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5-year Fixed Rates Climb to 5-month High

  • Canada’s best 5-year fixed rates are now north of 1.50% — for the first time since September.
  • The lowest 5-year fixed rate in the nation is at 1.59% (for high-ratio mortgages in Ontario only). This rate may disappear this week, given it is priced aggressively under the market considering lender funding costs.
  • On the uninsured side, HSBC’s fixed-rate hikes on Monday left motusbank with the lowest nationally available uninsured 5-year rate at 1.79%.
  • As for the major banks, they’re now all above 2% on typical conventional 5-year fixed terms. Even the most openly competitive big bank channel, Scotia’s eHOME, is at 2.03%.
  • As mentioned above, habitual rate leader HSBC lifted a bunch of special fixed rates on Monday. Among them:
    • 5yr (high-ratio): 1.69% to 1.89%
    • 5yr (“switch”): 1.84% to 2.04%
    • 5yr (uninsured): 1.89% to 2.09%
    • 10yr: 2.64% to 2.74%
  • With HSBC’s rate bump, the fixed-variable spread widened further based on the best widely available rates. The lowest 5-year fixed rate nationwide is now 50-60+ bps above the lowest comparable variable rate, depending on loan-to-value. So long as fixed-5s stay under 2%, we don’t see consumers making a significant shift towards variable rates.

The Risk to Watch

  • The modest difference between fixed and variable rates doesn’t provide much incentive to float your mortgage. And that may be a good thing. As Capital Economics wrote on Monday, inflation is coming. And “a key risk…is that the period of high inflation becomes self-sustaining.” That would fuel higher rates and strain budgets for tens of thousands of variable-rate mortgagors.
  • “One way that could happen is through stronger wage growth,” says Capital Economics. “That might seem hard to imagine when the unemployment rate is still more than 8%, but that labour market weakness is concentrated in a handful of service sectors. In many other sectors, employment is already either close to or above its pre-pandemic level.”

Latest Rate Hike Projections

  • “Currently, [the] BoC terminal [overnight rate] is expected at 2.25% by the end of 2025 versus the Fed at sub-2.0%,” says CIBC Capital Markets. The market is currently pricing in two hikes in 2022, three hikes in 2023 and two hikes in 2024 and one hike in 2025.
  • That’s a noticeably faster pace than the market is pricing in for Fed hikes. If things played out accordingly, that 200 bps of BoC rate increases would put us 50 bps above the peak in the last rate cycle.
  • Of course, market-based rate projections have huge margins of error. A third wave of COVID could push timetables back, for example. So don’t get too hung up on the actual timing and magnitude. Mortgage shoppers should instead focus on the fact that rate increases are likely to arrive within a few years — and bake at least 75-150+ bps of hikes into their budgets.

This & That

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  • Ralph Doncaster says:

    Hey Rob, is there a free and public source for current CMB yields? I would think the Canada 5yr yield posted daily by the BoC is only a rough proxy for fixed-rate mortgage funding costs. Or is it actually a good-enough proxy?

    With the 30 and 90-day BA rates (published by IIROC) both drifting below 20bps for the past month, is it reasonable to expect 5yr variable-rate mortgage discounts to increase?

    Are the spreads between CMB yields and 5yr fixed-rate mortgages usually the same as the spreads on 5yr variable-rate mortgages?

    • The Spy says:

      Hey Ralph,

      I’m not aware of any public source of 5yr benchmark CMB yields. CMHC should post them but they don’t (last time I asked).

      You can follow the 4yr swap rate here. It’s a decent enough proxy for 5yr fixed base funding costs:

      I haven’t seen a big enough drop in BAs over the past month to warrant larger variable-rate mortgage discounts. That’s not to say we won’t see larger discounts.

      Spreads vary constantly with the market so it’s hard to generalize. Right now, given base funding costs and the lowest nationally available rates, 5yr fixed margins are slightly bigger than variable on high-ratio and slightly smaller than variable on uninsured.

  • Scot Howard says:

    Hey RateSpy – I see DOT Financial rates showing up on the site.

    I’m curious, are “in-house” lenders becoming more popular with the big brokerages now? How difficult a feat is it for them to start lending money?

    I recently completed a switch with THINK, and secured a rate that was 5bps lower than what I was getting from other brokers and the monoline lenders. I wonder if this model, given the potential for lower rates, will/is becoming more mainstream?

    • The Spy says:

      Hi Scot, In the deep discount business it’s about shaving every possible basis point off the rate. That’s because a rate that’s 1 bps above the lowest rates gets drastically fewer applications on a big rate site. So for rate players yes, it’s probably the only option and it is indeed a trend.

      For consumers, 1 bps may seem like a lot but it’s truly meaningless compared to the cost of choosing the wrong mortgage. Hence, for most I’d suggest forgetting about small rate differences and focus on the flexibility you need in a mortgage and the service you need in a mortgage provider.

  • Scott says:

    So still looking through mortgage options and broker highly recommended I take their 5 year 1.48 closed variable. Am I missing something, or isn’t 2 increases over that 5 years (BofC always seems to go in increments of 0.25) going to put me basically where a 5 year fixed rate is now? I want a low rate but I want that low rate to be there in a year or two as well. As you said the spread isn’t enough to go from fixed to variable.

    • The Spy says:

      Hi Scott, It’s tough to comment on the best term for you because we don’t know your circumstances. But depending on the 5yr fixed you’re being quoted, you’re right, the spread and rate outlook make this a somewhat riskier time to go variable for most people. Check out yesterday’s story as well:

      By the way, check out HSBC’s variable rates if you haven’t already. They’re much lower, have no penalties after three years and allow conversion into deep discounted fixed rates (if desired). Unfortunately most brokers can’t sell them.


  • Scott says:

    I am looking at putting over 20% down, BMO will pay for appraisal and give me $1000 towards costs, something at least. Waiting on someone from HSBC to get back to me. By deep discounted fixed rates I assume that is just whatever they have available at that time, and nothing baked into the agreement?

    • The Spy says:

      Hey Scott, HSBC’s fixed rates are discounted aggressively and advertised on its site. I believe existing HSBC customers get its best advertised (non-promotional) uninsured rates on conversion, but I could be wrong.

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