How Trump’s U.S. Election Win Could Impact Canadian Mortgage Rates

Just when Canadian homebuyers and owners were getting used to a steady cycle of interest rate cuts, U.S. president-elect Donald Trump brings new uncertainty. 

By Josh Sherman | 4 minute read

Tariffs on cross-border imports to the U.S. was a key pillar of Donald Trump’s America First campaign, and that could have serious consequences for the Canadian mortgage market and economy at large.

Despite a report of some mortgage rates creeping higher following the results of the U.S. presidential election, Donald Trump’s second term as commander in chief could end up having the opposite effect on borrowing costs in Canada, says one market-watcher. 

“The biggest unknown will be the impact to Canada’s economy from Trump,” Alex Leduc, founder and CEO of Perch, a Canadian digital mortgage platform, tells Wahi.

In Leduc’s view, where interest rates are headed largely boils down to whether Trump follows through on his America First rhetoric concerning protectionist policies, which could include slapping a 10% tariff on imports to the U.S.

“If he goes hard on tariffs and our exports suffer, then we could see rates actually get cut faster than expected. So I’d say a Trump presidency has more potential to drive down rates rather than up,” Leduc explains.

As the U.S. is Canada’s largest trading partner, a 10% tariff could spell trouble for the Canadian economy by reducing exports and dragging growth. In this event, Leduc sees the Bank of Canada potentially slashing the overnight rate more aggressively to stimulate the domestic economy.

Since variable mortgage rates are directly influenced by the overnight rate, they would fall lower faster. Meanwhile, a possibly cooler outlook for inflation due to the trade headwinds translates to lower bond yields, a leading indicator of where fixed rates are headed.

Rob McLister, a Canadian interest rate analyst, lays out certain conditions that could end up triggering higher interest rates: “If Trump juices the American economy without penalizing Canada with tariffs, Canada will import inflation from the U.S.,” he tells Wahi.

When an economy is facing high inflation, such as during the pandemic, policymakers typically hike interest rates. They do so to rein in borrowing and spending in hopes of curbing the strong demand responsible for higher prices. Mortgage rates are no exception.

“The other factor is the U.S. debt,” McLister adds. “If markets think it’s out of control, they’ll take up U.S. yields, which could drive Canadian yields somewhat higher as well.”

Of course, McLister emphasizes that not enough time has passed to know where mortgage rates are headed. “It’s too early to tell,” he says. “There are way too many wildcards,” he adds.  

Effects Could Vary by Mortgage Type

Depending on what happens stateside, it’s possible that variable and fixed rates diverge. For example, the Bank of Canada could continue cutting the overnight rate while bond yields remain heightened. In this case, variable rates trend lower while fixed rates do not, which has happened several times in Canada this century. “What we know for sure is that fixed mortgage rates can climb while variable rates drop, as they did in parts of 2003, 2008, 2009, and 2015,” says McLister.

If this plays out, variable rates could once again dip below fixed rates. While the latter is currently lower, the historical norm is for variable mortgages to have a more competitive rate. “There’s a very good chance that’ll happen.”

Given all the uncertainty Trump’s return to office is bringing, MsLister suggests homebuyers should consider the lesser-known hybrid mortgage when shopping around. “That’s where your borrowing is part fixed and part variable. It’s a solution tailor made for uncertain times like today’s,” he says.

Hybrid mortgages provide homebuyers with more flexibility than a traditional fixed or variable rate. “A hybrid is like an NBA player who’s both a shooter and defender — it lets you play both sides of the court. The borrower can choose how much they want in each portion based on their five-year plan and how much financial thrill they can handle.”

To date, the effects on the mortgage market post-election have been marginal at most. McLister points out that the lowest nationally advertised rates for uninsured mortgages haven’t moved since Nov. 5, the day of the election. Insured mortgages are mixed, with the lowest three-year fixed rates down 15 basis points (0.15 percentage points) and the lowest five-year up 10 basis points.

McLister and Leduc both suggest markets had already priced in the possibility of Trump’s victory ahead of election night.

In a report written in response to the outcome of the 59th American election, economists at BMO called the outlook “a mixed bag” for Canada, noting that while “Canada does have a relatively well-balanced trade with the U.S.” there’s lots of uncertainty around the future of that relationship. “Ultimately,” the BMO economists write, “a healthy U.S. economy is the single most important factor for Canada, regardless of who is in charge.”