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Fixed Mortgage Rates Drop

Falling-Interest-Rates Fixed rates are finally starting to catch up with the drop in bond yields over the last few months.  Canada’s big banks lowered their 5-year fixed mortgage rates 0.20% today.  It was the biggest drop in 16 months.

Posted 5-year rates are now 6.99%.  They haven’t been this low since last May.   

Meanwhile, a handful of non-bank lenders have been steadily cutting rates for weeks.  Although, most of their lowest rates require borrowers to close in 30-45 days. 

If you’re interested, the easiest way to find these fixed-rate deals is to call a mortgage planner.  We know of only one bank that publicizes anything close to lowest non-bank rates. 

Keep in mind that most of the current specials are available for a “limited time,” at least according to the rate bulletins lenders have been sending out lately.  That said, we’re frankly a little skeptical of the urgency.  We could be wrong but we’re guessing most lenders will keep these “special” low rates around for the next few months or more.

In keeping with the drop in rates, 5-year mortgage-bond spreads have decreased as well.  (i.e.  the difference between 5-year posted rates and 5-year bond yields.)  Since hitting a 26-year high in March, spreads have come down over 0.40%.  That’s welcome news to fixed-rate mortgage shoppers because the bond market is the basis by which most lenders set their fixed rates.

Interestingly, Bank of Canada Deputy Governor David Longworth said Thursday, “It’s very clear that…unusual spreads, and the financial market upheaval that exacerbated these spreads, will continue to have an impact for some time to come.”


Speaking of the Bank of Canada, anticipation is building for the Bank of Canada’s April 22 rate meeting.  Economists surveyed by Bloomberg predict the Bank of Canada will lower rates 1/2% within its next two meetings.  Canadian Press cites economists who also predict a 1/2 point drop by June 10.

As for the BoC’s public outlook, it hasn’t changed much in the last month.  On Thursday, Longworth repeated the BoC’s line from March, saying:  “Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2% inflation target over the medium term.”

Nonetheless, while rates seem to be trending lower, you never really know what can happen from week to week.  Don’t bet the entire ranch on rates plummeting and staying there.  Bloomberg, for example, says: “The nation’s growth, international trade and housing data have [all] beaten analysts’ forecasts in the first quarter.” 

There is therefore a chance–but by no means a certainty–that the BoC is now a little less motivated to lower rates as much as some people expect them to.  Merrill Lynche’s David Wolf seems to agree, supporting the notion that recent economic strength implies “the need for less aggressive rate moves.”