Mortgage shoppers have been treated to fixed rates near two-year lows for months now. They’re even below most variable rates.
But how long can these fixed-rate bargains last? That’s the $64,000 question—and one that’s being raised with increased frequency after bond yields surged more than 30 basis points in less than a week earlier last month.
Bond yields generally lead fixed mortgage rates, so naturally expectations have risen that fixed rates will start to rise from their multi-year lows.
Yet, while some lenders have started hiking their fixed rates in recent weeks, there’s been no movement en masse so far.
This all begs the question: should mortgage shoppers secure today’s low rates while the getting is good, or hold out in the hopes that they continue to fall further?
Dave Larock of Integrated Mortgage Planners sees any fixed rate hikes as being short-term in nature.
“The recent surge in the five-year GoC bond yield means that five-year fixed mortgage rates will likely increase over the short term,” Larock wrote. “I think that any run-up in yields won’t be sustained. If I’m right, borrowers who need to secure an approval today should check their mortgage contract to confirm whether their lender will lower their rate if it drops in the time between when they are approved and when their deal closes.”
Rate expert Rob McLister said those needing a rate hold should keep a close eye on where the 5-year bond yield closes in the near-term.
“If you need a rate hold, act quick if you see a few closes above 1.52% on the 5-year yield,” he told CMT.
“Rates are always a random walk, but sometimes more than others. This is one of those times, because major trade deals are hanging over our heads, as is the oil wildcard, as is a potential Eurozone recession, as is out-of-left-field credit market and Trump-related volatility.”
Similarly, Ratesupermarket.ca’s Rate Outlook Panel features several voices saying fixed rates are most likely to move sideways for the time being.
“Assuming no trade-related surprises (a shaky assumption), we expect yields and fixed mortgage rates to maintain a flat to slightly downward bias,” reads the panel’s summary.
Dan Eisner, President of True North Mortgage, added that “bonds yields seem to react to every Trump tweet as of late, but we haven’t seen a trend build in either direction, so we believe fixed rates will remain stable over the next few weeks.”
Lower Fixed Rates Have Helped Affordability
Despite buyers being squeezed due to rapidly rising home prices in many housing markets, falling mortgage rates have helped ease the pain…somewhat.
Anyone securing a mortgage on a new purchase or renewal today is already saving money compared to where rates were at the start of the year.
Take a look at the lowest nationally available rates at the beginning of the year vs. today:
|5-Year Fixed Rates||January 2019||September 2019||Difference||Savings per $100k of mortgage|
|High-Ratio (less than 20% down payment)||3.24%||2.39%||85 bps||$4,003.74 or $43.14 per month|
|Conventional (more than 20% down)||3.44%||2.49%||95 bps||$4,482 or $48.64 per month|
|Refinance||3.67%||2.59%||108 bps||$5,105 or $55.82 per month|
According to a report from National Bank earlier this year, falling mortgage rates have made monthly carrying costs easier for borrowers (and remember that rates have since fallen further since then).
“Indeed, the free-fall in financing costs was the most substantial since (the third quarter of 2010),” wrote Matthieu Arseneau & Kyle Dahms, co-authors of National Bank of Canada’s Housing Affordability Measure.
But despite falling mortgage rates, the mortgage stress test used for qualifying new borrowers remained largely unchanged, the authors noted.
“While the contractual mortgage rate declined 68 basis points since last December, the qualifying rate declined only 15 basis points, meaning that most potential new buyers excluded by (the mortgage stress test) still are.”
Take Forecasts With a Grain of Salt
Try as we might as mortgage consumers to time the market and maximize client savings, here’s a final reminder about placing too much value in rate forecasts:
“Ignore anyone who think’s they’re smart enough to know where rates will be even six months from now,” says McLister.
In other words, markets and geo-political situations can turn on a dime, and your mortgage decision shouldn’t be reliant on them. Choose the best combination of flexibility and value that’s available to you now rather than taking a gamble based on where people think rates may be headed.
And if you need help considering your options, you can always contact a mortgage broker near you for assistance.