Such as:

WHY IS THERE FREQUENT MOVEMENT IN MORTGAGE INTEREST RATES?
In answering this question we need to differentiate between types of mortgages. Although there is a vast array of mortgage product choices, for this article I will focus on the two most popular: five year fixed rate conventional mortgages and variable rate mortgages.

The bulk of the movement in five-year fixed mortgage rates can be explained by changes in five-year government bond yields. Although bond yields shift every day, significant and sustained trends in bond yields will often prompt subsequent fluctuation in mortgage rates. This strong correlation reflects the options available to mortgage lenders. For example the Lender can either lend it’s funds to a mortgage customer in the form of a five-year mortgage or lend the same funds to the Government of Canada by purchasing a five year bond.

However, the risk of lending to the Government of Canada is lower than the risk of lending to a single Canadian, so the interest rate on the loan to an individual must be higher. As a result, five-year fixed mortgage rates are higher than five-year bond yields, but the two tend to track each other quite closely over time.

In contrast, variable rate mortgages are set as a spread over the prime lending rate, which, in turn is set as a fixed spread over the Bank of Canada’s overnight rate. As a result, variable rate mortgage rates move in lockstep with changes in monetary policy set by the Bank of Canada

The relationship between variable and fixed mortgage rates and market rates also explains why you can periodically get seemingly contradictory movements in mortgage rates. To illustrate, if the Bank of Canada raises rates and bond yields fall because investors feel that the tightening of monetary policy will severely dampen growth and inflation, you can get the strange outcome that variable rate mortgages rise, but five-year fixed rates decline.

STAYING INFORMED REALLY PAYS…
If you are contemplating a home purchase, or renewing or refinancing your current mortgage, consider seeking the advice of a qualified mortgage professional – someone who knows and understands interest rate trends and who will provide you with sound recommendations and access to the most competitive rates and types of products. 

Cam Brown  is a licensed Mortgage Agent with Invis Financial and has been designated an “Accredited Mortgage Professional” by his Industry. Mr. Brown has over 20 years of banking and mortgage brokering experience and is a financial services expert. Mr. Brown is also a member of the Canadian Institute of Mortgage Brokers and Lenders (CIMBL) and the Alberta Mortgage Brokers Association. Mr. Brown may be reached at (403) 515-1171 or via email at .(JavaScript must be enabled to view this email address)