The Middle East war is impacting something most Canadians may not have expected: the cost of some mortgages.
Last month, three- and five-year fixed mortgages increased by 0.5 per cent in just three weeks, said Marshall Tully, a Toronto-based mortgage broker.
“Unfortunately, it’s possible that trend could continue,” Tully said.
According to the Canada Mortgage and Housing Corporation (CMHC), 1.4 million mortgages will be renewed by the end of the year, representing about 23 per cent of all mortgages. Many of those would have received much lower rates from 2021.
“Many people are coming into their renewals totally blind and thinking that rates just keep coming down or holding,” he said.
Tully said fixed-rate mortgages have risen particularly quickly because they are backed by bond yields, which can fluctuate in response to world events like wars. And U.S. President Donald Trump’s prime-time address on Wednesday offered little new insight on how long he expects the conflict to last.
“Some lenders, who were holding back raising rates as it looked like there may be ceasefire talks, moved forward with raising rates after his speech.”
The ‘uncertainty premium’
The Bank of Canada’s key interest rate — currently at 2.25 per cent — was set in October 2025 and held in all subsequent announcements since then.
Before the war began, further cuts had been predicted for this year. Benjamin Tal, a deputy chief economist at CIBC World Markets, says the forecast has now changed.
Along with the war and Iran’s subsequent closure of the Strait of Hormuz, continued U.S. tariffs are also impacting fixed-rate mortgages in Canada, he said.
“I believe the five-year fixed rate is already too high for this slow economy.”
Mark Ting, a partner with Foundation Wealth and On The Coast’s personal finance columnist, said that mortgage rates are based on bond markets — and bond yields are tending to rise due to spiking energy prices brought on by the war in the Middle East.
However, banks will raise rates to avoid being caught short in future lending, especially long term.
Just a few weeks ago, the average rate for a five-year fixed mortgage was closer to four per cent, Tully said. As of April 2, it’s at 4.95 per cent, with the three-year rate close behind at 4.59 per cent. That’s compared to the average variable rate, which is at 4.2 per cent.
Inflation for March is also expected to increase, Moshe Lander, a Concordia University senior lecturer in economics, said. It marks the first full month since Iran effectively closed the Strait of Hormuz, one of the world’s most important maritime chokepoints.
“The longer this lasts, the more uncertain American policy is, and that uncertainty spills into the costs of Canadian goods and services,” he said.
“As inflation spreads through the economy, the Bank of Canada will have to raise interest rates.”
Lander said new expectations are for as many as three BoC rate hikes by the end of the year, and that Trump’s non-committal speech on Wednesday likely made the outlook worse.
“Banks have to price in for uncertainty in those conditions — and so mortgage holders will continue to face an ‘uncertainty premium’ in their rates.”
Tal said similarly.
“If you are upset that the five-year fixed mortgage rate you were hoping to get just went up, you can blame Trump for that.”
Longer-lasting impacts
Both Tal and Lander agree that even if the war ended tomorrow, it would take months for both oil and gas prices to stabilize, meaning continued inflationary pressure.
So what is the best thing to do if you are soon renewing or starting a mortgage? It depends who you ask.
Tully advises that now is a good time to lock in a new rate.
“The easiest thing you can do is get a rate hold — and many people don’t realize they have the ability to do that.”
If you are in the position to switch banks, most lenders will offer a 120-day rate hold, which will go down if rates do the same within that time-frame. If you stay with the same bank, generally you can only do this 30 days in advance.
Tal says it’s worth trying to buy yourself some time if you can before committing to a longer-term mortgage.
“The Canadian economy is currently on the verge of 0 per cent GDP growth, very close to a recession — this is not typically an environment where we would see rates go up.”
In his first public address since the U.S.-Israel war against Iran began, U.S. President Donald Trump touted his accomplishments in the conflict and said it would be over in a few weeks. He also praised U.S. allies in the Middle East.
Lander says mortgage holders need to protect themselves more than ever.
“Contact a financial planner; contact your bank. The biggest misconception is that banks are out to get you, but if you approach them early enough in the process, they will work with you to make sure you don’t have to fire-sell your home.”
Options can include extending amortization, shortening or extending the term or possibly a suspension of interest.
Overall, the CMHC has a positive outlook on how Canadian homeowners have handled the fluctuating rates, saying in a written statement to CBC they have proven to be “remarkably resilient” given the challenges.