Markets are showing optimism about a U.S. proposal to end its war with Iran this week, and bond yields dropped quickly in reaction. But mortgage brokers say they’ll have to fall even further before fixed mortgage rates decrease.
The Canada five-year bond yield dipped from 3.29 per cent to 3.15 per cent between Monday evening and Wednesday morning, a roughly 4-per-cent drop. Fixed mortgage rates are heavily based on bond performance.
“In the bond business, that’s a huge move,” said Ron Butler, founder of Butler Mortgage in Toronto.
There’s still a long way for bond yields to drop before they reach the mid-to-high 2 per cent range, which is where yields were before the Iran war started in late February. Five-year fixed mortgage rates have jumped by about 50 basis points since the prewar period.
Lenders were quick to increase their rates alongside bond yields, but experts say lenders will be much slower to decrease their rates when yields go down.
“They’re always quick to increase rates as yields rise, but vice versa, when yields are declining they tend to be a bit slower to react,” said Victor Tran, a mortgage specialist with Rates.ca.
The war in Iran has been the largest driver on the direction of mortgage rates in Canada this year, but renegotiations of the Canada-United States-Mexico Agreement, known variously as CUSMA or the USMCA, could become a major factor this summer.
The Bank of Canada has already said that new barriers to free trade would force it to drop interest rates to protect the economy from shocks.
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Mortgage rates are sourced by Ratehub.ca. For a comprehensive list of today’s mortgage rates for each term/type, visit ratehub.ca/best-mortgage-rates.
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