Over the last few weeks the rates on five year fixed mortgage have steadily risen as the corresponding bond yields have also increased. This all has to do with recent concerns with inflation or better yet a game of cat and mouse between bond traders and the FOMC ( Federal Reserve’s Federal Open Market Committee) which sets the US federal funds rate. You see the traders believe that the FOMC have the funds rate set too low so as a result they are pushing the yields up higher to see if the FOMC will react.
You may be asking how does this effect you and me here in Canada. Well their actions have increased the yield of our five year bonds and thus drove our fixed rate mortgages higher. Mortgages which as of late were at historic low rates. So if you have heart set on a 5 year fixed mortgage rate and are currently shopping for a new home, now is the ideal time to lock in your rate with a pre approval.
However do you know what may be a better option? Historically the better option has always been to go with a variable rate. Not only do you get a lower rate, but you also have a much better penalty if you have to break it. This would three months interest vs a very probable Interest Rate Differential penalty.
Another differentiator is the fact that the variable rate mortgage is based on the Bank Of Canada prime rate rather than the whims of the bond market in general. The bank of Canada meets 8 times a year and current the over night rate is set at .25%. The current bank forecast says that the overnight rate will remain unchanged for the rest of 2021 and also for 2022. As for 2023 and beyond it will depend on how the Canadian and global economies recover from Covid-19.
While this is no crystal ball as it is very difficult to predict the market. Generally 9 times out of 10 you will save more money with a variable rate as compared to a fixed rate. Right now, I like these odds and think that people will prefer the variable.
I look forward to hearing from you in regard to your mortgage needs.
p.s.s- I should tell you that I am licensed in Nova Scotia, Ontario(M18001555) & in British Columbia(BCFSA #504098).