Fixed rates could increase as the 5 year Bond yield jumped to 2.70%….this is up 21bps from a week ago… The spread now is 1.19% between 5 yr fixed rate and the 5 yr Bond… normally, lenders want to see a 1.35% spread …. if the Bond market continues to stay at this level or increases further, we will see fixed rates rise.
The U.S. employment stats also came out today…..unemployment held steady at 9.7% which is better than analysts expected… This will also put pressure on the Bond Market… Canadian employment figures come out next week…
Remember, fixed rates has historically increased sooner than the Bank prime rate which affects Variable rate….. This could be the beginning of the slow but steady rise in rates…. It’s certainly not time to panic but we should pay attention…
Mark Carney, the Bank of Canada Governor, kept the overnight rate at 0.25%…(yawn…)… The rate that affects all Bank Prime rates and Variable Mortgage Rates has remained at this level since April 2009….
In the announcement, the Bank of Canada stated they were concerned about inflation increasing a little faster than they had forecast. The Economy also grew at an annualized rate of 5% in the fourth quarter of 2009….. (personally, I think it would be surprising to see it continue to grow at this pace…. )
Governor Carney has repeatedly stated he will not increase the rate before June… well June is approaching and some of the Economists are starting to forecast for possible rate hikes as early as June… but nothing too drastic..
One rule of thumb or interesting historical trend is that fixed rates usually increase first or before the variable rates rise….we’ll be watching the bond market (bonds affect fixed rates)….
BANK PRIME RATE FORECAST
The CIBC’s Senior Economist, Ben Tal, says Bank Prime rate will start to increase this summer… but only by 0.50% to 0.75% by end of the year… and then will pause in 2011 to see where the U.S. rates are headed…. click here Feb 26 2010 CIBC Forecast.
Mr. Tal thinks this is “risk move” pointing to similar Bank of Canada action in 1992 and 2002 when the Bank hiked rates only to reverse the decision a few months later…
Mr. Tal also points out that real inflation is around 1.5% and will continue to remain low into 2011.
Does this mean we should lock in our variable rate mortgages? For most of us, probably not… but if you aren’t sure, then speak with your Mortgage Broker.
NEW MORTGAGE RULES EFFECT
Mr. Tal sees the new mortgage rules having little effect on most of us. Here are his calculations…
- Increase down payment requirement for refinancing: 7%-8%
- Increase down payment requirement for non-primary residence: 2%-3%
- Increase qualifying rate on variable mortgages: 5%-6%
This is the first outlook I have seen…and it’s really not bad at all… Enjoy the weekend… and GO CANADA GO!
What’s this? RBC, BMO and National Bank have lowered their posted fixed rates? Yes, it’s true… the 5 year fixed rate is now 5.39%. Bond rates have come down over the past few weeks after some concerns about the speed of the recovery.
These are posted branch rates…some banks advertise lower special rates of around 4.09%…. of course, there are even lower wholesale or discounted rates through the mortgage broker market…. speak to your mortgage broker to get current rates.
Variable rates aren’t expected to move anytime soon… in fact, here’s one forecast for interest rates to remain flat for the entire year…. and I think this is very possible.. Happy Savings!!!
Last year, variable rate mortgages were Prime plus 0.60%… a far cry from the Prime minus 0.90% that we saw 2 years ago. Today, one of our Lenders has just come out with a special promotion of Prime less 0.30%….wow! Prime is 2.25% less 0.30% gives us a rate of 1.95%…. gotta love it.