It’s no surprise to see the mortgage rates fluctuate quarter over quarter in Canada. But when you are getting ready to purchase a home a fluctuation can be a big deal. You need the best rate possible now and into the future, and knowing whether you should hold off for better rates is something worth analyzing. Yet, determining how mortgage rates will act is not black and white, there are lots of factors that are in play that influence the rates on the market. So, before you make any decisions, check out our quick guide to understanding why mortgage rates fluctuate, and then talk to a mortgage advisor for the guidance you need.
Mortgage Rates
When the economy is growing and doing well, mortgage rates usually follow by edging upwards. For example, in July 2017 the Bank of Canada increased the mortgage rates by 25-basis points and then did the same in September. These changes were all driven by economic growth.
Interest Rate Outlook
Inflation also plays a big part in how the mortgage rates fluctuate. You can see how this relationship exists by looking at the current Canadian economic landscape. Throughout 2017 Canada has seen positive economic growth, and if this growth is sustained in the future, we will likely see higher inflation as a result. And if inflation rises the Bank of Canada will probably continue to increase the interest rates. Likewise, if the inflation rates stay low as they are today, then there will be little urgency to raise the rates.
Bank of Canada (BoC) Rate
Canada’s central bank’s focus is on the monetary policy of the nation. The bank is responsible for making decisions that influence the economy by regulating the amount of money that flows in and out of Canada both nationally and internationally. In lieu of these actions, the government can control interest rates and inflation which has an overall impact on the mortgage rates.
How Mortgages are Funded
How your variable rate mortgage and fixed rate mortgage is funded also plays a part in how the rates fluctuate. The variable rate mortgages are linked to the prime rate, so you can see the mortgage rates fluctuate when the prime rate moves. Fixed mortgages, on the other hand, are often determined based on the Government of Canada Bond Yields. If bond yields are increasing you will likely see an increase in the fixed rate mortgages and vice-versa.
Competition
Mortgages are big business for banks, and if a lender wants to increase their business, they will drop their prime rate that will lower the variable mortgage rates. And if other lenders follow suit to stay competitive this will also result in more dipping in the prime rates.
Understanding mortgage rates and how they are determined is a very complex process. So, when you’re looking for a new mortgage or are reaching your renewal date, talk to us at The Financial Forum first. We have the mortgage expertise you need to help you understand your mortgage options and the best rate for you going into the future.
