations and economic risks, rather than by the Bank of Canada’s rate.

According to economist Don Drummond, even if the Bank continues lowering its key rate, five-year fixed rates might stabilize around 4.9% to 5%, which is close to current levels. For buyers hoping for a significant drop, this may come as disappointing news.

In short, fixed rates reflect long-term economic outlooks. Given the current situation, it’s likely that the era of very low fixed mortgage rates is behind us, and that stability will become the new norm.

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