In today's video, I'll discuss Canada's latest updates on mortgage rates. As you may know, the Bank of Canada has increased overnight rates seven times this year, causing payments for variable mortgage holders to increase by up to 70%. This has led to a situation where over 50% of variable rate holders have reached their "trigger rate," where their payment no longer covers the interest expense. This affects around 14% of all mortgages in Canada.
However, while fixed mortgage rates have also increased over the past few months, they have recently started to fall. Many banks now offer reduced fixed rates, while most variable rates have climbed to between 5.20% and 5.60%. This means that, depending on your down payment and mortgage term, many fixed mortgages may be cheaper than variable ones - which is unusual.
One potential reason for this is the "inverted yield curve," where the Canada 10-year and 2-year bond yields are inverted, with the yield on the 10-year bond being lower than the yield on the 2-year bond. This can be a sign of an impending recession, as it suggests that investors are more confident in the short-term economic outlook than the long-term outlook. In the early 1990s, when the Canada 10-year and 2-year bond yields inverted, mortgage rates in Canada also fell.
In addition, the Big Five Banks in Canada have continued to cut the discount on variable-rate mortgages. Currently, the average discount these banks offer is -0.60% less than what was offered in December 2021. This decrease may indicate that the lender is less confident in the economy and less willing to offer lower interest rates to attract borrowers. This could lead to tighter lending conditions, making it more difficult for borrowers to qualify for a mortgage and forcing more borrowers into alternative lending options at higher rates and fees.
Overall, these recent changes in the Canada 10-year and 2-year bond yield, as well as the cuts to the discount on variable rate mortgages, suggest that Canada's economy and housing market may be facing some challenges in the coming months. However, it's worth noting that some economists still expect the Bank of Canada to increase rates in their next meeting in January, and 5-year fixed rates have dropped 35 points in the past week due to a decrease in Canadian bond yields.
We hope this update on mortgage rates in Canada has been helpful. Stay tuned for more financial tips and updates on this channel.
Disclaimer: This video content is intended only for informational, educational, and entertainment purposes. Sergei Modilevski is not a registered Financial Advisor. The opinions expressed herein are solely that of Sergei Modilevski, not Dominion Lending and should not be misconstrued as advice or the basis of an agency relationship. Your use of Sergei Modilevski's Youtube channel is at your own risk. Please consult your professional advisor before making decisions about the matters discussed in these videos. This communication is not intended to cause or induce a breach of an existing agency agreement. This is not financial advice.
