Record low Bond yields means even lower fixed mortgage rates

Fixed mortgage rates are tied into Govt of Cda bond yields.  As the yields go done, so does the fixed mortgage rates.. well, usually.. more on that later..These bond yields have hit all-time lows in the past week… Yesterday, they were as low as 0.55%...  To put that into perspective, the 5 yr bond yield is lower than the Bank or Canada overnight rate, which now stands at 0.75%.  Another historical event.  That almost never happens.

Check out these 2 historical charts to compare the Bank of Canada rate from 1935 to Dec 2014 and 5 year Govt of Cda bond yield from 1980 to Dec 2014….

If you’re wondering what this means for you, a Canadian consumer, it means mortgage rates should go even lower.   Institutional investors are pricing in a further Bank of Canada rate cut at their next schedule meeting on March 4th, 2015.

That seemed almost impossible, just a month ago.   The vast majority of Experts were anticipating rates to go up… and now we are seeing calls for a rate cut.  But like any BIG SIX BANK rate cut, it won’t happen immediately.  As you probably know by now, the BANKs are quick to lower your savings account rate but not so quick to lower your mortgage, loan or line of credit rates…. as we have seen repeatedly… the most recent example was last week.

There’s BANK Posted rates, BANK ‘discounted rates’ AND then there’s WHOLESALE MORTGAGE RATES.

Consumers are starting to discover there is a big difference between the BIG SIX BANKS and a Mortgage Broker.   And the comparison is very simple to explain.  A Bank can only offer you their line of products, with no clear definition on what their best discount is… It’s a game of haggling and negotiating, to see if you can talk your Banker into a lower rate..  A Mortgage Broker shops the market, dealing with as many as 50 competing Lenders, offering the VERY BEST up front… We call this the wholesale market.

Hey, don’t get me wrong, sometimes it’s fun to play that game… Sure, if you’re down on some Caribbean island in 95 degree weather, walking through the local market and buying some hand-made wood carving or sea shell…then maybe it’s fun to haggle. But, when it comes to our mortgage, we don’t like games.  We just want the best.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca