Canada Mortgage Rates Update – Month ending July 5, 2011
Tag: Mortgage Rates by RateHub
Over the past month, there has been a significant amount of activity in the mortgage market. The Canadian economy, the international economy and other economic factors all influence Canadian mortgage rates. Since real estate and mortgages go hand-in-hand, by staying up-to-date with both, you can provide your clients with current information on the mortgage industry.
On May 31st, the Bank of Canada made an official announcement stating that the key interest rate would remain at 1 percent. This particular rate influences the prime lending rate which in turn determines variable mortgage rates. The decision was based on a number of factors including international economies, commodity prices and inflationary measures. Although they haven't changed the key interest rate since September of 2010, it was the first time since the recession that the BoC mentioned that they would have to increase borrowing costs if economic growth in Canada continued.
The announcement came following a series of fixed-rate drops across the board by most financial institutions. Lending companies fought to keep their market share and remain competitive. The financial situation in the United States and Europe caused a spike in demand for Canadian Government Bonds. The resulting increase in demand for 5-year bonds drove yields down. Consequently, the 5-year fixed mortgage rates following these bonds trended downwards.
At the end of May, the Canadian Mortgage and Housing Corporation (CMHC) predicted that posted mortgage rates would remain "flat" for the rest of the year, and then increase slightly in 2012. CMHC projected 5-year posted fixed rates from 4.1% to 5.6%. However, their predictions didn't quite hit the mark and rates dropped even lower than forecasted. The lowest posted 5-year fixed mortgage rate is currently 3.51%.
Canada's economic standing could have permitted an increase in interest rates but this may have resulted in a spike in the Canadian Dollar. This spike may have been detrimental to Canadian manufacturing and exports, so instead of risking economic stability, Canada has been waiting for the rest of the world to catch up.
In addition, the Qualifying Mortgage Rate dropped by a tenth of a percentage point every week for three consecutive weeks and currently stands at 5.39% [1]. This rate is the standard rate that lenders use to ascertain the affordability of variable mortgage borrowers.
Over the past couple of months, 5-year variable rates have been the most popular mortgage product on RateHub.ca, despite the decreasing spread between fixed and variable mortgage rates. This statement is based on a small sampling of products sold across Canada and online, but nonetheless provides useful insight into mortgage trends. Over the July 1st weekend, a combination of factors caused 5-year Canadian Government bond yields to rise by 30 basis points. Fixed rates will in all likelihood follow suit. Urge your clients that it is a good time to buy and to lock in one of the current mortgage rates as soon as possible. Encourage them to do their research and get pre-approved by a lender that meets their needs (prepayment options, terms etc) because once rates go up, there is no guarantee they will fall again. RBC Royal Bank has already increased their fixed rates by a tenth of a percentage. The others will soon follow.
The 19th of July is the scheduled date for the next announcement of the overnight rate target. It remains to be seen what the Bank of Canada will decide to do this time around.
