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Waiting for Better Rates?

Waiting for Better Fixed Rates

BoC-and-fixed-rates The Bank of Canada’s next interest rate announcement is just two weeks away, and many mortgage shoppers are fixated on it.

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We’ve probably spoken to a dozen people in the last week who want a fixed-rate mortgage but don’t want to apply until the Bank of Canada meets March 3.  The thinking is that the BoC announcement will cause fixed rates to fall.

We’re used to seeing this psychology with variable-rate shoppers but not with fixed rates.  As such, it’s worth examining further the linkage between the Bank of Canada and fixed mortgage rates.

As many know, the BoC sets Canada’s overnight target rate.  This in turn influences prime rate, which directly affects variable rates.

Fixed rates are a different story.  Fixed rates are driven by bond yields (usually, that is—the last few quarters have been atypical).  The Bank of Canada has no direct control over bond yields, although it can influence them in certain ways.

The fact that bonds are independent from the Bank of Canada is something many don’t grasp.  For example, the entire country might expect the Bank of Canada to cut rates 1/4% on March 3, but if stronger-than-expected economic reports precede the BoC announcement, bond yields could jump.  In that case, fixed mortgage rates could increase while variable rates fall.  (We’re not saying that will happen this time. It’s just an example.)

So how much do fixed rates really follow the Bank of Canada’s lead?  According to TD, “for every percentage point of central bank easing (for example), the 5-year yield should decline by 70 bps.” 

We ran our own tests and found the correlation between prime rate and 5-year bond yields to be 69.5% over the last 10 years.  So, a fair amount of time, bond yields will deviate from prime rate. 

That makes sense because 5-year yields are driven by demand for long-term funds while prime rate is linked to demand for short-term funds.

The chart below illustrates how the direction of 5-year yields and prime can differ drastically over 3-6 month timeframes.


In sum, bond yields and prime rate (and fixed and variable rates) do move together long-term.  But short term, anything can happen.

So.  Should fixed-rate mortgage shoppers wait until the Bank of Canada’s rate announcement before locking in? 

In our view, no.  It’s just a gamble.

There isn’t much foreseeable to gain by doing this unless one feels strongly that the Bank of Canada will scare the market with a dire economic forecast…and drive down bond yields.

Most folks in this boat are simply trying to outguess the market, which no one can do consistently.  Moreover, they’re disregarding the fact that fixed rates are already at historic lows. 

Why bother with greed-driven chance taking when you can lock in now, get assurance that your rate won’t go up, and have the ability to request a downward rate adjustment should your lender drop rates in the next few weeks?



*article reprinted from canadamortgagetrends and remains property of canadamortgagetrends







Here are a few of my favorite past articles from my Lethbridge real estate and mortgage blog you might have missed or wish to recommend them to a friend.

Common Financial Problems - Avoid these financial mistakes
Get Your Credit Score UP - Invaluable insight into your credit score
Mortgage Guidelines Get Tighter - Harder and harder to borrow money
Is Your Mortgage Company Out of Business in 2009? - What to do when your bank goes broke
What is wrong with MLS - Is your info being abused?
Survivor - Real Estate Edition - Let's vote a few more off the island



Robert May is a Realtor, as well as the broker and owner of Rainbow Realty of Lethbridge Alberta. He is also a licensed mortgage associate and financing expert with Canada First Mortgage of Calgary Alberta. He has been in the real estate industry since 1993 and offers full MLS real estate services to Lethbridge and surrounding area, as well as mortgage financing, refinancing/renewals, preapprovals, and home equity financing to Lethbridge and Southern Alberta. He can be found online at



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Robert W May is a Real Estate Broker in Lethbridge Alberta, having now been in the industry for over 23 years. . He was also a licensed Lethbridge mortgage broker and financing expert with Canada First Mortgage of Calgary Alberta for the past 10 years.  He is an industry leader always willing to help train and educate others in how to improve their business models for financial and personal benefit.



Comment balloon 7 commentsRobert May • February 19 2009 11:03PM


Hey Robert, do you offer variable rates and do you recommend them? Some people that were able to get mortgages over the summer were able to get prime minus .8 or .6%.  In your opinion, should these people be thinking of locking into a fixed rate anytime soon?

Posted by Brian Cowan over 9 years ago

I do offer variable rates, however I do not recommend them to clients.  Anyone who had one prior to the mortgage crisis may have a phenomenal rate of P- 1% even!  If that is the case, I encourage those people to take advantage of it and to pay down as much as they can while at that low rate.

Currently virtually all the variable products out there are P +1%, which is actually more then the fixed rates.  This indicates that the lenders do not believe the rates will be moving up anytime soon.  Right now I am recommending clients take terms that match with their lifestyle plans.


If they plan on staying in the house for a period of 3 years or longer, I have been recommending one of the rate specials currently on offer such as the Merix 3 year term for 3.75%  or their new 5 year for 3.99%


Both are as low as one could ever hope for and give the opportunity to make some headway in getting a home paid off while rates are at record lows.


I guess that is one key area where I differ from many in my industry.  I actually want to see my clients get their homes paid off, while others just want to keep on selling loan products to the same clients indefinitely.


Thanks for commenting, I like to talk too much, lol.

Posted by Robert May, Real estate consulting (Robert W May - Lethbridge Real Estate) over 9 years ago

Sometimes it's a good gamble to wait and see where the rates go, sometimes not.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) over 9 years ago

Good info Robert!! Lot's of folks assume that a change in BoC rate automatically means that fixed rates will be changing, when in reality this rate don't dictate fixed rates by any means whatsoever. Media doesn't help as they often fail to clarify this in their reports immediately following BofC rate adjustments.

Great Job with the blog!!


Posted by Shaun Serafini, B.MGT (Shaun Serafini - Mortgage Expert - All Source Mortgages ) over 9 years ago

Hey Shaun, how the heck have you been?  Lets get together for a beverage sometime next week.  Call me and let me know when you are free.

Posted by Robert May, Real estate consulting (Robert W May - Lethbridge Real Estate) over 9 years ago

Lethbridge Mortgage Broker Lethbridge Real Estate

Posted by Robert May, Real estate consulting (Robert W May - Lethbridge Real Estate) over 9 years ago

Lethbridge Mortgage Broker Lethbridge Real Estate

Posted by Robert May, Real estate consulting (Robert W May - Lethbridge Real Estate) over 9 years ago

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