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Mortgage Rates Heading Back Down?

Mortgage rates have risen sharply over the past 2 months. Getting a 5-year fixed rate in the mid to low 3s was possible just a few weeks ago, but now 5-year rates are hovering around the low 4s with most lenders. Still, rates are very close to all-time lows and money is cheap.

I got an interesting email from a mortgage broker this week that seems to suggest rates could actually be heading back down in the months to come. Read on for a copy of the email newsletter I received from Marcus Tzaferis of

Many of you have been watching the fixed rate mortgages on our website and asking why rates have moved so dramatically.  Over the past month we have seen the 5 year fixed rate move from 3.25% to 4.25% based on the movement of Canadian Bond yields.

As we have explained in previous newsletters, fixed rate mortgages are directly correlated with bond yields, where as variable rate mortgages are affected by the Bank of Canada’s overnight rate and the risk premium associated with mortgages.

Over the past month the Banks in Canada have used the rapid increase in bond yields to account for a dramatic increase in the cost of borrowing. Now the opposite is occurring. Bond yields are coming back down to earth as traders and investors begin to realize that perhaps the yields moved too high too fast. With significantly lower bond yields we can expect to see fixed rate mortgages decrease in the coming weeks. I am sure that you can figure out why the banks are a little slower to reduce rates than they are to increase them.

It would appear that we got ahead of ourselves, with very little positive data coming out of the economy the market surged ahead. It is likely that we will see rates come down to lower levels.

As rates decline once more it will become a great opportunity to lock in. In the meantime variable rate mortgages priced at only 0.25 % over prime will prove to save you in the short term. Keep in mind that when dealing with a non bank lender the major benefit is your ability to lock into a fixed rate over the course of your variable rate term. The fixed rate offered will almost always be the lowest available market rate. Banks will typically offer their variable rate mortgage clients slightly inflated rates as they realize that there are costs associated with leaving.

The purpose of this note is to advise our clients that we have not seen the last of the below 4% five year fixed rate mortgage.

Over the short term the variable rate mortgage will be a relatively safe place to be, we will see fixed rates increase in the next year or two, but not without warning.

Have a look at the rates on our website and please, as always feel free to send this newsletter to your friends and family who may be looking to purchase or refinance.

Marcus Tzaferis

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