Last week's downward trend in bond yields has finally started showing in mortgage rates as they have begun to come down due to the fear emanating from financial risk in Europe and USA. Across Canada, mortgage brokers and lenders have begun slashing fixed mortgage rates, by up to 60 basis points or 0.60 percent. This is following a 70 bps downfall in the Government of Canada's 2 and 5-year bond yields (most commonly associated with fixed mortgage rates) in a period of just two weeks. To sum up the bigger picture, as per MortgageLogic.news, the nationwide deep-discount 5-year fixed mortgage rates stand 30 bps lower than the same figure when the last week ended.
Markets have been volatile due to the collapse os the US-based Silicon Valley Bank (SVB) and Signature Ban, a little earlier in March 2023. Thus Bank of Canada in association with other banks chimed in to announce steps to ensure there is enough liquidity in the market. Central banks across Europe have said they will make the US dollar auctions a daily affair instead of the current weekly affair to negate the stress on markets worldwide.
Dave Larock, a broker at Integrated Mortgage Planners wrote in his blog that, "Lenders, and the institutional investors who fund their mortgages, won’t be in a hurry to put more of their capital at risk until they are confident that the recent bank failures aren’t precursors to a broader market meltdown. Also, while a lender’s base borrowing rates are falling, when they plunge in response to financial stability concerns there is always an accompanying increase in the risk premiums that lenders must pay."
Analysts feel that the stress in the financial system will lead to less credit availability. So what is in all this for mortgage borrowers? Some feel that these market conditions can offer variable-rate borrowers a chance to lock in a fixed rate. They would need to be cautious and not go for 5-year fixed rates. They also need to know their exact variable penalty and take up 2 or 3-year fixed-rate offers, if they see any saving potential. Analysts have also warned new borrowers against taking variable-rate mortgages until this extreme volatility of markets gets settled.
If you too are a borrower or looking to borrow and are in limbo about what the current market conditions mean for your borrowing situation, do reach out to us at LendX Financial in Brampton, Greater Toronto Area.