Why do mortgage rates move up and down?

Mortgage Rates Move In A Direction We Are Not Used To

It finally happened, mortgage rates went up. We have seen years of exceptionally low mortgage rates aimed at keeping consumer demand for housing strong as our market moved up and down like a proverbial roller coaster. Finally, for the first time in a long time, the banks have raised their rates.

Why you ask? 

Bond yields which control longer term fixed rates are up 0.40% since May. Many things affect mortgage rates but the single biggest item is Government of Canada bond yields. Government bonds are 100% guaranteed to be repaid, but mortgages are not; therefore mortgages carry more risk of default or early repayment, which could potentially disturb the return on the investment. Therefore, mortgage rates must be priced higher to compensate for that risk. As bond yields increase, as do mortgage rates.

So what does a higher mortgage rate mean for the market? It can mean a ton. It means many fence sitters may jump off and jump in to the market, fearing for another potential increase in rates. It means many purchasers will be left with less affordability and may have to settle for less house or end up waiting all together. It means the economy is doing well. It can mean a lot. For the latest and greatest on your own personal area, I am always just a phone call away to answer questions.

If you know someone looking to buy or sell, rely on a professional who knows the market in and out, and is willing to go the extra step to build strong relationships. When you notice someone who could use my help, please take out your cell phone, look up my number and call me. This way we can talk about the best way to connect your friend with me so they have an opportunity to get the best advice first. 

Sincerely, Your friend in Real Estate.

Darin Germyn

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