Bond yields continue to trend upward, which places more upward pressure on fixed mortgage rates. Some mortgage lenders have increased their rates over the last few days, with more expected to increase over the next week. This is in addition to rate increases we saw over the last couple of weeks. As long as bond yields continue to trend upwards, so will fixed mortgage rates.
There are still fixed mortgage rates as low as 1.94% for insured mortgages, however it’s just a matter of time before all fixed mortgage rates are over 2%.
You can follow the bond yields yourself.
Why Are Fixed Mortgage Rates Increasing?
The bond yields are rising given that the Bank of Canada is expected to continue tapering it’s quantitative easing purchases. As the tapering continues, fixed mortgage rates will likely continue to rise along with the bond yields.
Even with recent increases, fixed mortgage rates are still in historical low territory. Prior to the pandemic, the lowest 5 year fixed rate offered in history was 2.14%.
How much higher will fixed mortgage rates go?
No one can say for sure, but it would not be unrealistic to think they could double in five years. In fact, this is not just possible, it’s probable.
To find out how this would affect your payments at renewal and what you can do to prepare for it, I would recommend reading the following of my recent blogs:
The Effect Of Mortgage Rate Increases At Renewal.
How To Prepare For Higher Mortgage Rates
What About Variable Rate Mortgages?
While upward pressure continues on fixed mortgage rates, variable rates remain stable. Just because fixed rates are increasing, doesn’t mean that variable rates are as well.
The same applies with the Bank of Canada scheduled rate announcements. When the BOC makes a move, this affects variable rate mortgages only, however it can have an indirect effect on fixed rates. It’s also possible that the two can move in opposite directions, although rare.
The Spread Between Fixed And Variable Is Widening
The spread between fixed and variable rates is now the largest it’s been in years and is currently hovering around 1%. If fixed mortgage rates continue to increase, the spread will widen even further.
The larger spread is making variable rate mortgages more popular than ever. Yes, we know the prime rate is going to increase. This is certain. But that doesn’t mean that everyone should be locking into a fixed rate.
Should You Choose Fixed Or Variable?
Over the past 40+ years, homeowners have come out ahead with a variable rate mortgage more than 80% of the time. This doesn’t mean that everyone should be going variable either.
The choice between fixed vs. variable can be a very personal decision and what is right for one person might not be right for another. Some may advise to choose variable, while others may advise to choose fixed. We may hear this advice from our family, friends, or co-workers. While everyone means well, they can only advise based on their own feelings, comfort level, and tolerance for risk. If something is right for them, it doesn’t mean that it’s right for you.
I might advise one client to go with a variable rate while advising the next person I speak with to go with a fixed rate. It really depends on the person. There is no right or wrong answer here.
The right choice is the choice that you feel comfortable with.
If you’re considering variable, but become anxious at the thought of increasing rates, then a fixed rate mortgage is likely your best choice. As I mention regularly, the best choice is not always the one that saves you the most money. It’s the one that allows you to sleep soundly at night.
No one knows for sure what’s going to happen, and all we can do is speculate.
If you’re still having trouble choosing between fixed or variable, be sure to check out my blog on The Ultimate Guide To Choosing Fixed Vs. Variable, or email us directly at pmteam@citycan.com.
