The conflict in the Middle East is impacting an unexpected area for many Canadians: mortgage costs. Marshall Tully, a Toronto-based mortgage broker, noted a sudden 0.5% increase in three- and five-year fixed mortgages over just three weeks last month. This upward trend may persist, according to Tully.
The Canada Mortgage and Housing Corporation (CMHC) projects that 1.4 million mortgages will be renewed by year-end, constituting about 23% of all mortgages. A significant portion of these renewals had previously enjoyed lower rates in 2021.
Fixed-rate mortgages have seen rapid increases, primarily due to fluctuations in bond yields, influenced by global events like conflicts. Despite some anticipation of ceasefire talks, lenders started raising rates post-U.S. President Donald Trump’s recent address, which lacked clarity on the conflict’s duration.
The ‘uncertainty premium’ is a concern, with the Bank of Canada’s key interest rate currently at 2.25%, unchanged since October 2025. Earlier predictions of rate cuts have shifted due to ongoing conflicts and imposed tariffs affecting fixed-rate mortgages in Canada.
Experts like Benjamin Tal and Moshe Lander suggest that the current economic conditions may lead to multiple Bank of Canada rate hikes. This situation has already led to a notable increase in fixed mortgage rates, with the five-year fixed rate rising to 4.95% and the three-year rate at 4.59%.
Inflation is expected to rise further following the Strait of Hormuz closure by Iran, impacting the costs of goods and services in Canada. This uncertainty necessitates an ‘uncertainty premium’ in mortgage rates, as per Lander and Tal.
While the long-term impacts of the conflict remain uncertain, both experts agree that it may take months for oil and gas prices to stabilize, prolonging inflationary pressures. Considering these factors, individuals renewing or initiating mortgages are advised to secure new rates promptly or explore options to mitigate risks.
It is essential for mortgage holders to seek financial advice and explore flexible options with their lenders to navigate the evolving economic landscape. Despite the challenges, Canadian homeowners have demonstrated resilience in handling fluctuating rates, according to the CMHC.