Bond Yields are up… will Fixed Mortgage rates follow?

Fixed mortgage rates are tied closely to the Govt of Cda bond yields.   And bond yields are up…  Since mid April, the 5 yr Gov of Cda bond yield has gone from 0.75% to 1.07%.   That’s a 0.32% jump.   Normally, we would see fixed mortgage rates go up.

So far, no increase.  But that’s probably more to do with a competitive Spring housing market.   This is when most house sales and mortgage transactions take place.   The Banks need to maintain certain market share levels in order to keep shareholders happy.    They are willing to sacrifice a little profit margin (and I do mean little… they seem to make up for this with higher service fees as was recently reported, but let’s not get into that now…).

If the bond yields continue to increase, we will see fixed mortgage rates rise.  That’s an automatic.   The real question is how long will the bond yields continue their climb?   It will be interesting to watch the next few months.   We can expect to see some rate increases as the Spring market ends and Banks look to increase their profit…. A pattern that repeats itself year after year..   but here’s what you can do to protect yourself…

GET A RATE HOLD… GET A PREAPPROVAL NOW!

If you have a mortgage up for renewal, or if you are buying and closing in the next 120 days, call your Mortgage Broker and get a rate hold.  It costs you nothing, and you will protect your interest rate.  Generally, you can get 2.69% held for 120 days… There are some special offers at 2.64% and even 2.59% but certain conditions and restrictions apply…  (And stay away from NO FRILLS mortgage products)

SHOULD I GET OUT OF MY VARIABLE RATE AND LOCK INTO A FIXED RATE?

This is the million $ question.   The answer depends….  If you think interest rates are going WAY up and for an extended period of time, then yes, lock in….But if you think rates can’t go up that much, then stick with Variable rate.    Variable has proven to be the better option in over 88% of the time.   Personally, I don’t think rates will skyrocket..  Too many Canadians depend on the lower rates now… and our Govts know this… I don’t think they will let rates climb too high….

Everyone is different… everyone has different needs, goals, objectives, risk tolerances, etc.   Speak with an experienced Mortgage Broker to understand the differences.   Don’t make a snap decision based on a media headline…. Get informed, then make a decision.

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

Steve Garganis 416 224 0114 steve@mortgagenow.ca