Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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canadian-bond-yield-and-mortgage-ratesThe story of variable rate mortgage has been like an ignored person for quite a while. The high discounts were long gone and until recently we were living with few BPS off here and there. Brokers were not making much off Variable Rates either. So, it was the options for borrowers who have enough equity in the property or able to take risk or cannot decide how long they are going to live in the property.

The Situation has changed:

Since the bond yields started to go up – forcing the lenders to push their fixed rates up – variable rate has become center of attention once again. Fixed rates are dependent on bonds but variables are not. Variable rates are normally influenced by short term money supply and Bank of Canada’s Target rate.

bank-of-canada-target

Bank of Canada is targeting for a stable 1% target, provided that the inflation is staying low. We do not have any indication that the inflation will go up soon – except low Dollar and high gasoline price.

 

Variable Discounts (Serious) Have Arrived:

Few lenders last week started offering variable rate discount north of 0.5%. It was stuck between 0.2 to 0.4 for almost a year, now it has jumped up thus lowering the rate.

Since 2012 the difference between variable and fixed was not much. Except few circumstances variable stayed under fixed rate for all these time. The thin spread and high risk in a variable rate turned many borrowers taking fixed rate.

Now the two has grown apart significantly (except short term fixed mortgages), as a result variable rate is getting the desired attention from the would-be borrowers once more time.

Bond Yield Dropped But Not Enough:

BOC-bond-yield-5-yearsIn last few days bond prices gained momentum. Bond yields retreated from their recent highs but the drop is not enough to expect a change in mortgage rate. Often times lenders decide to run negative while rates start to go up. They do that to get a bit more business before they follow other lenders. So, for the rates to come down the yield has drop a bit more. It is not clear if that will happen anytime soon.