Fixed mortgage rates proving sticky as economic data stays strong
North America’s economy keeps chugging along faster than anticipated, making inflation-sensitive bond traders twitch in their seats. Given that banks benchmark fixed borrowing costs to the bond market, those traders largely steer the direction of fixed rates.
For fixed rates to tumble, which economists seem to think (hope?) is just a matter of time, we’ll need more signs of disinflation. Friday’s pivotal U.S. inflation data and April 5th’s job numbers might give us just that, or not.
In this week’s rate race, the leading national lenders dropped default-insured two- and three-year fixed rates by 20 and 10 basis points, respectively. We also saw five basis point increases to uninsured hybrids and insured one-year rates.
The lowest-cost insured hybrid — half fixed and half variable — rose 3 bps to 5.69 per cent. For semi-risk-averse first-time borrowers on the fence about floating or locking, it’s a reasonable alternative to locking in your entire mortgage.
That said, if you trust the crystal ball that is Canada’s forward rate forecast, the best value for insured borrowers remains the five-year adjustable-rate mortgage (ARM). If the prime rate dives as expected, an ARM projects to save you more than any term. Those projections currently factor in a 200 bps decline in prime, as derived from forward rate data from CanDeal DNA.
For uninsured borrowers, the three-year fixed remains the leading value. That’s mainly because banks are being stingy on uninsured variable-rate discounts.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on Twitter at @RobMcLister.
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