- Dave The Mortgage Broker - https://www.integratedmortgageplanners.com/blog -

What Permanent QE Would Mean for Canadian Mortgage Rates

Have tcanada mortgage rateshe Fed’s quantitative easing (QE) programs now become permanent?

Before we answer that question let’s quickly review why Canadian mortgage borrowers should care:

QE matters to our fixed-rate borrowers because …

QE matters to our variable-rate borrowers because …

Now that we’re clear on how the U.S. Fed’s QE programs are impacting Canadian mortgage rates and why you should care, let’s look at an evolving school of thought that argues that the Fed has no intention of tapering its QE programs – ever.

I first read this argument in an article written by Ben Hunt, a U.S. fund manager and analyst. He puts forward the following arguments:

While this may sound like a radical argument, consider the following:

To summarize, the Fed now seems to be saying that it will continue its QE programs for as long as U.S. unemployment appears “unhealthy”, or for as long as inflation remains below target, or for as long as the politicians in Congress can’t agree, or for as long as the housing market is threatened by marginally higher rates, etc. One can only begin to imagine the lengths the Mom-and-Dad-know-best Fed will go to if it fears the U.S. economy might actually tip back into a cyclical recession.

GoC five-year bond yields were one basis point higher for the week, closing at 1.89% on Friday. Lenders have been slow to lower five-year fixed rates in response to recent drops, but if yields stay at current levels this should happen soon enough.

Five-year variable-mortgage rates are still being offered in the prime minus 0.50% range, which works out to 2.50% using today’s prime rate.

The Bottom Line: By its words and actions, the U.S. Fed seems to be quietly shifting the status of its QE programs from “temporary measure” to “permanent program”. If that’s true, our fixed-mortgage rates should remain very near today’s ultra-low levels for as long as the Fed continues to administer its monthly QE injections, and our variable-mortgage rates shouldn’t rise until sometime after that.

David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.