Mortgage Rates History

The latest shock of mortgage rate hikes came after a long period of relatively cheap borrowing, one that arguably gave Canadian mortgage holders the false expectation that rates would always stay low. Conventional five-year fixed mortgage rates reached 7.04% in October 2023; the last time we saw rates around the 7% mark was 2008.

However, the 7% rate is still nowhere near the rate highs of the decades between 1970 and the 2000s.

In 1991, the government (under then-Prime Minister Brian Mulroney) and the Bank of Canada (BoC) agreed to adopt inflation targets. Initially, the intention was to reduce inflation, as measured by the CPI, from 5% in late 1990 to 2% by the end of 1995. The end goal was “price stability,” which wasn’t clearly defined at the time. The 2% target was extended to 1998, as it was found to be facilitating good economic performance, and the target remains at 2% today.

The primary tool used by the BoC to control inflation is their target for the overnight rate, also known as their policy interest rate, that directly impacts short-term borrowing rates. The Bank adjusts the policy interest rate to influence economic growth and inflation; quantitative tightening occurs when the Bank hikes interest rates to cool inflationary pressures, while quantitative easing occurs when the Bank lowers interest rates to stimulate the economy and also buys government bonds, raising their price and lowering their yield.

Related: Bank of Canada Holds Key Interest Rate at 5%

Changes to the overnight rate affect mortgage rates in complicated ways. In short, fixed-rate mortgage rates are priced off of Government of Canada five-year bond yields. When interest rates go up, bond yields go up. As banks use the five-year bond yield as the basis for most fixed mortgage rates, as bond yields increase, so do mortgage rates.

Related: How Mortgage Rates and Interest Rates Work

Variable mortgage rates are more directly affected by changes to the Bank’s overnight rate. Banks use the prime rate to set interest rates on their variable-rate products. The prime rate changes in sync with changes to the overnight rate. When the BoC last hiked interest rates by 25 basis points to 5%, the prime rate also increased 0.25% and now sits at 7.2%. A variable mortgage rate will be quoted in relation (plus or minus) to the prime rate.

Related: Prime Rate History in Canada

While mortgage terms can range from six months to 10 years, the five-year fixed term is historically the most popular choice among Canadian borrowers, which is why we selected this product to illustrate mortgage rate trends over the past 50 years. (There was a temporary reversal of this trend during the pandemic, as a flood of borrowers took out variable-rate mortgages to take advantage of very low interest rates.) The other mortgage terms generally fluctuate in step with changes to the five-year mortgage term rate.

However, it’s important to note that at different points in time, mortgage rates with shorter terms have, compared to five-year fixed rates, been at par or posted a premium, influenced by expectations around the key policy rate. For example, in 1990, one-, three- and five-year mortgages all had a posted rate of 13.25%. In 2012, one-year mortgages had a posted rate of 3.1%, three-year offered a 3.95% rate and five-year was at 5.24%. Conversely, in March 2024, one-year mortgages have a posted rate of 7.84%, three-year at 6.99% and five-year at 6.84%.

In addition, the following charts and tables are sourced from the Bank of Canada. The rates here are the posted rates for five-year conventional mortgages by Canada’s major chartered banks. Other lenders, such as monoline lenders, may offer lower rates compared to the Big Banks, so this data is not indicative of the absolute lowest rate available during each time period.

Finally, the housing market illustrations through the decades use the assumption of a 5% down payment. However, the 5% down payment requirement was only established in July 2008. Before then, zero down payment mortgages were available, as were 40-year amortizations. This is an imprecise but interesting comparison of the impact of interest rates on mortgage payments, and the cost of housing in a sample market (Toronto), through the decades.

While the annual rate of inflation averaged 3% in the period leading up to 1972, in 1973 it rose 7.7%, driven largely by sharp rises in the price of oil, exacerbated by the 1973 oil crisis where the price of oil nearly tripled over a few months. Price increases in gas, electricity and food prices initiated a stretch where annual inflation averaged 8%. At the same time, economic growth collapsed and unemployment rose, a period known as “stagflation.” During this time, five-year mortgage rates moved between 10.25% and reached a high of 14.75% in October 1979, before closing out the decade at 13.25%.

According to the Toronto Regional Real Estate Board (TREB), the average sales price of a Toronto home in 1979 was $70,830. Using today’s minimum down payment rules, 5% down would have been $3,542. Assuming a home buyer took out a five-year mortgage for $67,288 at 14.75%, monthly payments would have equaled $826.30; at 10.25%, monthly payments would have equaled $613.24(*). At that time, the provincial minimum wage for Ontario was $3.00 per hour.

The 1980s were an ugly time for Canadian mortgage rates, as inflation peaked at all time highs of 12.5% in 1981. The Iran-Iraq War broke out in 1979, prompting world oil prices to skyrocket. In 1980 gas prices rose 19.1% and consumers paid 10% more on an annual average basis for goods and services. By June 1981, Canada was in recession, eventually emerging in October 1982. Annual average CPI inflation reached a 33-year high of 12.5% in 1981. CPI rose only 5.8% in 1983, and the rest of the decade saw more moderate increases.

In August 1981, five-year mortgage rates reached a crippling 21.75%. However, by January 1983, rates had dropped 800 basis points to 13.5%. Mortgage rates briefly hit their decade low at 10% in spring 1987, and then floated between 11.25% and 12.25%, before landing on 12% by mid-1989.

According to the TREB, the average sales price of a Toronto home in 1989 was $273,698. Using today’s minimum down payment rules, 5% down would have been $13,685. Assuming a home buyer took out a 5-year mortgage for $260,013 at 21.75%, monthly payments would have equaled $4,538.39; at 10%, monthly payments would have equaled $2,325.78(*). At that time, the provincial minimum wage for Ontario was $5.00 per hour.

On the heels of persistent inflation in the 1970s and 1980s, the early 1990s were characterized by a severe recession (a category 4, according to the C.D. Howe Institute’s ranking between 1 and 5), as well as high debt levels, including government debt, declining world commodity prices and a swath of businesses facing default, restructuring and downsizing. By June 1990, the prime rate peaked at 14.75%. Then in February 1991, the Bank of Canada introduced formal inflation targets and with it came a reduction in inflation. Annual average inclination decelerated from 5.6% in 1991 to 1.4% in 1992.

There were wide fluctuations in mortgage rates throughout the 1990s, starting the decade at 12% and quickly accelerating to 14.25% in April 1990. Rates remained elevated until mid-1995, where rates finally dropped below 9%. Rates reached a low of 6.6% in December 1998, before closing out the decade at 8.25%.

According to the TREB, the average sales price of a Toronto home in 1999 was $228,372. Using today’s minimum down payment rules, 5% down would have been $11,419. Assuming a home buyer took out a 5-year mortgage for $216,953 at 14.25%, monthly payments would have equaled $2,585.81; at 6.6%, monthly payments would have equaled $1,466.38(*). At that time, the provincial minimum wage for Ontario was $6.85 per hour.

The 2000s saw much more moderate changes to mortgage rates within a narrower band. In January 2000, mortgage rates jumped to 8.55%, and after some minor fluctuations reached a high of 8.7% in May.

In 2008, Canada (along with the rest of the world) experienced a severe recession, triggered by the housing crash in the U.S. The CPI increased only 0.3% in 2009, its smallest annual average increase since 1994. By January 2009, five-year fixed rates had dropped to 5.79%, eventually bottoming out at 5.25% in April.

According to the TREB, the average sales price of a Toronto home in 2009 was $395,234. Using today’s minimum down payment rules, 5% down would have been $19,761. Assuming a home buyer took out a 5-year mortgage for $375,472 at 8.75%, monthly payments would have equaled $3,047.38; at 5.25%, monthly payments would have equaled $2,237.51(*). At that time, the provincial minimum wage for Ontario was $9.50 per hour.

The economic impact of the recession in Canada was relatively short-lived and the Canadian economy recovered quickly, although growth was slow through the decade. Both Canadian interest rates and mortgage rates were noticeably stable during this period, with the five-year rate staying between a tight band of less than 2%, ranging between 4.64% to 6.25%.

According to the TREB, the average sales price of a Toronto home in 2019 was $819,153. Using today’s minimum down payment rules, 7% down would have been $57,341. Assuming a home buyer took out a 5-year mortgage for $792,284 at 6.25%, monthly payments would have equaled $5,187.41; at 4.64%, monthly payments would have equaled $4,446.95(*). At that time, the provincial minimum wage for Ontario was $14.00 per hour.

It’s impossible to think of the 2020s without considering the far-reaching impacts of the pandemic, as well as Russia’s invasion of Ukraine, global supply shortages and a red-hot housing market. Between 2014 and March 2020, the overnight target was between 0.5% and 1.75%. And then almost overnight, the entire world shutdown, forcing central banks to cut rates to stave off deflation. On March 16, 2020 the BoC slashed the key rate by 50 basis points, then by another 25 basis points on March 27, bringing the overnight rate to a low of 0.25%. In July 2020, Bank of Canada governor Tiff Macklem told Canadians that interest rates will remain low “for a long time.”

However, by March 2022, the BoC was now facing inflationary pressures, with CPI rising from 5.1% at the start of 2022 to reach a 41-year peak of 8.1% in June, forcing the Bank to raise interest rates 10 times by 4.75 percentage points to a 22-year high of 5% in July. This, in turn, caused mortgage rates, especially variable-rate mortgages, to soar; roughly half of new mortgages in early 2022 were variable-rate (when rates were less than 2%), compared to just 6% in August 2023 (when rates averaged 6.5%), according to the CHMC. Compounding this financial squeeze was the run-up in the housing market, with home prices up 34% since before the pandemic, requiring home buyers to service bigger mortgages. Five-year fixed-rate mortgages hit a high of 7.04%, and as of March 2024, currently sit at around 5%.

According to the TREB, the average sales price of a Toronto home in 2023 was $1,126,568. Using today’s minimum down payment rules, 20% down would have been $225,314. Assuming a home buyer took out a 5-year mortgage for $901,254 at 7.04%, monthly payments would have equaled $6,334.80; at 4.79%, monthly payments would have equaled $5,134.52(*). At that time, the provincial minimum wage for Ontario was $16.55 per hour.

Source for all tables: Bank of Canada, interest rates posted by major chartered banks. As of February 2024.

(*) This calculation does not account for mortgage default insurance and is only an illustration.

Mortgage rates have already started to come down, dropping approximately 65 basis points from their October 2023 high. According to the BoC’s January 2024 Monetary Policy Report, “Financial conditions have eased for Canadian households since the October Report, even though policy interest rates remain elevated. Bank funding costs have also gone down, and financial institutions have subsequently lowered their interest rates for mortgages.”

Inflation is moving towards the Bank’s 2% target, with February CPI numbers coming in at 2.9%. However, shelter costs remain persistent, due to high mortgage interest rates and expensive rents, which are tied to the shortage of housing, not monetary policy.

So while it is unlikely that mortgage rates will go up again, economists are divided on whether interest rate cuts to the Bank’s key policy rate will begin in April or June 2024.

The Bank of Canada’s rate hikes during the pandemic were fast and decisive and have been characterized as the most aggressive interest-rate hiking in recent history. Couple this with an overheated housing market coming out of the pandemic and the residue of still-high prices and Canadians, especially in Vancouver and Ontario’s Golden Horseshoe area, are undoubtedly feeling stretched. Are mortgage rates between 5% and 7% high by historical standards? No. But after a decade of record-low interest rates, they were certainly a surprise—and a shock.