Economic growth is the main lever that elevates and lowers inflation, which in turn increases and decreases mortgage rates.

Canada’s economic engine ultimately determines the mortgage rates we pay. And these days, that engine is running at a lower RPM than in the past.

 “Canada’s economy is in a new age,” says Desjardins Economics. In a report released last week it states that economic growth potential “will remain between 1.5% and 2.0% from now until 2030.”

If this call is even remotely true (remote being the most we can expect from an economic forecast), then we’ll have gone from a 3.3% real average growth rate since the 1960s to as low as 1.5% for the next 15+ years. A healthy growth rate is closer to 2.5%.

Is it any wonder then that Desjardins concludes: “…interest rate equilibrium levels will be lower than in the past?” At these stunted growth levels, even risk-haters may start considering variable mortgage rates.

Economic growth is the main lever that elevates and lowers inflation, which in turn increases and decreases mortgage rates. It’s highly unlikely that an economy progressing at just 1.5% long-term — or even 2% — can generate sustained inflation above 3.0%. (3.0% inflation is the Bank of Canada’s maximum tolerance, above which it tends to hike interest rates.) Against that backdrop, 2.25% variable rates start looking far more appetizing.