What did the bond rate do now? Down Down Down!

Source: Bank of Canada

A Calgary Mortgage Broker  has to watch the bond rates every day to see what is going to happen next to the Mortgage Rates.  They are heading down, and if they stay that way, the Mortgage Rates will go down to.  Read on for an explanation!

Questions:

How Do Bonds Affect Mortgage Interest Rates?
How Do Government Bond Yields Relate and Affect Mortgage Rates?

Answer:

Bonds are eye-catching to investors who want a fixed and established return on their investment. Most lenders and Banks fall into the classification.  In a typical market, the average "spread" or mark-up above the government bonds is about 120 basis points, or 1.2%. That mark-up widens and contracts with a variety of market circumstances, investor appetites, and amount of available product -- as well as the presence of rival investment opportunities.

Government bonds are 100% guaranteed to be repaid, but mortgages are not; therefore mortgages carry more risk of default or early payout, which could potentially disturb the return on the investment. Therefore, mortgage rates must be priced higher to compensate for that risk.

I bet you are trying to figure out if you should lock in your mortgage with a fixed rate or go Variable?

Traditionally I would always recommend a variable.  But with rates so low and the bond rates going down and the 10 year rate being within 1% of the 5 year rate I would say lock it in for 10 very soon!

If you are still apprehensive you don't necessarily want to choose. A couple of lenders have programs where you can have one mortgage charge and multiple terms.  Which means it will eliminate your stress with a solution to split your mortgage into chunks and diversify your borrowing across variable and fixed terms.   A format that has proved to be very popular from my days investing clients’ money into GIC’s and Term Deposits.  Diversification of your interest rate risk can minimize your interest rate risk and potentially lower your interest charges.   

Give your friendly Calgary Mortgage Broker a call to see how we can help you.