We’re starting to see more evidence that the recovery is not going as well as the Bank of Canada first thought. Inflation has dipped slightly, even with the HST.
CIBC Chief Economist, Avery Shenfeld, says we are beyond the ‘Great Depression of 2008-09 but we are in the ‘Great Disappointment’ of a sub-par recovery. He’s forecasting for interest rates to remain flat until the spring of next year, followed by only gradual increases thereafter.
Great news for anyone that has a mortgage…
Just can’t leave this one alone…
The Globe and Mail ran a great article about the recent mortgage rate hikes by the Big Banks…..Seems like more of us are questioning the latest round of fixed rate increases….
The article gave some great stats that I wanted to share… First, we should point out that Fixed rates are affected by the Bond Market for the most part but Banks also raise money through GICs… Variable rates are affected by the Bank of Canada Key Lending Rate…. with that in mind…. here are the stats from the article….
10 YEAR AVERAGE…
- 5 yr Bond 4.05%
- Big Bank 5 yr posted fixed rate 6.75%
- Big Bank 5 yr GIC 3.31%
THIS WEEK’S NUMBERS…
- 5 yr Bond 3.02%
- Big Bank 5 yr posted fixed rate 6.25%
- Big Bank 5 yr GIC 2% to 2.1%
Has to make you wonder…?
Yes, it’s true….yesterday, RBC lead the way with another interest rate hike on their 5 year fixed mortgage… followed by TD and Laurentian Bank…. It was a 0.15% increase for a new 5 year Bank Posted rate of 6.25%. This marks the 3rd increase in a month.
This latest rate increase is leaving many puzzled as the Bond Market has remained somewhat flat… the 5 yr Bond yield is currently 3.07%. A fully discounted 5 year fixed rate at TD can be had for around 4.79%.. that’s giving a huge spread of 1.72%… well above the 1.20% to 1.30% that Banks normally seek….
Okay, so why would the Banks increase the fixed rates? Sometimes Banks price themselves out of the market when they achieve their market share… and sometimes it’s just profit taking…. But don’t settle for these rates if you are looking for a Fixed rate.. the Broker Market is still offering much lower rates and the Variable rate mortgage can be had for around 1.70%….
Sometimes it’s just easier to see the numbers on a graph.. Here are a few updated graphs from Firstline Trust… Firstline Trust Historical Rates February 2010… Notice the spread between the Bank Prime rate and Fixed Rates… the spread is usually around 1.00% to 2.00% in favour of Variable rates.
Variable rate mortgages have outperformed Fixed rates in over 88% of the time…. here’s a great study by Professor Moshe Milevsky of Schulich School of Business… Milvesky variable rate 2008. And here’s an article today by the Canadian Press that comments quietly, that Variable Rate should still be considered…
Hey, by the way… did I mention that we are still in historical rate territory? If you look back at historical rates, you will see that it’s still a GREAT time to borrow money… Fixed rates in the 4.00% range… Variable rates still under 2.00%… Doesn’t sound too bad to me…
TD and RBC have increased their 5 year posted mortgage rates this morning. We can expect others to follow. This comes as no surprise as the 5 year Bond Market increased to 2.87% causing the margins to shrink.
This is probably the beginning of several increases to come over the coming months. If the Economists are right, then we will see these types of hikes followed by a pause to see how the economy reacts.
We will be paying close attention to inflation, unemployment and the $Canadian dollar.
Fixing or locking in your rate may be an option for some but variable rate mortgages are still around 2.00% below 5 year Fixed Rates.
I’m still a fan of variable rate mortgages. I just think that they are a better product. But hey, that’s just me. We are all different and have different needs. Always talk to a Mortgage Broker to get your needs evaluated.