Fixed Mortgage Rate Forecast – August 2012

Flat Rate Forecast

Over the past 30 days we’ve seen the 5 year Government of Canada benchmark bond yields edge up 0.20% to a 30 day high of 1.43% as of yesterday.  This bond yield represents the cost of funds for 5 year fixed mortgage rates and as such has squeezed the profit from mortgage lenders.  Although there haven’t been any Canadian mortgage rate increase announcements we have seen the evaporation of some mortgage rate specials.

The 0.20% bond yield increase was easy for the mortgage lenders to absorb as they had a cushion built into their existing Canadian mortgage rates.  The result is the elimination of any downward pressure on Canadian mortgage rates and it will have many lenders considering a modest increase.  Not because they need higher margins but to add the cushion back into their spread to deal with market uncertainties.

As a result, our short term forecast for fixed mortgage rates is neutral.  That is, you can expect the 5 year fixed mortgage rate to hover at its current level plus or minus 0.10%.

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