Most Markham homeowners and buyers understand, at least in general terms, that the Bank of Canada’s interest rate decisions affect their mortgage rate. What far fewer people understand is the specific mechanism by which a military conflict in the Middle East — thousands of kilometres away — is directly influencing the cost of their mortgage in 2026. Michael John Lau, top real estate agent in Markham Ontario, is explaining the complete chain of causation because understanding it is the key to making sound mortgage decisions right now.
The Chain of Causation — From Strait of Hormuz to Your Mortgage Statement
The ongoing war in Iran and the closure of the Strait of Hormuz — the chokepoint through which roughly a fifth of the world’s seaborne oil passes — has put a fresh risk premium into the market. West Texas Intermediate climbed from approximately $75 to the low-to-mid $90s, brushing triple digits at the peak. Here is how that oil price spike becomes your mortgage rate increase:
Step 1: Oil prices spike. Conflict disrupts Middle East oil supply → global markets price in supply risk → oil rises sharply.
Step 2: Inflation increases. The conflict kept oil prices roughly $10/barrel above the Bank’s April assumptions — headline inflation hit 2.8% in April 2026. Energy prices rose 19.2% year-over-year; gasoline up 28.6%, fuel oil up 41.3%.
Step 3: Bond markets react. Since the US-Iran war began, 5-year Government of Canada bond yields surged as much as 0.50% and remain 0.46% higher. Bond investors demand higher yields to compensate for inflation risk.
Step 4: Fixed mortgage rates rise. 5-year fixed rates are directly tied to 5-year GoC bond yields — not the overnight rate. Fixed rates have already climbed 0.35 to 0.40 percentage points since the conflict flared.
Step 5: Variable rates face hike risk. The Bank’s June 10 statement confirmed it “will not let higher energy prices become persistent inflation” — a conditional commitment. If energy-driven inflation persists, a hike becomes the Bank’s only tool. Scotiabank now expects as many as three rate hikes in H2 2026 if the conflict extends.
What This Means for Your Specific Mortgage Situation
If you have a variable rate mortgage: Your payment is directly tied to the Bank of Canada’s overnight rate through the prime rate (currently 4.45%). The Bank has held at 2.25% for five consecutive decisions. On a $900,000 variable rate mortgage, a 0.50% hike adds approximately $250 per month. Three hikes of 0.25% each add approximately $375 per month in additional interest cost. Variable rate holders should stress-test their budget at both these scenarios now.
If you have a fixed rate mortgage up for renewal in 2026: According to CMHC, 1.4 million Canadian mortgages will be renewed by the end of 2026 — approximately 23% of all mortgages. The Middle East conflict has pushed fixed rates approximately 0.40% above where they were before the conflict began. If your renewal is approaching, locking into a fixed rate now — before the bond market prices in further hike risk — provides certainty against the upside inflation scenario.
If you are purchasing a new Markham home: The 5-year fixed mortgage rate you were hoping to get may be higher today than it was 60 days ago. Locking in a rate today, even with a 120-day rate hold, protects against further rises if the conflict extends.
Neeraj Moolchandani, REALTOR® at Kaizen Real Estate, works closely with mortgage broker partners to ensure buyer clients understand the current rate environment before they make any offer. His practical knowledge of how Middle East geopolitics are showing up in actual rate conversations with lenders — the specific pricing adjustments, the uncertainty premiums, and the rate-hold strategies available — helps buyers navigate the current environment with confidence. Contact the Kaizen Real Estate Team at (647) 370-8885.
The Canada-Specific Nuance — We Are Net Oil Exporters
As a net exporter of energy, Canada is expected to fare much better than countries heavily dependent on imported energy. Persistently high energy prices would tilt the balance toward somewhat stronger economic activity in Canada. This is the counterintuitive aspect: while higher oil prices create inflation and mortgage rate pressure, they simultaneously improve Canada’s terms of trade, strengthen the Canadian dollar relative to oil-importing nations, and boost government revenue from the energy sector.
The Bank of Canada’s base case projection sees CPI inflation temporarily rising to 2.6% in Q2 2026, then declining as oil prices are assumed to moderate. If the oil price moderation assumption holds — if the conflict de-escalates and energy prices normalize — fixed mortgage rates could fall back toward pre-conflict levels in H2 2026. If it does not hold, the rate environment becomes genuinely more challenging. Michael John Lau, top real estate agent in Markham Ontario, tracks the Bank of Canada’s rate decisions, bond market movements, and geopolitical developments as a core part of the market intelligence provided to every buyer and seller client.
Michael John Lau is a licensed REALTOR® and CPA/CMA at Kaizen Real Estate (eXp Realty, eXp Luxury), serving buyers and sellers in Markham, Ontario and across York Region. Licence #4784577. Office: 8763 Bayview Avenue #127, Richmond Hill, ON. Neeraj Moolchandani is a licensed REALTOR® at Kaizen Real Estate, specializing in residential and investment real estate across Markham and York Region. Mortgage rate information sourced from Nesto, True North Mortgage, Mortgage Sandbox, CBC News, and Bank of Canada publications at time of writing. Consult a qualified mortgage broker and financial advisor before making any borrowing decision.