Swings in mortgage rates

Thursday Nov 04th, 2021



One major reason for the hot demand for homes in Canada is the ultra-low mortgage rates compounded by the widely held belief that the country’s economic recovery would prompt an uptick in interest rates. This did not happen. In fact, the opposite scenario came into play around mid-September when the big banks actually dropped their fixed mortgage rates. But why did this happen? Experts say firstly, with the onset of the fourth wave of COVID, a sustained economic recovery was still just barely visible on the horizon. Secondly, banks were rich with liquidity thanks to government support during the pandemic and a record amount of deposits, so they could afford to offer lower rates and go for market share rather than profits.


Bond yields had also been on a downward trend in the preceding months and bond yields typically lead fixed mortgage rates. But towards the end of September, bond yields started to tick up. Bond yields largely determine fixed mortgages, because lenders benchmark their rates to bond yields.


The five year Government of Canada bond yield, rose substantially over fears of rising inflation and this prompted the banks to once more hastily raise rates. The Toronto-Dominion Bank became the first major Canadian lender to raise its five-year special fixed mortgage rate from 1.99 per cent to 2.29 per cent.


What does this all mean? Given the expectation that bond yields will trend upward taking mortgage rates along with them, those homebuyers looking for a fixed mortgage should lock in as soon as possible.

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