Five-year bond yields hit another record low for the third straight day.
That’s reason to celebrate if you’re shopping for a fixed mortgage, or at least it should be.
The rates on fixed mortgages, which track bond yields, are due for a monster cut. Just don’t ask when.
To put things in perspective, the difference between today’s posted 5-year rate (5.39%) and the corresponding 5-year yield (1.39%) is a whopping 4.00 percentage points. That represents the widest spread (lender profit margin) in ages.
“The lag (in dropping fixed rates) is really about financial institutions assessing whether the movement is going to be sustained,” TD economist Craig Alexander told the Globe.
“There is a distinct possibility of a decline in five-year mortgage rates, but it is not clear how much of a decline there will be.”
Hopefully it’s better than a “possibility”. Based on a “normal” lender spread of 135 basis points above 5-year yields, ultra-deep-discounted 5-year fixed rates should theoretically be near 2.75% today. But theory means nothing as these are not normal times.
As of this moment, no one expects widely available 2.75% 5-year rates anytime soon. If you can find a 5-year rate in the low 3% range, that is an accomplishment.
Once the banks adjust rates and we know where the market dust settles, we’ll post a full fixed/variable mortgage cost comparison.
Rob McLister, CMT
Last modified: April 29, 2014
Wow! Too bad I locked in at 3.65% a month ago… still happy with my rate – I had watched bond yields drop from almost 3% down to almost 2% in a little over a month, figured that was as low as they would go, so locked in… but 1.4?? Just, wow.
Well, I’ve had my mortgage for the last 1 1/2 at open variable and was considering locking it 6 months ago. Glad I didn’t. I will keep riding it until 5 year fix drops to 3% or lower!!
Yeah, we had signed our agreement at 3.65% but not submitted. We’ve now just gone with a 3 year convertible variable at prime -0.9% and they will let me keep making 90-day rate holds on 5-year fixed (currently at 3.65%) in the event they do make a significant drop.
What’s really scary about the record lows in the bond market, it is that it represents a bet for virtually no inflation (or even deflation) over the next 5 years… I’m as happy as the next guy for low rates, but it’s not a sign of economic health when bond yields fall so fast and so low. Aren’t any of you worried?
Worried? Absolutely. Not much I can do about it, though.
RBC internal memo… not going to be posted public, effective tomorrow…
You heard it hear first!
4 yr fixed @ 3.19%, will go as low as 2.99%.
Call an RBC mortgage specialist today to find out more.
Cheers!
Many thx for the post! While not official, I’ve heard this from other RBC sources as well. We’ll post something soon. Thanks again…
its true just saw it in writing 3.99 posted with MSS allowed to discount 1.00 with a reasonable commission. 2.99% 120 day rate hold.
Ok so Im 2 months away from entering into my early renewal period (penalty free).
1800 dollar penalty – how should I be looking at the numbers to see if its worth breaking early for this kind of discount?
Remember that most mtgs allow a lump sum payment.
I paid out my mtg today that had a 1900 penalty. However I made a lump sum payment first and that reduced my penalty down to 1602.
Refusing to pass on lower fixed rates makes banks look terrible. Everyone knows fixed mortgages should be 1/2% lower due to bond prices. I understand they want to make money but this is a public relations disaster if you ask me. All this says is that banks are about greed and greed only. They could at least humour us and lower rates 0.2% or something. No wonder people have no loyalty to banks anymore.