The balance has tipped in favor of variable mortgage rates

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A week into the Bank of Canada’s new rate cut cycle, bond yields are plummeting like an Olympic diver with no impact. The plummet is due to the growing belief that North American inflation will return to the two percent level so prized by the Bank of Canada and the US Federal Reserve.

And it will. Central banks always win.

In fact, there will come a time – probably next year – when mortgage borrowers will say to themselves: “Here I am, stuck on the fixed rate, while that variable rate spike was as obvious as a comb in a strong breeze.” ”.

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But that’s life. Hindsight is inevitable. So is the fact that we will see economic data over the next year that makes everyone doubt the defeat of inflation.

And to be clear, the 200 basis points of rate cuts the market is pricing in over the next 32 months (based on forward rates tracked by CandDeal DNA) are far from certain. For that reason, I would be the last one to call someone crazy for not floating their mortgage.

What we can say is that, despite all the risks, the balance has tipped in favor of the variable. This is true for all sorts of reasons, including the trend of rate creep after the Bank of Canada’s first rate cut, the downward momentum in inflation, the upward momentum in unemployment, the implied forward rates in the bond market, the inverted yield curve, research, and the advantage of variable rate prepayment (most variable rates allow you to lock in at any time or exit early with only a three-month interest penalty).

Meanwhile, the difference between the main variable insurance announced nationally (6.10 percent) and the fixed one (5.14 percent) has been reduced to 96 basis points. That’s the smallest rate advantage for fixed terms since last fall.

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However, if we take a leaf from the book of rate cycle history, fixed rates will fall even further. This current drop in bond yields could lead to more savings at fixed rates as soon as this weekend.

Oh, and if you’re up for renewal, don’t just renew, like 44 per cent of Canadians, and accept whatever rate your lender offers, as a Mortgage Professionals Canada survey just found.

Instead, compare your lender’s offer to the cream of the crop nationwide.

If you are well qualified and find a lender or broker that will save you at least a few grand, or provide you with superior features or mortgage advice, don’t be afraid to let your old lender eat the dust. In today’s era of digital mortgages, applying online, uploading a few documents, and closing really doesn’t take that much time.

Robert McLister is a mortgage strategist, interest rate analyst, and editor of MortgageLogic.news. You can follow him on X in @RobMcLister.”

Do you want to know more about the mortgage market? Read Robert McLister’s new weekly column in the Financial Post for the latest trends and details on financing opportunities you won’t want to miss.

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Mortgage rates

The rates shown below are updated at the end of each day and come from the Canadian Mortgage Rate Survey produced by MortgageLogic.news. Postmedia and Imaginative. Online Inc., parent company of MortgageLogic.news, receives compensation from certain mortgage providers when you click on their links in graphics.

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