Earlier today I had a really good question from a client who wanted to know if the Bank of Canada’s Announcement about maintaining the overnight rate at 1% meant he could wait before deciding on a fixed-rate mortgage. This is my answer to him:
That’s an excellent question. The answer is “not necessarily”. There’s not a direct relationship between the Bank of Canada rate and the fixed rates on the market. Variable rates fluctuate with the BofC, but fixed rates are linked very closely to the bond market.
As bond yields increase, fixed mortgage rates increase. Bond yields typically rise and fall with the stock market. Track bond yields here.
As you can see, bond yields spiked up quite a bit today vs. yesterday – almost 10 basis points, or bps, which could have the same effect on fixed rates. Once a trend is established mortgage lenders will increase or decrease their rates in order to maintain a profitable spread over the bond yields.
For a 5 year fixed, for example, you can track the 5 year yield.
Hope this helps. At the end of the day, if the stock market goes up, fixed rates will too, and it won’t matter what the Bank of Canada does.