The bond market isn’t always right, but it’s the best predictor of future mortgage rates that we’ve got.
If history is a guide, bond yields will start rising before prime rate does. That, says Scotia chief economist, Warren Jestin, could happen prior to June 30, 2010.
June 30, 2010 is the last day the Bank of Canada has “committed” (conditionally) to hold rates flat.
"There's a very good chance long-term rates will head up before then," Jestin told the Post.
Yields won’t move in a straight line though. Jestin says, "Very clearly, we are in a transition period, bouncing along the bottom. It will be good news one day, bad news the next, over the next few months.”
Here’s a look at how 2-year government bond yields have led the Bank of Canada in the past. With few exceptions, yields started rising over a month before the Bank of Canada hiked its overnight target. The overnight target rate, in turn, influences prime rate. (Click to expand chart)
Date Source: Bank of Canada
Last modified: April 28, 2014
I hope they stay low at least for a little while. I have a lot of clients who are building homes, and are still outside their 120 rate hold period.
Hi Josh,
Me too!
Not sure if your clients are closing within 6 months, but if they are, there are a few lenders with 6-month rate holds as well.
Cheers,
Rob
What is your recommendations for me who renewed recently to a 5 yr VRM at =Prime rate of 2.25%.
If I lock in now to FRM, Scotia will give me 4.05%. How long before BoC rates jumps up 2 full points (guess this is when I start paying higher than if I locked in now).
From the graph, looks like after the 2001 recession, it took upto 2006 for the BoC rate to jump up 2 full points.
Binu
Hi Binu,
Thanks for the question. Unfortunately, no one knows how long it will take rates to rise 2%. The timing of rate increases is always contingent on random events.
As for a strategy going forward, if you’re interested in working with a mortgage planner, pretty much any planner should be able to assist with this question. It’s basically a matter of interviewing you briefly, applying a few assumptions, and running some amortization scenarios.
Cheers,
Rob
Rob,
Thanks for reply.
Can you make some comments about the last para in my previous post.
Binu
Hi Binu,
Yes, you are correct.
I’m not sure if it was your intention, but you might want to be cautious when drawing parallels between 02-06 and today. The economic and monetary scenarios are not closely analogous.
Cheers,
Rob