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There are countless borrowers these days looking to get a variable-rate mortgage and then lock into a fixed rate “when rates come down.”  It’s a gamble that requires them to be right about more economic factors than most can imagine.

Canadian-Bond-Yields-Mortgage At the moment, bond yields are near their highest point since February.  (Fixed rates are based on bond yields.)  In fact, 5-year yields have risen 6/10% since their March lows.  So far, fixed rates have nonetheless been coming down as spreads compress and lenders battle for market share.  It’s a total anomaly.

In any case, if you’re playing the interest rate timing game, be prepared for surprises.  Inflation estimates are rising and that’s making bond traders skittish.  Rates can go up very quickly, and usually faster than they come down.

RBC now says:  “The Bank of Canada won’t cut rates on June 10.”  CIBC economist Benjamin Tal adds, “the days of the current easing cycle are numbered.”  Based on what we’re seeing, a lot of borrowers seem to think differently, however. It’s therefore not unthinkable that many of these people may get caught like a deer in headlights if fixed rates start rising early.

The moral here is probably to keep greed in check.  Rates may go down further, but with 5-year mortgages near 5% (~3/10% below their 10-year average), is it worth the gamble to wait for a few more basis points?

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Thank you to Merix and the Bank of Canada for some of the content used in this story.

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