As the crisp winter winds weave their way into our lives, we hope this message finds you wrapped in the warmth of the season. The magic of winter is upon us, bringing with it a cascade of festive moments and joyful celebrations. 🌟
Coming to the task at hand, as of 10 a.m. on this partly cloudy December 6th, 2023, the Bank of Canada has unveiled its highly anticipated rate announcement for the year – and it's a HOLD! The Overnight Rate, also known as the Policy Rate, remains steadfast at a multi-decade high of 5.00%, consequently leaving the Bank/Lender Prime Rate standing at 7.20%.
For those of us navigating the variable rate mortgage rollercoaster, the journey has been nothing short of exhilarating. Over the last 21 months, we've experienced a remarkable ascent from the troughs to soaring heights with over 10 rate increments. It appears that we may have reached the peak, and fingers crossed that my words do not jinx this outlook. Notably, inflation has been on a moderating trend, and GDP growth has exhibited uneven patterns.
Borrowers at mortgage crossroads find themselves in a delicate balancing act, contemplating short to medium-term solutions while carefully managing their ability to meet monthly mortgage payments.
Since my last update on October 25th, 2023, we've witnessed a notable reversal in the direction of bond yields. Fixed rates offered by lenders have adjusted lower, with the most significant drop observed in the competitive space of insured mortgages. On average, the gap between fixed-rate and variable-rate mortgages has widened by 15 to 25 basis points, depending on the type and lender. The persistence of fixed rates remaining lower than variable rates has created a unique inversion lasting over 52 weeks—a remarkable anomaly in the typical rate cycle, where such inversions last only a few months.
In the ever-evolving landscape of the mortgage world, these trends continue to shape the financial decisions of many. Whether you're a first-time homebuyer or a seasoned property owner, these insights offer a glimpse into the dynamics influencing the market.
You can access the complete press release by the Bank of Canada [here].
Keep reading for more insights into the mortgage world!
Mortgage Interest Rates
Continuing our exploration of the financial landscape, let's delve into the intriguing world of 5-year Fixed-rate mortgages in Canada. As you are well aware, these rates closely follow the trajectory of bond yields, and the latest data reveals a noteworthy shift.
Presently, the 5-year bond yields stand at 3.45%, a significant dip from the 4.267% reported
in our last communication on October 25th. Notably, the yields have not touched these lower levels since that update. This decline has been mirrored, to some extent, by lenders, resulting in slightly reduced Fixed Rate mortgage interest rates.
For those who may be unfamiliar with terms like Insured, Insurable, Uninsured, or Rental, a concise explanation is provided at the bottom1 for your reference.
To offer you a visual insight into the evolving trends, we've included charts below. These charts illuminate the various dynamics influencing mortgages with a 5-year term, be it Fixed or Variable.
The charts above shows the trend in interest rate2 for the major types of mortgage products (Fixed and Variable) for the last 27 months or so. For the shorter term (1-3 year) Fixed rate mortgages, the rates continue to be at a premium to corresponding 5-year rates.
Generally, Fixed rate mortgage rates are higher than their corresponding Variable Rate mortgages at the time of securing one but currently we are in a phase where the relationship is inverse. This typically happens when the interest rate trend is under reversal. There is no guideline as to how long such an inverse relationship can persist but in "normal" times this period is limited to couple of months at best. This inversion has persisted for about a year now and the chart might be implying that we have seen the trough.
When one secures a Variable Rate mortgage, the only constant is the discount to the Prime Rate, with fixed payments in some instances. The actual interest rate and associated costs, however, are subject to change as the Prime Rate fluctuates. The chart above paints a vivid picture of the pricing trends or discounts that lenders are offering on Variable Rate products.
A higher discount on the chart generally signifies a heightened demand for Variable Rate mortgages. It reflects the dynamic interplay between borrower preferences and the response of lenders to this demand. Conversely, a lower discount may indicate a market shift towards Fixed Rate products.
In a market where precision is paramount, staying informed about these fluctuations empowers you to make well-informed decisions. Whether you are contemplating a new mortgage, exploring refinancing options, or simply keeping a keen eye on the market, these insights aim to guide you through the complexities.
Feel free to reach out if you have any queries or require further clarification on the trends outlined above.
Note: If you're struggling to figure out your financing options, interested in working with me or want to learn more about my services, please don't hesitate to get in touch. I'd be happy to chat!
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