The Bank of Canada (BoC) has been reducing its overnight rate, dropping by 125 basis points since May. While this typically impacts variable-rate mortgages, fixed mortgage rates may not follow the same trend. According to Don Drummond, a former chief economist at TD Bank, fixed rates could stay steady despite these cuts. Here’s what you need to know:
1. Fixed Mortgage Rates Are Driven by Bond Yields
- Drummond emphasizes that fixed mortgage rates depend on bond yields, not directly on the BoC’s overnight rate.
- Currently, bond yields remain high and are unlikely to drop significantly in the short term, keeping fixed mortgage rates steady.
2. Bond Yields Could Stay Above 3%
- Drummond predicts that bond yields may remain above 3% into next summer, even as the overnight rate drops to around 2.75%.
- With bond yields holding firm, fixed mortgage rates are likely to stay in the 4.9% to 5% range—close to where they are now.
3. The Impact of Historical Low Rates
- Drummond also highlights how the ultra-low rates of 2011-2019 made borrowing cheaper but pushed housing prices higher, reducing affordability overall.
- Today’s market reflects a shift toward more balanced (but higher) rates to address affordability challenges.
What This Means for Homebuyers
- While variable-rate mortgage holders might benefit from rate cuts, fixed-rate borrowers may not see much change in the near term.
- Understanding these distinctions is crucial when choosing a mortgage product that aligns with your financial goals.
At TopRankinMortgages, we stay on top of these trends to provide expert advice tailored to your needs. With insights from trusted sources like Don Drummond and the latest market data, we’re here to help you navigate a changing landscape with confidence.
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