Bond yields have found at least a near-term bottom after four-and-a-half months of declines.
That means Canadian fixed mortgage rates may also have found a bottom…for now.
Here’s a quick look at the lowest effective 5-year fixed rates, and how far they’ve fallen since the peak last fall:
- Insured: 2.79% -44 bps
- Insurable (80% LTV or less): 2.93% -40 bps
- Uninsured: 3.08% -52 bps
- Big bank discretionary: 3.29% -45 bps
Beware the Bounce
Yield curve inversion suggests an economic slowdown, but that doesn’t mean rates are on a one-way street lower. Expect lots of “ups” with all the “downs” in rates.
“The global economy could get a significant lift if trade peace were restored…Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”
On that note, if you see the 5-year yield bounce back into the 1.70s, the lowest 5-year fixed rates may pop a bit. It can’t hurt to lock down a rate if you’re leaning toward a fixed mortgage and are closing in the next 90 to 120 days.
Ten-Year Money on Sale
How flat is the yield curve? Well, the lowest decade-long mortgages are now selling for less than 1/3-point above most 5-year fixed mortgages. That doesn’t happen very often.
That said, the probability of saving more with a 10-year fixed rate is still highly questionable. Compared to a 3.09% 5-year fixed, 5-year rates would have to be 73 bps higher at renewal in 2024 for a 10-year to save you more (based on interest cost alone).
Of course, 10-year terms have a maximum 3-months’ interest penalty once you make it to five years plus a day. That, and the fact you won’t need to think about your mortgage until 2029, are worth something.
But heaven forbid you have to break a 10-year fixed before five years is up. In that case, you could be staring at a potentially ginormous penalty, depending on: (A) where rates are at the time, and (B) how your lender calculates its interest-rate differential charge.