Mortgage rates in Canada are experiencing a notable drop, with fixed rates below 5% for the first time since spring. The decline follows a substantial drop in bond yields, prompting mortgage providers to cut rates by 20-30 basis points. For instance, Butler Mortgage now offers a market-leading insured 5-year fixed rate at 4.99%, specifically for purchases with a down payment below 20%. Despite concerns about rates not falling as quickly as bond yields, experts believe the recent rate cuts could alleviate worries about the impending “renewal cliff” faced by borrowers as mortgages worth hundreds of billions are set to renew in the coming years.
The latest developments are easing concerns about rising mortgage rates, as evidenced by notable decreases in fixed rates. The 5-year fixed rates are now below 5%, a welcome change for borrowers who had witnessed rising rates over the past year. Bond yields have played a key role in driving these rate cuts, with a 38 basis points drop in the 5-year Government of Canada bond yield. Major mortgage providers, including big banks like Scotiabank and CIBC, have reduced rates by 20-30 basis points, translating to lower monthly payments for borrowers. The drop in rates is helping mitigate the impact of the “renewal cliff,” providing relief to borrowers facing substantial payment increases in the near future.
However, some experts note that the pace of rate drops might not be commensurate with the decline in bond yields. Despite the 100 basis points drop in bond yields, fixed rates are not decreasing as rapidly. Factors such as risk premiums and profit-taking by lenders are contributing to this phenomenon. Mortgage brokers emphasize the importance of a slow and sustained easing in bond yields for continued rate decreases. While concerns about the “renewal cliff” persist, the ongoing rate drops are seen as a positive development that could potentially soften the impact on borrowers facing mortgage renewals in the coming years.
Published By Steve Huebl