Robert McLister·
Mortgage Rate Trends
·

Yields Fall From Their High

The 5-year government bond yield has dropped over 30 basis points from the 21-month high it set a few weeks ago.

As of this writing, the 5-year yield is at 2.88%. That’s 20 bps below its level on April 26 (the date RBC led the industry higher with a 15 bps hike in fixed rates).

Chart watchers now expect the yield to head down towards support. Support is around the 2.75-2.80% mark, which is a long-term level where there have been multiple turns in yield direction.

5-year-bond-yield

Since fixed mortgage rates are linked to bond yields, we could see discounted fixed rates fall somewhat in the very near future.

Robert McLister
Robert McLister
Robert McLister is one of Canada’s best-known mortgage experts, a mortgage columnist for The Globe and Mail, and Founder of mortgage broker intelliMortgage Inc., RateSpy.com, a website comparing Canada's best mortgage rates and Mortgage Editor of RATESDOTCA.

31 Comments

  2. Bonds have been falling for about a week now yet Greedy RBC had the kahunas to raise their posted rates above and beyond everyone else to 6.25%. Greedy buggers.
    Thank you for writing about this. I hope that others will start to follow suite and start to lower rates, even just a little, before the week is out.

    Reply

  3. Yep, all those ‘experts’ who said rates were only going to go up are soon to be proved wrong, yet AGAIN.
    The world is in a tenuous position. USA is broke. Europe is broke. China is running on fumes. When the double dip recession hits most of the Western World later this year, even Canadian rates that have edged up slightly will head right back down again.

    Reply

  4. There is nothing worse than a know-it-all.
    Al, your predictions about rates staying low are just as ignorant as the people you criticize.
    I don’t recall anyone saying rates would go up in straight line. They don’t.
    If you think rates won’t increase from these emergency levels you are intoxicated. You are basically saying you can predict rates, you are right, and every major economist is wrong.
    That is evian spelled backwards.

    Reply

  7. I just purchased a house and have been trying to decide between going with a fixed or variable rate from my bank. Since bonds went down, the fixed rate should go down as well soon?
    The bank is giving me a 4.49% Fixed or prime -0.35% on variable both for 5 years. I got a mortgage of $272,000. I need to decide in the next couple of days which one to take. The bank seems to be pressuring me to take the fixed rate at 4.49% (I was able to negotiate it down from 4.65%)
    What’s the better option?

    Reply

  8. wow homes, y’all need to get yerself
    to one them mertgage breakers real fast-like, cuz sounds to me like y’all gettin hosed by the bankerman. Y’all should be sayin’ “hell’s no” to the mergage deal that they be thinkin’ is the chillin one homes, cuz they be shillin’ ya the wrong way up the biway, ya’dig?

    Reply

  9. Will,
    You missed the point entirely.
    There IS nothing worse than a know it all and all the mortgage ‘experts’ have been mouthing off continually about how rates can only go one way, and that is going to be up.
    Well, just playing devil’s advodate here. In my experience when the herd is all saying one thing (such as now when they are all expecting rates to march higher) then usually the opposite event happens.
    If you follow economists at all, you’ll know that 50% of them are wrong at any given time! Just the same as people who predict the stockmarket direction.
    My point is, usually its best to avoid following the herd. And with world economies struggling with massive debt problems and growing unemployment, I just dont see how Canadian rates will move much higher on their own.
    cheers

    Reply

  10. Mike,
    History has shown that variables do better in the long run. If you are interested in a fixed though, you should be able to do better than 4.49. AS well, the lowest variable out there is at P – 0.50.
    Good luck!

    Reply

  11. Hi, Dear everyone,
    Thanks for your opinions.
    I am at the same situation as Mike now, but I got better deal from BMO than his( I got it earlier, in the beginning of March). I got fixed 3.65% for five year fixed closed rate and Prime-.5( namely now it is 1.75%) for 5 year variable closed rate.
    I will move in the new house which I will borrow $270K from BMO on June 1. So it is truly an urgent thing for me to decide which way I should choose.
    No one around me could give me a direct answer, so I have to learn and I visit this website everyday(thanks for Robert and everyone here) and I am feeling I found the answer, but yet I didn’t actually.
    Someone just please tell me what I can choose.
    Thanks.

    Reply

  12. There is so much info missing from your question about choosing between a variable verses fixed that noresponsible advisor can advise without that info . Get to a morttgage expert and get proper analysis with a detailed recommendation.

    Reply

  13. I know ING offers -0.5 but haven’t found any other banks offering that right now. The problem is I’m paying a fee of $2800 for closing my previous mortgage early. (I sold my condo to purchase the house) so if I stay with my current bank I avoid the penalty of $2800. As for the fixed rate, I spoke to a mortgage broker and he said the best he could do right now is also 4.49% at best. Average now is 4.65% so the fixed at 4.49% this point in time seems like market but I think I will be going the way of Variable -0.35. Swicthing to a different institution to get -0.5 won’t offset the $2800 penalty for another 4 years according to my calculations? Am I wrong? Also time is of the essence as we are moving in May 29th… thanks for all the comments.

    Reply

  14. Hi Helen. Congrats on the house and from my own research and lots of reading your 3.65% is a great rate for a fix. Personally for me, if I had a fixed rate of 4.00% or lower I would have gone fixed but that’s just me. I had a pre-approval for 4.09% in February but the rate expired in May and our bank was unwilling to extend it another 3 weeks, can you believe that! Which is why now I’m looking at variable -0.35 which is the best variable rate they can offer. I would have gone -0.5 at a different bank if not for the penalty of $2800 for switching.

    Reply

  15. Al,
    Doesn’t massive debt requires massive borrowing via rolling over existing maturing bonds and place new ones?(ie.demand)
    Price (ie interest rates) usually derives from the interaction between supply and demand. If supply changes (quantitative easing?) perhaps your assessment will prove correct.
    But remember that capital is very liquid these days and can easily cross borders (away from currencies whose governments show a propensity to devalue)
    I acknowledge that Monetary policy is influenced by Fiscal policy (and vice versa). But we have seen high interest rates in recessionary times before, and can easily see it again.
    My point is that governments and their economies march to the tune of the supply and demand of the bond markets, and not the other way around.

    Reply

  16. HI, Mike,
    Thanks for your comment. Actually I know my both rates are great in the market now. I appreciate my mortgage officer locking in the fixed one for me till the end of June, and she would give me the variable one if I change my mind in the last min to see the notary.
    I know all depends on the correct outlook for the later 5 years, but who knows it exactly?
    So, I just need experts to say fixed or variable to me now.
    It is hard to decide.
    Anyway, thanks for a lot and good luck on your mortgage allocation.

    Reply

  19. At this point I will be staying with my current bank and take the Prime -0.35. To be quite honest, I have been very dissapointed at the level of service I’ve been getting from my current lender and if not for the penalty of $2800 I would definitely not have stayed. A lesson well learned and thanks to this website I am more informed now about mortgages…

    Reply

  21. Hi TSP,
    With respect, that’s not really fair.
    No banker, broker, or anyone else can possibly answer a lock-in question properly based on a few paragraphs of information in a comments forum.
    There are far too many personal and financial factors to weigh before advising a specific borrower on a suitable strategy.
    Rob

    Reply

  22. This is how the banks get the fear moving within the masses. They’ve wanted people to lock in their variable rates for some time, and this was a good strategy. Educating my customers about the big picture, helps relieve some pressure. It is true that the bond yields influence the rates, and in March the spreads were over due for a hike. Competition kept the rates low, but alas, the Royal did have the “kahunas” to force change, and I’m sure they locked in a tonne of business.

    Reply

  23. Service is everything Mike. It’s frustrating as a mortgage broker to see people suffering through the banking system, and feeling they need to stay with their bank, just because their other accounts are there. Unfortunately, once you’re dealing internally, they are going to try to get you into a product that they are told to sell (5 yr. Fixed). Have your mortgage broker work out the numbers for you, based on the Variable difference. You might be surprised. You can email me if you wish as well.
    Cheers!

    Reply

  24. That’s a great rate Helen. It’s a matter of comfort for you in the end. You won’t be disappointed in locking into one of the lowest historical fixed rates. However, if you are willing to work with the markets, you can make the same payment you would on your fixed rate with your variable, and save yourself thousands of dollars on interest. It is a tough decision, but really it depends on your comfort levels.

    Reply

  25. Mortgage Diva to Lesley.
    Your mortgage broker should have access to a quick close rate of 4.35%, or at least a 4.39%. 4.49% is the best he could offer? ask why?
    Ask you broker to calculate your savings and the benefit of of taking the $2800 penalty. If he can’t, get another broker.

    Reply

  26. TSP
    Brokers DO have access to better rates, better service and options! I’ll plug broker business everyday, allday and to everyone! We work hard for our comissions.
    The average “joe” has generally NO idea what is behind the complications of underwriting a mortgage. There is nothing cookie-cutter about your mortgage.

    Reply

  28. I’m not an expert but here’s my opinion.
    Variable rates are better then fixed, hands down. You’re paying the bank to offload the risk of rates going up from yourself to the bank, and yes you are paying for it.
    With that being said, 3.6% is a great rate and it might be one of those times where you’re better off with a fixed rate.
    Choose for yourself based on risk.. can you handle a 3% rise in rates?
    Another thing to note, over the past week or so the bond market has really moved and the stock market has tanked. I’d suspect leaked economic information, and not of the good variety. Things might not be as rosy economically as people are saying… after all, most talk of the recession being over is by marketing companies and not economists.
    A double dip is still possible, especially looking at the crazy US debt levels. The US is within 5 years of being in the same position Greece is now. Check out the US debt clock numbers (available online). They’re close to 1/1 debt/GDP and the governments spending 3 dollars for every 2 dollars in taxes.

    Reply

  31. Hi Al,
    Thanks for the post. Your choice of words (“mouthing off”) definitely speaks to your opinion of rate forecasters. :)
    That’s fine but do we need to remember that major economists and other reputable mortgage commentators are serving an honest purpose in providing insight to consumers. They don’t do so maliciously and they do try hard to be right.
    Of course, that doesn’t mean they won’t be wrong (a LOT!). Accordingly, you may very well be right in your own opinion. It is impossible to know who’s right, however, and differing opinions “make the market” as they say. As always, an educated opinion is better than none, and that’s why economists still have jobs. Mind you, a lot of them earn way more than some people think they’re worth. :)
    It’s also important to note (as one poster said above) that rates can’t be expected to move linearly. In all financial trends there are ups and downs. Even if rates jump 1.25-2.75% like the big banks predict, it won’t happen in a straight line.
    Also, when you see a story about rates going up, consider the timeframe that the story refers to. The article may contain only a short-term forecast for rates. If so, you should draw no conclusions about what that story means for rates in the long-term.
    Many times, for example, we’ll give readers a heads up about where rates might be going short-term. Often, that is merely intended to warn people who plan to lock-in anyway to do so before rates rise.
    Rate predictions also serve to define potential risk. For example, when the Big 5 say that rates will rise 2.75% by the end of 2011, borrowers must ask themselves: “What will that mean to my ability to service my debt?”
    “Expert” rate forecasts therefore provide a rudimentary sense for what “could” happen. This helps in creating models that determine which term that has the greatest odds of saving people interest and effectively managing their risk.
    Cheers,
    Rob

    Reply

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