The war in the Middle East is impacting the cost of some mortgages in Canada. In recent weeks, three- and five-year fixed mortgage rates have surged by 0.5 percent, reflecting broader economic pressures. As of April 2, 2026, the average rate for a five-year fixed mortgage stands at 4.95 percent, while the average variable rate is at 4.2 percent.

This increase comes at a critical time, as approximately 1.4 million mortgages are set to be renewed by the end of the year, representing about 23 percent of all mortgages in Canada. With the Bank of Canada’s key interest rate currently at 2.25 percent, the landscape for borrowers is becoming increasingly challenging.

Marshall Tully, a mortgage expert, noted, “Unfortunately, it’s possible that trend could continue,” indicating that homeowners may need to brace for further increases. The lowest available five-year fixed mortgage rates for high-ratio mortgages are currently around 4.04% to 4.09%, which is a stark contrast to the rates secured by homeowners during the pandemic era, which ranged from 1.5% to 2%.

Benjamin Tal, another financial analyst, pointed to external factors, stating, “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.” This highlights the interconnectedness of global events and local economic conditions.

Moreover, the ongoing conflict in the Middle East has created volatility across global financial markets and driven energy prices higher, further complicating the situation for Canadian homeowners. As approximately 60% of all outstanding mortgages are expected to renew in 2025 or 2026, the implications of rising rates could be significant.

Financial advisor Moshe Lander emphasized the importance of early engagement with lenders, saying, “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.” This advice may prove crucial for those facing renewal in the coming months.

Details remain unconfirmed regarding the exact impact of geopolitical tensions on future mortgage rates. The long-term effects of the war on the Canadian economy and mortgage rates remain uncertain, leaving many homeowners anxious about their financial futures.

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The housing market in the United States has been under scrutiny as it grapples with a myriad of challenges, particularly in 2026. Prior to recent developments, expectations for the housing sector were cautiously optimistic, buoyed by low interest rates and a recovering economy. However, the landscape has shifted dramatically, with KB Home, one of the nation’s largest homebuilders, reporting a staggering 23% year-over-year decline in total revenue to $1.08 billion for the first quarter of 2026. This decline is indicative of broader issues affecting the market.

The decisive moment came when KB Home disclosed that its diluted earnings per share (EPS) plummeted by 65% to $0.52 in the same quarter. This alarming drop signals not just a company-specific issue but a potential systemic problem within the housing market. The average selling price (ASP) for KB Home also fell by 9.7% to $452,100, reflecting a significant downturn in buyer demand and market confidence.

Compounding these challenges, the Federal Reserve has maintained the benchmark federal funds rate at 3.50%–3.75%, while the average 30-year fixed-rate mortgage has risen to approximately 6.50%. These interest rates, while not excessively high historically, are contributing to a climate of uncertainty for potential homebuyers, many of whom are now facing affordability hurdles. The housing market is further characterized by a ‘locked-in’ scarcity, with foreclosure rates hovering around 0.20%, suggesting that homeowners are reluctant to sell in a declining market.

In Ottawa, the situation is similarly precarious. The City of Ottawa’s staff has recommended waiving the inclusionary zoning requirement for affordable housing to zero, a move that has sparked debate among local policymakers and housing advocates. The proposed policy would set the maximum purchase price for a condominium unit at about $441,000, while the suggested monthly rent for a two-bedroom apartment would be around $1,900. This shift raises questions about the city’s commitment to affordable housing amidst rising costs.

Experts like Coun. Jeff Leiper have pointed out that “the cost of building housing has gone up very significantly,” which complicates the already fragile state of the housing market. Kaite Burkholder Harris, another local advocate, emphasized that a mandatory requirement for affordable units is ineffective if developers are unable to build at all. She stated, “What it turns into is a developer not building, because they can’t make the bottom line work.” This sentiment underscores the tension between regulatory measures and market realities.

The introduction of legislative measures such as the “Housing for the 21st Century Act” and the “Make American Housing Affordable (MAHA) Act” in early 2026 reflects an urgent need for solutions to the housing crisis. However, the impact of these proposed bills on market prices remains unclear, leaving stakeholders in a state of uncertainty. Additionally, the future of inclusionary zoning in Ottawa is uncertain due to potential provincial policy changes, further complicating the landscape for affordable housing.

As the housing market continues to navigate these turbulent waters, the implications for both buyers and builders are profound. The fragility of the current recovery, as indicated by KB Home’s Q1 2026 earnings report, suggests that without significant intervention, the housing market may face prolonged challenges. Details remain unconfirmed regarding how these evolving policies will ultimately shape the market, but the stakes are undeniably high for all parties involved.

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The recent surge in fixed mortgage rates raises a critical question: how will this impact borrowers and the housing market? The answer is significant, as rising rates are likely to increase monthly payments for new buyers and raise renewal costs for millions currently on pandemic-era mortgage terms.

Currently, the U.S. 30-year mortgage rate stands at 6.30%, a notable increase that has led to a 19% drop in refinance applications week over week. This decline indicates that higher rates are effectively sidelining many potential borrowers who might have otherwise sought to refinance their existing loans.

The backdrop to this increase is multifaceted. The ongoing war in Iran has created economic shocks globally, leading to heightened inflation expectations and higher global yields. As Edward Djan from the Bank of Canada noted, “Expect global inflation to get higher in the near-term with the war in Iran, that’s the message from the Bank of Canada as it keeps its key interest rate the same.” This sentiment reflects a broader concern that economic stability is under threat, which in turn influences mortgage rates.

In Canada, fixed mortgage rates closely track the Government of Canada 5-year yields, which often move in tandem with U.S. Treasuries. Despite rising inflation expectations, the Bank of Canada has maintained its key interest rate, leaving many to wonder how long this can continue without adjustments. The OSFI stress test further complicates the situation, requiring borrowers to qualify at a higher rate than their contract, often adding two points to the contract rate. This requirement can push some borrowers toward shorter terms or necessitate higher down payments to secure approvals.

Recent data shows that the two-year swap rate increased from 3.603% to 4.03% between March 2 and March 16, 2026. Concurrently, the average rate on a new two-year fixed-rate mortgage rose from 4.78% on January 16, 2026, to 5.20% by March 16, 2026. Such increases indicate that markets are bracing for further rate hikes, as suggested by Adam French, who stated, “The swap rate can be taken as an indication that markets are expecting at least a 0.25 percentage point rise over the next five years.”

The implications of these rising fixed mortgage rates are profound. Higher rates not only increase monthly payments for new buyers but also raise renewal costs for existing borrowers. This situation could slow down originations and refinancing, impacting fee income for lenders. As higher rates reduce the number of borrowers who can benefit from refinancing, the overall activity in the housing market may decline, leading to a more cautious approach from both lenders and borrowers.

As the situation evolves, it remains to be seen how long these trends will persist and what further economic shocks might occur as a result of the ongoing conflict in Iran. Details remain unconfirmed regarding the long-term trajectory of mortgage rates and their impact on the housing market. However, one thing is clear: the current landscape is challenging for borrowers, and the ramifications of these fixed mortgage rates increase are likely to be felt for some time.

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