5 year fixed mortgage rates are tied directly to the government of Canada benchmark bond yields. The last reported yield was at 1.29% on November 8th. This is the rate of return mortgage lenders can expect to receive when they sell pools of mortgages on the open market. This yield is 1.7% below the 5 year fixed mortgage rate of 2.99% that’s available in the marketplace. The 1.7% spread delivers the gross margin mortgage companies need to cover their origination, servicing and other expenses associated with providing mortgages.
For most of 2012 the 5 year fixed government of Canada benchmark bond yield has been hovering around 1.40% with a high of 1.74% and a low of 1.06%. The swings in the bond yield have been significantly more erratic than changes we’ve seen in the 5 year fixed mortgage rate. This is because mortgage lenders will hold rates on occasion taking some losses knowing that when bond yields improve they will earn extra income to offset any previous loss.
The current bond yield of 1.29% is below the year’s average, and the recent trend has been flat to slightly downward. For the near term you can expect mortgage lenders to hold their current 5 year fixed mortgage rates. Mortgage lenders for the most part are currently enjoying healthy margins without having to drop their 5 year fixed mortgage rates below the 3.0% mark. A level at which the Minister of Finance dislikes due to its ability to increase Canadian debt loads.
If you’re looking to lock into a 5 year fixed mortgage rate then today’s record low mortgage rates are ideal. However, you don’t need to rush into anything just yet. These low mortgage rates are here to stay at least for the next few months.