As we've discussed before, variable rate mortgages are linked to the Bank of Canada overnight rate, which really hasn't changed in a long time. That said, fixed-rate mortgages are linked to what's going on in the bond market - and more explicitly, tied to bond yields.
Canadian bond yields have been trending upward for the past six weeks. When bond yields go up, fixed rates do too!
*Image from inivesting.com - referenced below
So what's causing some of this? It seems there are two main factors:
1. The performance of the stock market. When the stock market is going up people are usually buying fewer bonds. When people buy fewer bonds, yields go up to make them more attractive and try to convince investors to buy them again. You may have noticed that the US stock market, in particular, has been on a good run of late.
2. Rumours about a reduction in the amount of bond buying that the US government has been doing. There are articles below that go into detail, but the US has been buying bonds in massive amounts, which had the effect of lowering yields overall. This is part of their "quantitative easing" program and an attempt to improve the economy down there. There's lots of debate about whether or not it's been working, but one thing is clear - they can't keep increasing the money supply forever. Rumours about reducing that bond buying program has spooked a lot of people and yields have spiked upward as a result.
As a result of the pressures I've just described, fixed mortgage rates have been under pressure to increase and all Canadian lenders have increased rates - some substantially - in the past month. We're receiving warnings from our lenders that this will continue.
How does this affect me?
Well, if you're in the market to purchase a home and need a mortgage, or thinking about refinancing your mortgage or if you have an upcoming mortgage renewal, you should get an application in in the next day or so at the latest. This will allow your mortgage broker to obtain an approval or pre-approval holding a rate for 120 days. If you don't do it now, you're likely to pay more in the future.