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Monday Mortgage Update: April 9, 2012

Five-year Government of Canada (GoC) bond yields have been steadily rising since February, after sitting at 10-year lows for most of the tail end of 2011. Those low five-year bond yields from November, December and January helped fuel the ultra-cheap five-year fixed mortgages from the mortgage rate wars earlier this year; since bond yields help drive fixed rates. It’s possible that five-year GoC bond yields hit their floor in December and January and are now climbing back up towards the 10-year average. Since December of 2011, the GoC five-year bond yield has increased 29 basis points (bps) from 1.28% to 1.57% as of last Friday.

What can we take from this?

The 10-year average for five-year bond yields is 3.33% according to the Bank of CanadaAlthough five-year GoC bond yields are trending upwards, as a whole they are still considered quite low when compared to the 10-year average. So, even if the bond yields were to continue to rise, it would take some jumps just to reach the 10-year average. As mentioned before, bond yields drive fixed rates and so five-year fixed mortgage rates are also at historic lows and should remain favourable (i.e. relatively low) in the foreseeable future. Currently, the best five-year fixed rate on is 3.19%.

Mortgage Policy

“I’ve tightened up the mortgage insurance market three times … I really don’t want to do it again” – Jim Flaherty

According to Reuters, Canada’s Finance Minister Jim Flaherty believes that Ottawa shouldn’t have to step in to ease pressure off Canada’s mortgage and housing markets. He expressed concern that the onus should fall on the banks’ shoulders to curb high household debt since he has already tightened the mortgage rules three times.

Scotiabank CEO Rick Waugh has been the only outspoken bank executive to echo Jim Flaherty’s statements. The big bank CEO is quoted as saying, “It’s up to the banks themselves – not the government or regulators – to manage our risks and advise our customers appropriately”

Where are Canada Mortgage Rates this week?

A 5-year history of weekly 5-year fixed mortgage rates and 5-year variable mortgage rates

Canadian Mortgage Rates 2012

The lowest discounted 5-year variable rate has gone up 10bps over the past two weeks and is now available at 2.85%. The spread between discounted 5-year fixed and 5-year variable rates is only 34bps, making the fixed rate a more attractive option at the moment.

Note:  This is simply a small sample size and does not represent the entire market. It does, however, offer some useful insight.