How January Tariffs Could Impact Mortgage Rates for Canadians

The next person in control of our friends south of the border; one of his bold proposals was to implement a 25% tariff on all imports from Canada and Mexico. For Canadians, this promise ignited a wave of concern and uncertainty about what it could mean for the economy, personal finances, and, notably, mortgage rates. While the economic effects of such tariffs are still unfolding, there are a few potential scenarios to consider when it comes to mortgage rates and homeownership.

The Economic Ripple Effect: Tariffs and the Canadian Economy

A 25% tariff on Canadian goods entering the U.S. would likely send shockwaves through the Canadian economy. As a major trading partner with the U.S., Canada could face a significant economic downturn if exports to the U.S. drop due to these tariffs. The resulting slowdown could push Canada into a recession, which would likely cause bond markets and interest rates to decrease.

For Canadians, this means that mortgage rates could initially drop. Lower interest rates are typically seen as a result of recessionary pressures, as central banks look to stimulate economic activity by making borrowing cheaper.

However, a trade war doesn’t come without complications. A protracted conflict could lead to rising inflation, which would push the Bank of Canada to take action. To combat inflation, the central bank might raise interest rates, which could push mortgage rates higher. Additionally, a weaker Canadian dollar as a result of the trade tension could make imported goods more expensive, exacerbating inflation.

Locking in Your Mortgage Rate: What It Means for You

In the face of these uncertain economic conditions, many Canadians may consider locking in their mortgage rate to protect themselves from potential rate hikes. But what does it mean to lock in a mortgage rate, and should you do it?

What Is a Mortgage Rate Lock?

A mortgage rate lock allows you to “freeze” your mortgage interest rate for a specific period—usually anywhere from 30 to 150 days. This means that even if interest rates increase during the lock-in period, your rate will stay the same. Some lenders even offer the option to take advantage of lower rates if they decrease during the lock-in period. Essentially, a rate hold gives you the best of both worlds: protection against rising rates while also the opportunity to benefit if rates fall.

When you apply for a mortgage, you’ll likely be offered a rate hold at the time of pre-approval. The lender will outline the specifics of your mortgage, including the rate, term, and amortization period. During the lock-in period, your rate is guaranteed, which helps you plan your finances more confidently.

Should I Lock in My Mortgage Rate?

If you’re thinking about buying a home or refinancing, you might be wondering if locking in your mortgage rate is a good move. In general, a rate lock is a no-brainer if it doesn’t cost you anything. The peace of mind that comes with knowing your rate won’t change, especially in volatile times, can be invaluable. However, if the rate lock comes with a fee, you’ll need to weigh the pros and cons.

Much like financial options, the value of a mortgage rate lock depends on several factors: the “strike price” (the rate itself), the expiration date, and the volatility of mortgage rates. With the unpredictable economic landscape—especially considering potential tariff impacts and trade tensions—mortgage rates are likely to experience more fluctuation in the near future. This increases the value of locking in your rate, as it shields you from sudden spikes.

Navigating Volatility

The volatility of mortgage rates is driven by macroeconomic factors—like inflation, interest rate changes, and global economic conditions—that are largely out of your control. As such, locking in your rate at a time of increased volatility might be a wise decision to help stabilize your financial future. The value of your rate hold could increase if rates continue to rise or if market conditions become more unpredictable.

Preparing for What’s Ahead

Given the potential for significant changes in the Canadian economy and mortgage rates in the coming months, it may be smart to take proactive steps to protect yourself. Whether that means locking in a mortgage rate or closely monitoring market trends, staying informed and prepared can help you weather any economic storm.

In a period of uncertainty, stabilizing your mortgage rate could be the safeguard you need to manage your payments effectively, regardless of what happens on the global stage. While the situation surrounding Trump’s tariffs and their long-term effects on Canada is still evolving, understanding how these shifts could impact your mortgage can help you make more informed financial decisions.

Matt@HuronMortgages.ca

Mortgage Agent Licence M18002043

519-497-3667