Are low fixed mortgage rates going to vanish? We have seen the fixed rates go up and down over the past several years. At the end of 2008 and into 2009 5 year fixed rates were in the 5% range which may shock home buyers who over the past few years have enjoyed rates in the low 2%-3% range. Flash forward to the end of 2016 and we are in a market of rising interest rates. A combination of higher costs to lenders and the recent US Presidential election which created the momentum for a rise in bond yields all contribute to rising interest rates. But back to our original question. Are low fixed mortgage rates going to vanish? The experts say rates will rise and current conditions would support that answer.
Well, no need to panic just yet. Take a breath and sit down with your mortgage broker.
One contributing factor for the increase to fixed mortgage rates was the recent rule changes imposed by the Minister of Finance. For more details read my recent post http://mybcmortgage.ca/financing-options-for-conventional-borrowers-ask-your-mortgage-broker/
The second factor for the increase to fixed mortgage rates is the change to the bond yields. Fixed mortgage rates are set based on the yield in the bond market. The gap between the yield and 5-year fixed rates determines whether fixed rates rise or fall. With the recent Trump victory in the US presidential election investors are dumping their bonds and mortgage rates have taken a hit.
How much will the fixed rates rise? Due to the increase in costs to lenders with recent mortgage rule changes we have seen rates rise at the same time as investors responded to the Trump election. Rates rose by 20-30 basis points over the past couple of weeks and premiums to rates for rental properties and longer amortizations by some lenders took effect. I expect to see rates rise further in 2017 as the bond market responds to the economic growth and spending plan in the USA as it unfolds. We could see 5 year fixed rates rise to over 3% in the short term which were the norm only a few years ago. Some are speculating 5 year fixed rates could rise up back to the days of 5% within a few years.
For those consumers looking to purchase a home ensure you have a rate hold in place so you can take advantage of lower rates and the current shift in the buyers market. If you don’t have a rate hold – it is still a good time to get one. In the event 5 year fixed rates move up you are protected.
If your mortgage is up for renewal or you need to refinance to lower your cost of consumer debt this may be a good time to talk to your broker about how to hedge inflation.
Now more than ever is a good time to talk in detail with your mortgage broker to fully understand your options.