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Mortgage Expert TMG The Mortgage Group
Mortgage Expert TMG The Mortgage Group

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Bond rate increases might trigger interest rate increases.

I appears to be happening!  Fixed interest rates are on the rise!

 Rising Bond Rates

Fixed mortgage rates are determined by the 5 year bond yield which has been closing at increased values.  This ends up costing mortgage lenders more as the margins that they use for profit and expenses decreases because their borrowing costs increase.  They then have no choice but to pass their expenses on to the consumer.  Causing interest rate increases.

Mid to long term government bond yields have been rising since early this month (February) and are at their highest level since April therefore a number of lenders, but not all so far, have responded by raising their rates.

There are mainly two reasons for this.  US government bonds are expected to increase in price due to an expected rise in inflation.  In Canada, there is now more positive expectations of an end to the pandemic with vaccines arriving and an end to strict lockdown measures further opening up the economy.  Plus the federal governments proposal of $100 billion post pandemic stimulus spending should also improve the economy.

Rising interest rates

Will this continue?  That’s a big unknown.  Bond yields rallied when vaccines were introduced but interest rates at the time did not.  Competition between lenders held it off while no one wanted to be the first.  Some have raised their rates and some still hold off but that could change at any time.

What should you do?

If you’re contemplating a purchase in the next few months with a fixed interest rate, its time for that pre-approval and rate hold which will hold your rate for up to 120 days. This could be important for first time buyers who need to control their cash flow.

Variable interest rates aren’t expected to be affected because they are determined by the Bank of Canada who regulates the overnight rate which affect prime rate.  That is not expected to change for at least a year or two.  However, lenders could decrease their discounts, raising those rates.

Check out the full article on Canadian Mortgage Trends

If you are thinking about any type of mortgage, you might want to get moving!

If you have any questions about our mortgage services, give me a call at (705) 791-6683. You can also send me a message online.

 

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