Monday Mortgage Update: December 19, 2011

Alyssa Furtado
by Alyssa Furtado December 19, 2011 / 1 Comment

The mortgage industry was abuzz this past week when Ed Clark, CEO of TD Bank, stated that the Government of Canada should reduce federally insured mortgages from 30 years, down to 25. He believes it would slow our rising household debt without hurting the economy.[i]

It seems unlikely that the Government of Canada will make such a change, as they already made a similar change earlier this year when they announced the maximum amortization period that they would insure was 30 years, down from 35. However, it is still possible to obtain 35-year and 40-year mortgages so long as the borrower makes a down payment of at least 20%. According to Finance Minister Jim Flaherty, “We have tightened the rules three times … including this year, with respect to residential mortgages. However, we have low interest rates and some Canadians are taking advantage of those to take on some larger mortgages, so again we need to caution Canadians not to overextend themselves because interest rates eventually will go up”

However, the CEO of TD Bank doesn’t expect Canada to make his suggested change anytime in the near future. Mr. Clark remains optimistic that the Canadian economy will remain resilient next year due to the better than expected performance we’ve experienced over the last two years.

According to a recent report by TD economics, they expect the overnight rate to remain on hold at 1.00% until early 2013 where it will start to climb slowly. Since the overnight rate influences Canadian mortgage rates, based on TD Bank’s forecast, we can expect interest rates to remain at historic lows over the next two years, before we start to see them rise.

End of Period

Overnight Rate Target

Estimate of Prime Rate

Variable Rate at Prime -0.25

2011

1.00%

3.00%

2.75%

2012

1.00%

3.00%

2.75%

2013

2.50%

4.50%

4.25%

2014

3.00%

5.00%

4.75%

2015

3.50%

5.50%

5.25%

 

For more insight on future mortgage rates, Canadian Mortgage Advisor has produced the following graph which provides four major banks’ estimates of the target overnight rate through 2013.

Key Interest Rate Forecast

Last week, most Government of Canada benchmark bond yields finished lower by the end of week; this led to three banks lowering their respective fixed rates. Here is a recap of the rate drops we saw last week.

  • ING Direct dropped their 5-year fixed rate from 3.59% to 3.45%
  • RBC dropped their 4-year fixed rate from 4.79% to 3.64%
  • BMO dropped their 5-year fixed rate from 3.69% to 3.49%

Government of Canada benchmark Bond Yields: [ii]

Date

12-12-2011 12-16-2011

2-year bond yields

0.88

0.85

3-year bond yields

0.94

0.90

5-year bond yields

1.28

1.18

7-year bond yields

1.54

1.42

10-year bond yields 2.01

1.87

Where are Current Mortgage Rates this week?

Compare Mortgage Ratescompare mortgage rates

Discounted weekly 5-year fixed mortgage rates and 5-year variable mortgage rates from January 2011 to the present.

Mortgage Rates Canada

Discounted weekly 5-year fixed mortgage rates and 5-year variable mortgage rates over the past five years.

Mortgage Rates Canada

What mortgage products are Canadians buying?

5-year fixed mortgages and 5-year variable rate mortgages continue to draw the majority of interest on Ratehub.ca. Also remaining popular is the 2-year fixed mortgage currently at the low rate of 2.59%.

Mortgage Rates Canada

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


  • A great mortgage is shopping around and the smartest move you can make is letting a professional mortgage broker do the work for you.