Long-term mortgage rates typically move in tandem with Canadian bond yields since banks borrow government debt to finance long-term home loans.
Kinch, a Dominion Lending Centre mortgage broker, said that five-year mortgage rates should edge down in response to a 27-basis point drop in the five-year Canadian bond yield, which was at 1.51 as of Aug. 8.
“My prediction is that you’re going to see within the next 24 to 48 hours interest rates for five-year mortgages reach the lowest point we’ve seen in history. If it does what I expect, you’d probably see five-year mortgages at 3.39% or 3.24%,” he told CRE Online
, adding that the lowest five-year rate right now is 3.49%.
Canadian bond yields followed the lead of U.S. Treasuries yields, which dropped after investors reacted to the news that the United States had lost its triple-A credit rating by pulling their funds out of equities to buy American dollars.
Typically, when a government’s bonds are downgraded investors demand a higher yield to continue buying them. Strangely, however, the U.S., whose dollar is the world currency, saw the reverse effect.
Variable mortgage rates, on the other hand, should stay the same, Kinch said.
Global economic uncertainty and instability will likely prevent Bank of Canada Governor Mark Carney from raising the bank’s key interest rate, which is tied to the prime lending rate, even though he’s indicated several times he would like to raise it to cool inflation and prevent Canadian households from taking on too much debt.
“The whole mess in the U.S. is not going to go away and it’s going to have a drag on the Canadian economy and even though Mark Carney is looking for a reason to raise interest rates, I don’t think he’ll find one,” Kinch said.
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