Fixed Mortgage Rates Are Falling
February 10, 2023 | Posted by: Keith Leighton
Fixed Mortgage Rates Are Falling
While rates have been steadily climbing for variable mortgages, fixed mortgage rates have been moving in the opposite direction.
Certain lenders and national brokerages have been gradually dropping rates for select terms since the start of the month. Average nationally-available deep-discount 5-year fixed mortgage rates are now about 20 basis points lower compared to earlier in the month, according to data from MortgageLogic.news.
The move follows the recent decline in the 5-year Government of Canada bond yield, which typically leads fixed mortgage rates. The 5-year bond yield closed at 3.05% on Monday, bouncing back slightly from a 5-month low of 2.80% reached last week. Still, yields are down from about 3.40% four weeks ago and the 14-year high of 3.89% reached in October.
While this isn’t the first time fixed mortgage rates have dipped in recent months, some suggest that with expectations of a recession on the horizon and with the worst of inflation seemingly behind us, rates could continue to ease some more.
There is a very good chance that we’ve seen the peak in fixed mortgage rates and they’re now beginning to decline. Fixed rates are now priced about 120 basis points (or 1.2 percentage points) below variable rates.
There is an indication that the rates market is projecting Bank of Canada (BoC) rate cuts later this year. That is why fixed rates are lower than variable because the fixed rates are priced off the bond market and the bond market is clearly signalling that the worst of the inflation scare is behind us.
If the current trend continues, there’s a “very good chance” that 5-year fixed rates fall back to the low 4% range by the spring homebuying season.
If yields continue to tick down a little, the possibility that we end up with mortgages in the high 3% range is not outside the realm of possibility at this point. A lot can change, but the direction of travel for interest rates is trending downwards and that’s good news.
Short-term fixed rates growing in popularity
Many borrowers are clearly anticipating lower rates again in the coming years, which explains the rising popularity of short-term fixed rates. Data from the BoC shows a clear trend of borrowers shifting away from variable rates and towards short-term fixed rates.
Nearly a third of all new mortgage originations as of November had a fixed-rate term of under three years. It’s a trend that is expected to continue, so long as expectations are for rates to come down in the near term. In a year or two from now, rates are going to be substantially cheaper at renewal.
Whatever your mortgage needs, be sure to reach out to a DLC Ideal Mortgage expert to discuss your options. We are happy to help you.
