How can mortgage rates be going up AND down?

This has been a very interesting couple weeks in the real estate world. A lot of news has centred around rising interest rates and lower interest rates. How can interest rates be going up AND be going down at the same time? 

Well a few things are happening here. The big banks are raising their five-year fixed rate, but reducing there five-year variable rate. Over the last couple years, most people have been choosing fixed rate mortgages believing rates can only go up. Suffice to say that in a rising interest rate environment, choosing a fixed rate mortgage is the safest route. In a bid to attract buyers back to variable rate mortgages, banks are now offering deeper discounts. It is believed variable rate mortgages have become more cost efficient for banks to hold and they are trying to balance their holdings of fixed vs. variable rate mortgages. This would hedge their exposure if rates rise quicker then expected.

Of note is that 2013 was a very busy year for home sales in Canada and there are many five-year mortgages coming up for renewal in 2018. A variable rate mortgage was popular in 2013 because there was more uncertainty surrounding the economy and interest rates were declining. If you chose a variable rate mortgage in 2013 you chose well because the Bank of Canada actually lowered interest rates twice in 2015. The big banks may be assuming that many holders of variable rate mortgages will now switch to a fixed rate. This isn’t a bad time for banks to raise the fixed rate or try to entice people back into a variable rate. 

There are many other factors at play here, like the bond market, but these are a few of the most interesting.

Need a good mortgage broker? Contact me for a referral. 

Nick Horton, May 18/2018