If you’ve got a hankering for a mortgage with maximum rate assurance, none beats the 10-year fixed. But once Canada rounds the corner on its economic recovery, 10-year rates could climb faster than other mortgage rates.
The reason: 10-year terms reflect longer-term economic expectations than 5-year terms, for example. As a result, they often react more to changes in the long-run inflation outlook.
Since the beginning of October, for example, 10-year bond yields (which correlate with 10-year fixed mortgage rates) jumped 27 basis points while 5-year yields rose only 8 bps. Among other things, that period coincided with a more bullish outlook on the economy and inflation. 10-year terms also benefit less from Bank of Canada bond buying, which is more effective at suppressing 5-year yields, and hence 5-year mortgage rates.
The Gist: The window to get a record-low 10-year rate may close faster than the window on other fixed terms. Something to keep in mind if you want a 1.98% 10-year before rates (eventually) break to the upside.
Poloz Makes a Prediction
On Thursday, former BoC Governor Stephen Poloz told a TriDelta webinar audience to be wary of precise economic predictions. “Economists who are offering decimal points around their forecast are doing it for comic relief,” he said.
But he did make one forecast of his own, adding: “I think there’s going to be a boomlet when we come out of this [crisis], later this year.” He joins a chorus of other economists in making that call, which, if true, should be preceded by higher fixed mortgage rates.
Mortgages Trend Online
KPMG surveyed above-average ($81,000+ CAD) income earners in Canada last year. Here’s what it concluded in an October report:
99% of Canadians said a competitive interest rate is the “single most important factor” in selecting a mortgage. (That number seems high compared to other surveys we’ve seen, but either way, regular Spy readers know that overall borrowing cost, not rates, should be the focus.)
84% want to research mortgages online.
40% want to apply online, half of the number who apply online in the UK. (That gap should narrow considerably in the not-so-distant future.)
Internationally, the percentage wanting to apply in a bank branch (30%) fell 15 percentage points since 2017.
There are ways to get approved for a mortgage if your budget is temporarily tight. (Those who habitually live beyond their means can ignore this story.)
Most prognosticators are betting against a BoC “micro rate cut” on Wednesday. In fact, 14 out of 16 analysts surveyed by Finder think the BoC’s next move will be up.
If you’re looking for signs that rates will stay low, here’s some bearishness from David Rosenberg. “Life is not going back to normal even if the market doesn’t yet see it…,” he warns.
Canada’s national average home price ($607,280) shot up 17.1% in 2020. But, thanks to plunging rates, the average payment rose just 4.1% — assuming you could afford the $17,736 increase in the minimum conventional down payment.
The percentage of Canadians who do most of their banking digitally, using online and mobile banking: 76%. (Source: CBA)
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