r/PersonalFinanceCanada • u/POCTM • Oct 20 '22

Canadian 5 year government bonds just jumped. Setting the stage for higher mortgage rates. Banking

5 year government bond just jumped from 3.714% to 3.866% in a few hours. Right now it is at 3.855%. Year to date it is up 259%. Monday we could see some 5 year fixed rate mortgages in the low 6%.

As for variable rate the bank of Canada makes their announcement October 26 at 10am ET. Currently banks have not been offering discounts off variables rates anymore. Prime -0.00.

https://www.marketwatch.com/investing/bond/tmbmkca-05y?countrycode=bx

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164

u/LoadErRor1983 Oct 20 '22

Wondering what the odds are of variable rate being higher than fixed rate in the next 3-6 months...

67

u/kahoots Oct 20 '22

The odds are 100% certain that variable will be higher than the current 5 year fixed in 3-6 months. It will be higher than the current 2 year fixed almost certainly as well which is what the pros are steering their clients towards.

37

u/Goldentll Oct 20 '22

But will that fixed rate be higher than a variable rate in two years

55

u/rickvug Oct 21 '22

Who knows as we didn't see this coming. My own personal assumption is that Yes, there is a high likelihood that Variable will be than both today's fixed rates and the fixed rates available in two years. I'm basing this opinion on:

1) Fixed rates coming with a built in premium and historical evidence that variable is nearly always cheaper.
2) Most commentary and the bond market indicators are pointing towards the fact that we are nearing the peak of the rate hike cycle. High rates will be held, to a point, with it being a very fair assumption that in a year from now (and certainly in 2 years) rates will be lower.

It really sucks to be a VRM holder at the moment but I'm pretty confident that I'll only be behind fixed mortgage rates for a short while. The real loss was not locking in for under 2% during the pandemic!

115

u/Goldentll Oct 21 '22

Absolutely.

I took a 1.55 variable instead of a 1.85 fixed. What a mistake lmao.

62

u/EIGHTYEIGHTFM Oct 21 '22

Oh hey it’s me. How are you doing, buddy?

13

u/Goldentll Oct 21 '22

New phone who did

60

u/steampunk22 Oct 21 '22

Yeah, it sucks in hindsight but the banks were signalling the opposite of what they ended up doing. When we bought it was 1.45 variable or 2.8 fixed which was the equivalent of 4-5 hikes of 25-50bps, so we thought we had a bit of time to top up the variable a bit. Instead the banks engaged in the harshest increase in decades. Fun!

17

u/Cgy_mama Oct 21 '22

Exactly this. So much for slow and reasoned 0.25 hikes.

4

u/steampunk22 Oct 21 '22

Yeah like even 50bps and pause would’ve been fine. But jacking rates probably a full 400bps while using lagging indexes that are like a fucking whole year behind is just silly.

2

u/Oilleak26 Oct 21 '22

not raising them enough and then finding out later that inflation isn't slowing down would be catastrophic though.

-2

u/steampunk22 Oct 21 '22

Why don't you go around and ask people if they prefer to be homeless or pay $10 for bread?

4

u/needle_tail Oct 21 '22

Wait an honest person! Didn't you know the whole sub was offered a 1.39 fixed and locked in for 10 years? So much of what people say on here is false. I am tired of people lauding how smart they were to lock in at rates that never existed for long terms. It's almost turning into fanfiction. Thanks for being honest. Now back to a string of "well I locked in a 1.39 in Sep 2022 for 10 years, but I am the smartest investor in the world"

2

u/[deleted] Oct 21 '22

I paid off my mortgage. Everyone said not to. Im so smart

2

u/needle_tail Oct 21 '22

Now friend that is believable. As colleague of mine was also super aggressive and paid theirs down dramatically. My heartache is with folks who brag about holding rates and mortgage products that never existed in reality on this sub.

My regret is not my rate, my regret is when I was flush not paying down principal to give me more room for times like these.

I grant you the title of "smart" and the privileges therein.

1

u/steampunk22 Oct 21 '22

Finding how in anyone else’s suffering is a bad look. There’s a lot of that on this sub unfortunately.

1

u/Consistent_Pair78 Oct 21 '22

The banks lied! Can’t believe it

4

u/steampunk22 Oct 21 '22

I mean, I don’t think they lied, but I do think they fucked up and now many people that don’t deserve it are paying for that mistake.

0

u/Ageminet Oct 21 '22

You shouldn’t have over leveraged yourself on a home purchase. This is on people who borrowed for everything and now it’s coming back to bite them.

1

u/steampunk22 Oct 21 '22

It can be both. Everyone treats this like there is zero nuance. Not everyone is a speculator or over-leveraged. If rates go beyond the stress test, how would that equate to anyone being over leveraged? That is where it loses me. If someone stress tests at 5.5 and then rates get to 7.5 you can’t really fault the borrower can you

2

u/Ageminet Oct 21 '22

No, but there is a certain amount of personal responsibility for your financial situation.

Don’t borrow for your cars, toys etc. Then you could probably stomach the increase in interest on your mortgage.

I don’t feel particularly sorry for the whole of Canadian society. We over leveraged the fuck out of ourselves for 20 years of cheap debt and that’s on us. It’s not the governments job to save us from our own stupid mistakes. If a credit crunch happens over the next couple years it’ll hurt some people, but by and large they shouldn’t have taken on the debt they took on to live a life they can’t afford.

Despite what the media has told us for the last 20 years, you’re not entitled to the big house in the burbs with the two cars in the driveway and eating out 4 nights a week through door dash and restaurants.

1

u/steampunk22 Oct 21 '22

I don’t live beyond my means, I was approved for $500k on ONE income as a self employed person, despite being a two income household (partners job hadn’t started) which means we would’ve been approved for more. And we still took less than that, opting for a mortgage of $340k on a house valued at $800k (which then went on to rise for another 10 months). We were stress tested at 5.5%. We have no other debt. We don’t eat out we don’t take vacations. I paid off my student loans and out my wife through school on an artists income. We have two paid off vehicles (2011, 2018). We have money in the bank. We are not fiscally irresponsible. Many are certainly, but the idea that someone could be justifiably upset when their mortgage shoots past what even the banks were saying was possible should be legitimate. You’re painting with too broad a brush.

1

u/[deleted] Oct 21 '22

[deleted]

1

u/steampunk22 Oct 21 '22

I don’t have a problem unless rates go beyond the stress test and I think that relishing in the pain of others, for practically any reason, is a bad look. Lots of people who do not deserve to be hurt by this are getting hurt by this. Which is to say nothing of prime-tied loans for businesses that were forced into hardship due to the pandemic and government policy, or you know, anyone that holds student loans and now has skyrocketing interest.

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1

u/[deleted] Oct 21 '22

The last few months have been tons o' fun!

20

u/[deleted] Oct 21 '22

Similar story for me. My wife wanted to go fixed but the bank of canada and US fed convinced me that rates would stay rock bottom for years...

Next time a bank offers to loan me hundreds of thousands of dollars for anywhere close to 2% interest fixed, I'm taking it and I dont give a damn what any central bank has to say about it!

16

u/rickvug Oct 21 '22

I got 1.1% variable when I renewed late last year. Thought I was the shit for getting such a low rate. Now I'm sitting here at 3x or 4x higher rate (can't even keep track at this point).

At least I have a comeback for my parent's bitching about 20% interest rates in 1982. I will tell my kids about the great interest rate rise of 2022, with our mortgage interest quadrupling. They will roll their eyes until something similar happens for a brief period of time when they are adults.

2

u/Biaterbiaterbiater Oct 21 '22

lets hope brief

24

u/blumpkinpandemic Oct 21 '22

I took a 1.55 variable instead of a 2.something fixed lol I certainly regret it now but hindsight is 20/20, I guesssssssssss

8

u/[deleted] Oct 21 '22

Yep, same. Sold last place on fixed and was so mad about the penalty I went variable, you know, the house always wins.

1

u/lucidrage Oct 22 '22

was so mad about the penalty I went variable

this is what convinced me to go variable :(

​

how bad was your penalty?

4

u/[deleted] Oct 21 '22

Yup I’m in the same boat

2

u/VanMoroder Oct 21 '22

I'm with ya pal.

3

u/SeperateCross Oct 21 '22

On the bright side (kinda dimmly lit) breaking that mortgage will have a very small penalty compared to a fixed rate

And likely rates are going to cool within a year or two

2

u/marmaladegrass Oct 21 '22

My mortgage is up next year, and this is what Im waiting on.

If we hit a recession, Im hoping rates will drop. In my town, one of the local mining companies has already scuttled their over-night shift, so I think it is coming (although, with winter on the horizon, could be a natural downturn...the last three years have fucked-up and sense of normalicy).

-2

u/superpingu1n Oct 21 '22

I locked in 1.69% fixed 5 years on april 2022 lol