Unless your eyes have been glued to a rate comparison website, you may not have noticed the bounce in fixed rates this month.
Here’s a look at how the lowest mortgage rates available have increased since the start of the month:
The movements may not seem drastic, but 30 bps is a lot in just three weeks.
And the interest cost does add up. If you’re shopping for the best rate on an insured $300,000 5-year fixed mortgage, for example, it may now cost you roughly $44 more each month. That’s $4,200 out of your pocket over five years.
Why Are Mortgage Rates Going Up?
You can’t blame the Bank of Canada. Its overnight interest rate has remained unchanged since October 2018.
Instead, the culprit is rising bond yields. Higher yields push up fixed mortgage rates because lenders rely on the fixed income market for funding. Canada’s 5-year bond yield started the month at around 1.50%, and on Thursday broke through a key resistance level (1.70%) for the first time since March.
Where are Mortgage Rates Headed in the New Year?
Some think that 2020 could see yields climb further, given:
- it’s a U.S. election year
- Trump wants to juice the economy to improve his re-election chance
- Canadian rates usually follow U.S. rates.
But that’s a crapshoot, at best.
Any number of wildcards could put a lid on rates, including:
- Continued softening of Canada’s jobs figures (71,200 jobs were lost in November)
- Ongoing trade friction between Trump and [pick a major country]
- An oil price shock
- Plunging yields abroad
What to Do?
While you can’t forecast rates, you can do everything in your power to save more. Competitive mortgage brokers are selling at significant discounts to the big banks’ lowest advertised rates. You can find those deals here.
And if you’re in the market for a mortgage in the near-term, get a rate hold. It protects you against any further rate increases for up to four months with no obligation. Pre-approvals are free, making them the cheapest form of financial “insurance” you’ll ever find.
