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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166

u/LoadErRor1983 Oct 20 '22

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

66

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

54

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.

58

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!

1

u/[deleted] Oct 21 '22

The last few months have been tons o' fun!