Earlier today, 5-year bond yields broke above 2% for the first time in 8 weeks.
Keep an eye on the chart. A further 10-20 basis point increase might prompt certain lenders to start lifting fixed mortgage rates.
If you’re considering a new fixed-rate mortgage or pre-approval, there has never been a better time to apply.
(Chart data courtesy of the Bank of Canada. Please note: This is not a prediction or recommendation. Market conditions can change at any time.)
Hi Guys. Looks like 2.5% is an easy target. Yields should have gone lower given the economic picture, but they didn’t. All this relative strength, plus the double bottom, seem pretty bullish….to me anyway.
How close is the relationship between 5-year yields and 5-year mortgage rates?
Hi Dave: As a former chart junkie I’m tempted to agree. Yields may also be driven up by new supply and investor rotation out of fixed income. We’ll see. All this can be derailed with a few bad economic reports.
Hi Al: Historically the correlation between 5-year yields and 5-year fixed rates has been pretty strong. In the last 6 months it’s been much less so due to abnormal risk premiums (caused by the credit crisis). Things are slowly returning to normal however.
This is very interesting and this website makes how mortgage rates are determined easy to understand.
How the heck did our parents navigate mortgage information without the Internet! I don’t think they went to the library :)
I thought I heard rumblings in the last few days about QE being more likely. Did I interpret correctly? I’m thinking the June statement from the BOC itentions here in Canada could chart out it’s implementation.
I might pull the trigger now on a 3.69 5 year (next few days). It would bother me though if I could have floated at variable for now and have achieved 3.5 fixed or less in a few months. My risk in waiting is my IRD calcuation or the fixed rates going up (I can’t imagine they would but this information is making me wonder).
Perhaps QE is more likely if these yeilds continue up those 10 – 20 basis points.
My sentiments exactly! We are really becoming complacent as consumers, thinking that fixed rates will always be low. Watch out for inflation!
You can easily model the difference you’d save if 5 yr rates went below the 3.69%.
You can also compare this to a variable rate at 2.75% for one year, then locking in (presumably above today’s 5 yr rates) to see if its worth it.
In my case, the difference is so negligible over 5 years, that I’m not willing to take that risk. 3.69% is already an AMAZING rate, could it go lower, yeah, will it make a huge difference with your mortgage? Possibly, but maybe not.
I agree with Sampson. The decision for those on a variable with prime + is easy (ie. your example of 2.75%). Locking in makes sense because the reward doesn’t justify the risk given fixed at 3.69%.
But I’m curious to get other’s feedback on a variable with prime -. Do people think it’s worth sitting on a prime – given the prediciton prime will stay low into 2010? Other’s thoughts?
Everyones situation is different Chris. As Rob has stated time and time again, you need to do what makes sense for you given your situation, instead of trying to time the market.
I’m sitting on my discounted variable, because of ability to tolerate risk, still having fixed payments, and my ability to make additional prepayments now at the lowest rates. But each person needs to consider their amortization period, comfort level with affordability if rates were to move up 3-5%, generally their entire financial situation!
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