Again we enter the spring market with competition heating up between the banks. BMO dropped their 5 year fixed rate “low rate†product to 2.99% creating a major mortgage rate buzz! Canada mortgage brokers are also offering 5 year fixed rates below 3% but with full pre-payment privileges and flexibility unlike the BMO product.
How long can the banks keep rates this low? Well bond yields have stayed quite low but are poised to rise this summer economists say. The Canadian 5 year bond yield is currently at 1.71 as of March 31st. The spread is below the comfort zone of most bank targets at 1.50 to 1.80 depending on each individual lenders base rate. If there is an increase in bond yields, the spread will continue to shrink and this could be a trigger for interest rates to rise.  The typical comfort zone for Canadian banks and lenders is between 1.90 and 2.10 so as you can see competition is driving rates downward. This is great for consumers, bad for bank profits and investors!
As you can see on the graph above, during last spring’s rate war when mortgage rates were at similar levels the bond yield was significantly lower allowing the banks to keep their profitability within their target range. This tells us these very low rates today may not be around long!
Take advantage of the spring rate wars and get pre-approved at these great rates before they begin to rise! You can also use our quick app to get pre-approved as soon as possible!
