Mortgage Rate Party Continues

It’s not enough to pop champagne over, but mortgage shoppers are nonetheless happy with recent rate trends.

The 5-year government yield (which leads 5-year fixed rates) made a new five-month low today.

5-yea-Bond-Yields

(Click to enlarge)

The spread between 5-year posted rates and the 5-year bond yields is now the most it’s been since October, and 45 basis points above its 10-year average. As a result, fixed rates should drop a bit further from here.

Here’s a look at rates currently being quoted on the street for AAA-quality borrowers:

  • 1-year Fixed:  2.64% (In general, 1-year pricing is poor relative to the cost of funds. It should improve soon.)
  • 3-year Fixed:  2.99% (Through select brokers)
  • 5-year Fixed:  3.79% (Applies to “quick closes.” 6-month rate holds can be had for just 3.99%.)
  • 50/50 Hybrids: 2.97% (i.e., Half fixed and half variable; applies to quick closes.)
  • 5-year Variable:  Prime – 0.85%
  • HELOC:  Prime + 0.50%

Note: These are samples of nationally available rates. Your rate may be higher or lower depending on your qualifications, location and mortgage type.

For example, if you’re in the Vancouver/Victoria area, rates are even lower thanks to intense credit union competition.

If you aren’t closing in 30 days, the best available rates are often at least 10 basis points higher.

As always, speak with your mortgage advisor for a quote specific to your circumstances.


Rob McLister, CMT

  1. Rob-
    In your opinion, what does a ‘AAA quality borrower’ look like? When you work with a client that is outside of this framework – what sort of rates are current being offered?
    Thanks
    Jeff

  2. All thanks to fears of Europe blowing up, China slowing, and Japan falling into recession. Party on. God forbid things actually start to improve in the world as that would lead to much higher rates.

  3. Hi WJK,
    Technically, the bond market has much more to weigh than issues abroad. On an ongoing basis, Canadian yields are linked more to domestic and U.S. economic concerns. As one reflection of that, Canada’s percentage of exports to those countries in question is minimal. 73% of our exports go to the U.S. versus only 9% to the E.U., 2% to Japan and ~4% to China.
    Either way, mortgage shoppers can’t control global economic cycles or perceived fear. All we can do is ride things out and take lower rates when they come.
    Thankfully, economic weakness is cyclical and transitory…and there are no shortage of people who’d take the other side of that global downturn trade.

  4. Jeff:
    It’s a bit subjective because some lenders will offer their best discounted rates as long as a minimum threshold is met even with imperfect credit.
    Generally speaking (and keeping in mind that every case is different), a AAA-type client can be defined as someone who has:
    :: Strong credit (beacon score 700 and up and current on all accounts)
    :: Reasonable debt ratios (meeting the lender’s guidelines)
    :: Strong employment record (i.e. been with the same company for a few years or continuous employment for at least 3 years)
    :: Easily verifiable income
    Some lenders would even waive income verification if the consumer has sizable equity in the property and strong credit history.
    Applicants with strong employment and credit credentials will find the approval process to be hassle-free and they will have no issues securing the lowest rates.
    But as I said earlier, some lenders only look for bare minimums to get the best rates. This means the beacon score can be as low as 620 and past credit issues are acceptable as long as they’re resolved and there are at least two years of re-established credit.
    Such consumers would be able to secure low rates as consumers with much higher credit scores. It’s case specific. Even if there were some issues in the past, Alt-A rates are not that bad at all. The rates are typically posted rates.
    For applicants who aren’t classified as triple-A in terms of credit, the rate they will receive is dependent on the individual circumstances, which is why it’s difficult to price these applications from the onset. The main determinant is the marketability of the property, how much equity the consumer has, and whether the consumer can service the debt. The more equity they have, the better. Beacon scores aren’t really important.
    Just to give you an example, recent applicant had a beacon score of 480, 35% equity in the property, we were able to secure 4.50%.

  5. Just an FYI, I saw Northwood Mortgage offering a 3.74% 5-year fixed rate from a lender called “FN” (not sure what that is)
    [Thanks for the post but we have to be very careful with potential rate spam. Edited to the 3.74% shown on its site. CMT]

  6. BTW, the Northwood rate I saw advertised is at their downtown Toronto office, which I pass twice a day to/from work. It is slightly lower than the rate shown on their website.

  7. Hi Jeff,
    Lior provided an excellent response below, so our thanks to him.
    Solely for the purposes here, we err towards being conservative. As a rough rule of thumb, criteria for AAA borrowers include but are not limited to:
    * A 680+ credit score
    * No recent R2’s on the bureau
    * TDS ratio <= 42% * Reasonable credit utilization * 1-2+ years full-time employment * Provable income * A qualifying property * 5%+ down... There are lots of exceptions and caveats. Someone who doesn't strictly meet the above can often get the best rate on a given day because some lenders are more conservative than others. The rates for "non-A" clients are very case-specific, as Lior notes. Rate premiums can range from 1-3% or higher depending on risk. Cheers...

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