There has been much anticipation that a cut to prime rate will be coming. In this morning’s scheduled rate announcement by the Bank of Canada, they stated that there will be no changes to their overnight rate, which means there is no increase to prime rate. So the wait continues. There is still a high probability of a cut to prime rate, however we’ll have to wait a bit longer.
In most cases, the Bank of Canada rate announcements refer to prime rate only, which affects variable rate mortgages and HELOCs (Home Equity Line of Credit). They generally do not have a direct impact on fixed mortgage rates, however this is not always the case.
Fixed mortgage rates are determined by bond yields. When the yields trend downward, this puts downward pressure on fixed rates. When they trend upward, the opposite occurs. Today, bond yields are down 1.49% at time of publishing this article. Prime rate is status quo yet the yields drop, placing more downward pressure on fixed mortgage rates. They have been falling fairly quickly since May 21st. If they continue to drop, we’ll see fixed mortgage rates drop. No announcement needed. I’ve been saying for the past several months that fixed mortgage rates may reach the mid-2% range by sometime this summer. This is likely what will end up happening, but of course, time will tell.
Rates have been in a downward spiral since early February when the lowest 5 year fixed rate was 3.69%. As of now, the lowest 5 year fixed rate has dropped to 2.74%*…..almost a full 1%. There is a decent chance that we’ll see rates drop even further over the next week.
The spread between fixed and variable has been substantially reduced. Fixed rates now range from 2.74% – 2.99%*, depending on your situation. Variable rates range from prime -1.25% – prime -0.70% (2.70% – 3.25%)*. In some cases, variable rates are even higher than fixed rates. For this reason, few are choosing variable rates these days.
The next scheduled interest rate announcement from the Bank of Canada will be on July 10, 2019.
*Rates vary based on down payment / equity percentage, property value, etc. Please get in touch with me to find out the lowest rate available fro your situation.
Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank – How to Win The Mortgage Game in Canada, and has ranked as one of the top 75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage Broker of the Year in 2018, and can be seen as the exclusive mortgage broker on season two of TV’s Top Million Dollar Agent.