August 21, 2019

The Case of the Disappearing Variable Mortgage Rate Discounts

TORONTO, ONTARIO, Nov 07, 2011 (MARKETWIRE via COMTEX) — Variable mortgage rate discounts have dropped 45 basis points in under two months, despite no change to Bank of Canada interest rates. The disappearing act isn’t over yet, says RateSupermarket.ca’s Mortgage Rate Outlook Panel for November 2011.

It’s expected that variable rate mortgages could increase as discounts to prime shrink even more in the short term. The Panel also believes fixed mortgage rates will stay constant; lenders are unlikely to make any hasty decisions given the recent job loss numbers for October and the fluctuating bond market.

Fixed mortgage rates: Unchanged

The financial issues in Europe are continuing to affect Canadian bond yields, which have fluctuated by over 50bps in the last month alone. Indecision in Greece and throughout the continent is causing people to flock to the safety of Canadian bonds, driving yields down.

With all this action, our Mortgage Rate Outlook Panel members believe the banks are likely to employ a ‘sit and wait’ approach, meaning fixed mortgage rates are expected to stay constant in the short term.

Variable mortgage rates: Up

The Bank of Canada made no change to interest rates at their last meeting. This is expected to be the norm well into the New Year as the likelihood of a double-dip recession continues, especially given the recent increase in the unemployment rate. This means bank prime rates won’t change anytime soon.

However, our panel members can’t say the same about discounts off Prime. Disappearing discounts will continue as banks aim for greater profitability. As a result, the Panel believes Canadians can expect variable mortgage rates to inch up in the short term.

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