Although rapid skyrocketing home prices seem to be indicative of a Canadian real estate market, inversely high-interest rates are not. This hasn’t always been the case; instead, it is a new phenomenon that boasts the lowest fees in years, and it commands our attention. The National Bank reports that falling mortgage rates have made monthly carrying costs facile for borrowers, and additionally, the rates since the year’s onset continue to drop. Comprehending the decline is crucial to determine what your game plan will ultimately be when deciding to purchase a home, and whether to commit to either a fixed or variable mortgage rate.
There is a substantial correlation between the mortgage market and the bond market, consequently, directly prompting interest rates to become affected. Anyone securing a mortgage on an original purchase or renewal today has a pivotal financial advantage. Banks, along with alternate lenders, safeguard the money to be loaned out in mortgages, initiated by borrowing it themselves on the bond market. Since late 2018, the yields on five-year bonds have been falling precipitously; fixed mortgage rates have been falling as the cost of financing those loans has pivotally declined. A significant appraisal considering appealing rates such as these have not existed in decades.
The paramount doctrine of bond investing is that market interest rates and bond prices typically move in reverted directions. When market interest rates rise, the cost of fixed-rate bonds falls (interest rate risk) and vice versa. The five-year Government of Canada bond rate actioned an immense decline by more than half within the last year alone to approximately 1.2%, procuring a much-required hiatus from the squeeze of high-interest rates. If buying a home or renewing a mortgage, the collision change in bond market terms is seemingly advantageous.
Fixed mortgage rates have been falling precipitously as the cost of financing those loans has pivotally declined. The bottom line is that, typically, with an increase in the Government of Canada’s five-year bond yield, there is a mutual elevation in the five-year fixed mortgage rate. Mortgage rates will continue to slide at the same rate as falling bond yields. The Globe and Mail reported that although you may believe lower interest rates are solely beneficial, they also denote exacerbating fiscal conditions.
Although seemingly low-interest rates appear to be a triumph, globally today it is an indication of deteriorating economic conditions. Presently, Canada’s economy is singularly strong, but worldwide it’s financially unstable. The Bank of Canada warns that the U.S.-China trade dispute is having a worse than expected effect on global growth. Although Canada’s economy is quite tenacious, the worldwide scenario is not demonstrative of such clout.
CBC News reported that, according to Janine White, Vice President of the rate comparison website, Ratesupermarket.ca, lower bond shields are “not a good sign from an economic standpoint”. Cheaper financing costs have become a great tool for banks to lure borrowers with more affordable financing schemes.
Our expert team at Northwood Mortgage™ has many more answers to simple or more intricate mortgage questions, and we look forward to connecting with you. As one of the most venerated brokerages in the GTA, our team exemplifies prize services and choice products to our clients, lenders, and investors alike.