Talking more about your mortgage questions!
In this video, Chris Molder, a Toronto mortgage broker, sits down to talk about rising interest rates in Canada, and what you need to know about recent rate changes.
Should I be worried about rising interest rates in Canada?
Don’t feel like watching? Find the full transcript below!
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Chris: [00:00:00] Making mortgage news this week are reports of interest rates increasing, so I wanted to stop by to talk to you today about what is causing that increase, whether this is a long term trend and how you should be responding to the risk of rising interest rates. So the first thing to know about fixed-rate mortgages and how they’re priced is their relationship to the government of Canada 5 Year Bonds.
Here, I’m showing you the chart over the last month. So this is going back 30 days to show 30 days ago that the government of Canada’s 5 Year Bond yield was 0.4%. Fast forward to today and it’s trading over 0.7. So that’s more than 30 basis points of an increase over the last 30 days.
Where does interest rate pressure come from?
Chris: [00:00:47] And that, of course, is going to create pressure for fixed-rate mortgages to increase. Now, where does that pressure come from? It actually comes from our neighbours to the south. And what I am showing you here is the US Treasury 10 Year Bond Yield. The US is more sensitive to the 10 Year Yield.
Going back over one month and you see the same trend and that is caused by increasing inflationary pressure. So now, in response to these upward pressures, fixed-rate mortgages are increasing. And in fact, this week, we’ve already seen a handful of lenders increase the rates between 15 to 20 basis points. Not all the banks and lenders have made the changes, but it’s only a matter of time because nobody wants to be the first bank to make that change.
Rates are trending upward
Chris: [00:01:34] But expect in the next week or so that that trend will continue and we will not reach a new low. So the million-dollar question now is, is this here to stay or is this a natural fluctuation? My personal feeling is that we have turned the corner. We’ve reached the lowest and the floor of fixed-rate mortgages, and we will begin a very gradual upward trend. And how long that trend will take really depends on how things unfold with the pandemic and the rollout of the vaccination programs.
It’s worth noting here that what we are talking about specifically are pressures on fixed-rate mortgages. Variable-rate mortgages are impacted by decisions of the Bank of Canada and the Bank of Canada has not made any mention of changing the prime rate.
Chris: [00:02:26] So if you are a mortgage shopper, what should you do about this? Recommendation – Talk to your bank or a broker as soon as possible to lock into a rate. Fixed-rate mortgages can typically be locked in for 90 to 120 days retooled.
So, if your mortgage is coming up for renewal, if you think you need to refinance your mortgage or if you are shopping for a new home this spring, now is a great time to lock in a rate. I hope you found this information useful. My name is Chris Molder. The door’s always open to you. Reach out with confidence if you have any mortgage-related questions.
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