Are Canadian Variable Mortgage Rates Headed Lower?
August 15, 2016The (U.S.) Elephant’s Latest Twitches and Grunts
August 29, 2016Last week was a quiet one for factors that affect Canadian mortgage rates.
We received the latest Canadian Consumer Price Index (CPI) data, for July, and it showed that overall inflation rose by 1.3% last month, down from 1.5% in June and still well below the Bank of Canada’s inflation target rate of 2%.
The U.S. Federal Reserve also released the minutes from its July policy meeting and while some of its members expressed a desire to raise rates sooner rather than later, most preferred to maintain the current wait-and-see approach. As of last Friday, the futures market was still betting that the Fed’s next raise won’t happen until mid-2017, so on balance, this latest release wasn’t a game changer.
With such a slow week on the news front I thought I would revisit five of my most read posts. These are worth a read if you missed them the first time around, and while some are a few years old, the topics are still relevant today:
- Why Today’s Fixed Versus Variable Debate Is All About the Spread – This post explains why even the most ardent variable-rate borrowers are now seriously considering fixed-rate alternatives. (When this post was written the gap between five-year fixed and variable rates was 0.50%, and today it has narrowed to about 0.15%, so the case for fixed has grown even more compelling since this post was first published.)
- Fixed-Rate Collateral Mortgages: Good for Banks, Not for Customers – When the major banks switched the way they registered their mortgages on title, they did so very quietly, as this CBC segment confirmed. I wrote this post to educate consumers about the unpleasant implications of this change, and have received many appreciative emails from readers for shining a light on this topic (except for the TD bank employee who posted in the comments section at the end of the piece).
- How the US Lent Its Way to a Housing Bubble and Why It Didn’t Happen Here – While several of our regional housing markets have heightened risks associated with them, I still do not believe that we are headed for a U.S. style housing crash. This post, written back in 2010, explains why.
- What Every Canadian Borrower Needs To Know About Fixed-Rate Mortgage Penalties – This post will make you an expert on the different ways that lenders calculate their fixed-rate mortgage penalties. Spoiler alert: Prepare to be shocked by the size of penalties charged by the Big Banks! (If you are interested in a more complete explanation of all of the important terms and conditions to watch for, check out my post called What’s in the Fine Print.)
- Spring Mortgage Market Update (2010) – I used to write Quarterly Mortgage Market Updates before I switched to weekly Monday Updates (now 264 and counting!). While it may be hard to remember now, I wrote this post in early 2010 when there was widespread consensus among our major bank economists that mortgage rates were about to head materially higher. In this post, I disagreed with that prevailing sentiment and offered a contrarian view that has held up well over time.
Five-year Government of Canada bond yields rose eight basis points last week, closing at 0.68% on Friday. Five-year fixed-rate mortgages are available in the 2.39% to 2.49% range, depending on the terms and conditions that are important to you, and five-year fixed-rate pre-approvals are offered at about 2.54%.
Five-year variable-rate mortgages are available in the prime minus 0.40% to prime minus 0.50% range, which translates into rates of 2.20% to 2.30% using today’s prime rate of 2.70%.
The Bottom Line: I continue to believe that both our fixed and variable mortgage rates are likely to remain at or near today’s levels for the foreseeable future, but I will keep putting that view to the test in future posts.