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Mortgage Rate Update

Mortgage Rate Update - From the Experts - What's happening with interest rates?

May 29, 2019, the Bank of Canada left its benchmark interest rate unchanged at 1.75%, the highest rate since December 2016. The BOC has maintained this rate since late 2018. How are lenders responding to this unchanging bank rate? What might the effect be on fixed and variable rate mortgages?  We asked three local, prominent mortgage brokers who many of our clients deal with to provide their thoughts on current fixed and variable rate mortgages. 

Michael Friedman, Accredited Mortgage Professional
 
Bad News Is Good News?

Being that this is my 30th year in the mortgage business I have seen some highs and lows as it pertains to mortgage rates, would you believe when I started my career rates for five-year mortgages were at 11.75%, and today they are below 3%.
 
A common question I am asked weekly is what I think will happen with interest rates. For the record, if I or anyone truly knew for sure they would be very wealthy.
 
What I can tell you is that there is a direct correlation between how the Canadian, the United States, and global economies are performing and which direction rates will go, and yes if you want lower rates “Bad News Is Good News”.
 
At this point it would be of value for you to know where interest rates are today in relation to recent historical rates. We are going to use a five-year mortgage as our example as it is the most common mortgage requested.
 
As of this month, June 2019 five year mortgages are below 3%. Historically, for the past ten years a five-year mortgage has averaged close to 4%, so this puts rates today 25% below a 10-year average.
 
One of the main factors I believe that has pushed interest rates down in the past nine months has been the ongoing trade wars between the United States and various countries which has created some uncertainty and, in turn, pushed capital into the bond market creating the stage for lower rates.
 
So what does this all mean to you and me? If you are looking at taking advantage of buying a home in Vancouver’s recently adjusted real estate market, you will also be taking advantage of rock bottom historically low-interest rates. This is truly a very rare occurrence when prices have adjusted, and rates have done the same.
 
For others that may be renewing their upcoming mortgages, you will be able to take advantage of the current low-interest rates, but a word of warning, shop around as your current lender may not be offering you best deal.

Mike Slater of Slater Mortgages

This week the lowest 5-year fixed rates dropped back to levels last seen in 2017. Canada’s lowest 5-year fixed mortgages are now 2.69% for default insured mortgage applicants. (Insured and 25-year amortization).

What drives the fixed rate market?                                                          
It's global uncertainty that weighs on the market, 5-year bonds yields can’t get a boost. They’re now threatening to dip into the 1.40% range. (Bond yields, charted below, generally guide fixed rate mortgages)


Markets are impacted by trade wars, falling oil prices, stocks dipping and so on. It’s this kind of worries that make investors go in for the “safety” in government bonds. (Generally speaking, greater bond demand = lower yields = lower mortgage rates)

Variable Rates: Black sheep

Current demand is overwhelmingly focused towards fixed rate. Floating rates are simply not priced low enough – relative to 5-year fixed. Most investors think the rates are still heading lower.

Ultimately,  VRM (variable rate mortgage) borrowers may come out on top if the next move in the prime is down. But only a small number will gamble.
 

Gord Pipkey of Verico Realmortgage Services

The result of falling interest rates (fixed) is making your mortgage more affordable; however, as the stress test rate has NOT been decreased, the fact is decreasing rates has not made any difference in qualifying for a mortgage. The financial institutions are in a  situation of having to depress rates to entice enough prospective borrowers in trying to qualify them in the stress test environment.

The debate now is variable vs. fixed rates especially for those who we placed into a variable rate term for all the right reasons, when fixed rates were approx .75% higher than the variable rate. Over the course of the last 7 months fixed rates have declined by over 1%. So this maybe the time to contemplate converting your variable rate into a fixed rate.
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