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This week on RateSpy TV:
- Sky High Prices & Your Mortgage: Big-city home prices are going orbital. That’s making it harder to score a mortgage approval. The Spy tells you how hard.
- Check Your Broker: A tiny fraction of mortgage brokers are not on the up and up. Regulators have now made it easier to find them. But here’s the rub, the government’s done nothing to help you find shady bankers and credit union reps.
- Rate Surveillance: Bond yields make a 2-month low and fixed-rates follow.
- Stars & Dogs: This week’s heroes and duds in the mortgage rate market.
9 Comments
Really like the show!
I appreciate the time and effort invested into putting this production together. What a great summary of the past couple of weeks’ rate news.
I’ve read a couple articles on people who have crunched the numbers, and in the past 25 years, going with 5yr variable has almost always lead to lower interest costs over the term of mortgage vs a 5yr fixed. Most humans instinctively over-estimate risks, and I think it holds true when it comes to mortgage rates.
When I can get a 5yr variable for 25bp less than a 5yr fixed, I’ll take it. And when I can get a 1 or 2yr fixed for less than a 5yr variable, I’ll go that route.
Hi Ralph,
There are key biases in most fixed vs. variable research studies. Examples include their assumptions on rates and rate spreads, as well as the long-term downtrend in rates. These biases skew the conclusions and are commonly overlooked.
When one backtests fixed-variable spreads as tight as today’s, 5yr fixeds outperform a meaningful minority of the time — up to 4 out of 10 times, according to my research. More on that: https://www.canadianmortgagetrends.com/canadian_mortgage_trends/2014/03/analyzing-bmos-go-fixed-advice.html
You’re totally right about taking a good short-term mortgage instead of a variable if it provides meaningful savings.
I’ve seen a lot of talk and analysis of bond yields, but I still don’t fully understand the correlation with fixed mortgage rates. If yields broke above the 1.33% threshold you mentioned, what kind of rate hikes would we be looking at?
Thanks in advance, love the show!
Hi Karen,
People who fund mortgages have a choice of where to invest their money. Hence, yields on mortgages depend on what yields investors can get elsewhere. Mortgages are largely funded in the bond market. In other words, lenders raise capital there to lend out. That’s why benchmark yields (the most important being the 5-year government bond) typically lead fixed mortgage rates.
5-year yields and 5-year fixed rates usually move together. If the 5-year yield rose 20 bps above its recent high for example, we’d expect 5-year fixed rates to rise about the same.
There are also other factors weighing on fixed rates (e.g., risk premiums, hedging demand, regulatory costs, etc.), but that’s getting too much into the weeds. For laypeople, yields are a good enough proxy for lenders’ base funding costs, such that watching them gives you a pretty good idea of where rates are going short-term.
This makes sense, thanks so much for this explanation!
How is it that bank mortgage specialists don’t fall under the same regulatory rules as brokers?? I mean, technically I get why in terms of the jurisdiction they fall under. But it doesn’t make sense that one group is made to be accountable (as they should be) while the other group gets essentially a free pass.
I’ve long held that FCAC does far too little to police bank mortgage specialists. Banks are expected to self-regulate. The deterrent effect for bad seed bankers is the fear of getting fired by the bank. I promise you that is nowhere near the deterrent effect of a regulator coming down on you.