Monday, 27 July 2015

Rates, Rates, Rates...

It seems to be the question on everyone's lips lately: "How long are rates going to stay low like this?", and while I'd be ecstatic to have a crystal ball showing the way, it just doesn't work like that.

Photo credit: Lending Memo
In lieu of a crystal ball, we do have a few tools to help us try and predict where things are headed and why. There are 2 major indicators of where mortgage rates are headed:

The Bank of Canada overnight rate, and the 5-year benchmark bond yield.

While neither of these allows us to see into the future, they do allow us to track historical trends and take a best guess as to what might happen and when.

The overnight rate is set by the BoC 8 times per year and is determined by the state of the economy and the banks desired outcomes. For example, many analysts speculate that the latest rate drop by the bank was specifically intended to drive the Canadian Dollar down and improve our export economy. Whether or not it achieves it's intended purpose will be seen in the coming months, but a nice side effect for those with variable rate mortgages is that rates tracked downward in response. This .25% drop corresponded with a .15% drop in most consumers variable rate mortgages. While they aren't passing on the full benefit of the lower rate, the savings can still be significant over the long-run.

But what about fixed rate mortgages, you say?

Well, fixed rate mortgages usually correspond directly with bond yields of similar maturity. 5-year fixed rates, for example, almost always directly follow the 5-year benchmark bond yield. What this means is that we are able to track the historical performance, take into account current economic factors, and take a best guess as to where things are headed in the near future. Yields crept up quite a bit throughout May-June, but are now back near the historical lows we experienced in February and March this year. Beyond that, it's impossible to say what might happen in the long term.

What I can tell you right now is that 5-year rates are still at all-time lows, and variables seem to keep breaking through the "rock bottom" we heard about earlier this year. Will rates continue their downward spiral? Hard to say. But if you want an opportunity to make sure they stay put during your home purchase, why not get a Rate Hold?

A rate hold goes hand-in-hand with a pre-approval and can give you a guarantee that your rate will stay the same for up to 120 days from the time of your application. This means that when rates go up, you'll stay put at that great low rate, even if it takes some time to find the right home or close your purchase agreement. Better yet, if rates drop many lenders will lower your rate correspondingly! A rate hold costs nothing and there is no obligation whatsoever so get in touch and book an appointment.

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