Here is an interesting article from Canadian Mortgage Trends on where the 5 year rate is headed. They say that lenders want to make sure the lower bond yields are not a “flash in the pan”, but with the bond yield going up to 2.52% and spreads falling below 2% today, I submit that we are going to continue to see that yo-yo effect on bond yields and that will keep the lenders from committing to a rate drop (based on bond yields) until there is some more stability on the spreads.
July 14, 2009
Will 5-Year Mortgage Rates Fall Further?
Banks last raised mortgage rates on June 9, when the 5-year bond yield was at 2.68%.
Since then, the 5-year yield (which guides fixed mortgage pricing) has fallen to 2.44%, but bank rates have not budged.
BMO economist, Doug Porter, told the Toronto Star it’s because banks "want to be convinced that it is not a flash in the pan and that any retreat in yields is sustained."
He says: "I believe that we are probably not too far away from that point. It might take a little more of a deeper rally (in bond prices) to make it completely convincing."
The often quoted CIBC economist, Benjamin Tal, thinks yields could fall another 0.05% to 0.10%, but any drop in fixed-rates will be short-lived. "By the end of the year, we'll start seeing rates rising," he says.
If rates do drop another 0.10%, it would translate into a $5.50 monthly payment savings for every $100,000 of mortgage. That’s a total savings of $478 over five years, assuming a 25-year amortization and typical fixed rates.
But remember, trying to time bond and mortgage rates is financially hazardous. While you’re waiting, rates can move the wrong way—quickly.
You’re usually better served by focusing on factors that can dwarf a 0.10% rate savings, like finding a mortgage with the optimal term and just the right amount of flexibility (pre-payment options, openness, re-advanceability, etc.). Too much flexibility is a waste, and too little can cost you in the long-run.
Posted at 12:03 AM in Mortgage Rate Trends
