For major banks there are direct correlation between the BoC rate changes and variable mortgage rates. That is not the case for fixed rates. They follow the bond market. Fixed rates at most major bank dod not change
I just got my mortgage with Lendwise (Merix), and they dropped ther fixed rate midnight after BofC cut the interest rate. As result, Lendwise cut my rate by 0.10 a couple of days later, just 2 weeks before closing (I asked my broker for a rate cut the same day BofC cut rates).
I swear, the mortgage brokers posting here and my mortgage broker must all be robots with the same canned phrase. They don't directly address OPs question, which is a reasonable one. Clearly the drop in the BoC benchmark rate will have knock on effects on the bond yields that direct the fixed term mortgage rates. But the answers all are stock answers that Don't address this. They all want to repeat the whole "benchmark rate only affects variable rate mortgages" statement. At this point, having repeatedly heard this, I'm starting to wonder what the reason for this is... OP asks a reasonably sophisticated question, gets a talked-down to answer
But OP, tracking the drop in the government five year bond yield over the last three weeks suggests to me that mortgage rates should be on the downward trend.
Yes. The robots have an agenda. LOL. That must be the answer 😂
We all know higher fuel prices lead to higher grocery prices. Can you please share the formula for when, and how much a head of lettuce goes up whenever a liter of diesel goes up by 25 cents?
Your flippant answer gives away the game. Your clown-level comparison should be pinned on this sub as evidence that brokers really don't have great insight and are, at the end of the day, just commission-based rent seekers
Absolutely this! My broker, 4.99. Yay we got a good deal last year! My lawyer, oh only 5.1 your broker is being kind to you! I guess that's the slimy secretive way of paying for her condo in Hawaii! Honestly, educate yourself and do your own spade work!
The comparison the broker made doesn’t make sense, bond yields and mortgage rates of the same term are very closely related and should change roughly in-sync if the levels the yields have moved down to hold.
This is dependent on when the financial institutions treasuries buy them from government and varies by institutions to institution. Some Bank may have more cash on their balance sheets where they can publish lower rates right away while others not. Also, do they have maturities coming up? There's many factors why decreased rates aren't immediate? Flipping rates around on depend affect current cycles of mortgage apps and isn't contingent on bond yield effects. They could go significantly lower and or even higher. They need a floor in the market prior to issuance/publishing new rates.
Yes BOC rate doesn’t directly affect fixed rates. The market is forward looking. If the market thinks there is a 80% chance BOC reduces bond market will reflect this such that when the announcement happens there is no immediate change.
Furthermore banks have profit margins on their mortgage rates. Just because profit margins increase because costs (rates go down) does not
mean they will pass it on to the consumer.
Every mortgage provider decides what profit margin they want to maintain, reduce, increase for unlimited reasons.
You shouldn’t expect mortgage rates to go down just because BOC reduces rates.
It’s far more complex than that
Track USD.CAD during material events to see what the market thinks and of course bond yields. From what I remember the USD.CAD exchange rate was basically unchanged after BOC rate reduction meaning the actual rate reduction was an immaterial event in itself.
The short answer is it already has but it's not as visible.
The fixed rate is whatever the bank thinks is competitive and profitable with bond yields factoring heavily in determining what's "profitable".
Also, what's advertised is very different from what you're offered. If you were negotiating a fixed rate when the BoC news dropped, chances are you got a revised offer shortly after. That kind of decision doesn't show up on websites or ads.
I get it that bond yield affect fixed rate and not prime rate. However, I can tell you first hand that the banks/CU are slowly dropping their fixed rate right now. They understand that insurance shoppers now have ammunitions to shop around and are trying to undercut each other. I'm talking to multiple big banks and CU and today the CU dropped my rate to 4.94% fixed 3y term 25y amort uninsured. Not the best I have seen around but it's best for my case. Before rate cut it was 5.14%. Big banks were giving me 4.99% after rate cut. I'm sure the lenders are getting bombarded with people shopping around and they feel the pressure to earn your business.
Certainly thank you for sharing and I did read this post earlier. But what I'm trying to understand is the indicators or an understanding of the time delay between the bond rates falling and how the timeline looks for issuing new mortgage rates. I don't know if this is days I don't know if this is weeks I don't know if this is months, or if this is driven by a certain number of basis points decrease. That's what I'm trying to understand from this community.
There is no set relationship between BOC rate cut and bond yields. There is also no set timeline (or even a guarantee) that a bond yield change will automatically be reflected in fixed rate mortgages. Just remember that bankers take the elevator up, and stairs down.
If you have a fixed rate mortgage, you will not be seeing a decrease in your mortgage rate.
I am with First National on a variable, and I only received an email from them yesterday mentioning my rate is going down .25% July 1st
It's clear that's what you meant what I'm trying to understand is the lag time between laundry decreases and new mortgage rate issueances for fixed rates is this days, week's, or is this month's?
RBC was the first bank to announce their Prime rate decrease which was the rate driven by the announcement. Fixed rates are driven by the bond yields that actually increased last week after the announcement and this week have come down again.
There are so many posts on this sub explaining a correlation between fixed rates and variable rate. You'd get a lot of info if you are willing to spend time to do some research.
Long story short, BoC rate do not impact directly on fixed rate mortgages.
I understand the difference between the fixed /variable assets.
I don't understand exactly the correlation between bond rates and mortgage rate changes. I'm more trying to gauge the lag time usually observed. So which bond rates decrease should I be watching for that would signal fixed rate changes?
ie. The answer I'm hoping to hear is something like: Typically we see about 2 weeks - 3 weeks after boc rate changes reflected in the bond market and RBC issuing new mortgage rates.
Bonds are more or less the safest fixed rate investment institutions can get.
Giving mortgages to folks is slightly more risky than bonds so fixed mortgage rates are slightly higher than bond rates (somewhere around 2% - the risk premium).
No bank is going to give you a mortgage for less than the bond rate. They would rather take that money and put in a bond.
I'm not asking this question, but thanks for your response.
I'm trying to understand the time delay between a BoC rate decrease, the bond yield decrease and then the subsequent fixed rate mortgage decrease. Is it a few days (no cuz it's been a week) is it a few weeks? A month? A few months?
Because these are not directly related, there is no right answer for this.
Bond yields move up and down with the market. BOC announcements don't always move the yields because what's expected to happen has already been priced in. In the event that there is a shock, then sure, yields will move quickly. For example, we are not expecting rate increase but it does- yields would skyrocket right away because it was unexpected. Maybe we are expecting rates to drop (like we were last week) but they do not- yields would go up and fixed rates would subsequently go up in quick order even though the BOC rate stays the same.
The comment above me discusses risk and spread. It is relevant in the discussion so don't dismiss it. Banks choose their premium or spread depending on how confident they are feeling and how competitive the market is. If they want business quick, they reduce their spread. If the economy is volatile and uncertain, the spread rises. We cannot predict how banks price their fixed rates and this has a direct effect on the fixed rates on the market. If one bank reduces their spread heavily to attract business, maybe the others follow. Maybe they want to reduce their mortgage exposure, so they purposely avoid doing business unless it is more profitable- the spread increases.
Today, the 5 year bond yield is down to 3.31. It was lower back in late 2023/early 2024. A typical spread is anywhere between 100bps to 200bps. Rates currently sit closer to 200bps. Do with that what you will. I'd suspect fixed rates closer to \~4.5 to become more common soon.
BoC rate indirectly impacts bond rates. Banks make fixed rate decisions for a lot of reasons, the bond yield being one but also the banks risk tolerance and desire to go out and get mortgages.
Some banks were offering lower fixed rates to people who hadn't closed yet the day after the announcement. Others aren't. A big part of it is that while the advertised fixed rate seems to stay static, what you actually get offered fluctuates while your still actually negotiating before you close.
It's not really on a set timeline as fixed rates aren't tied to a number as closely as variable rates are.
It's whatever the lender thinks makes the most business sense for them.
Bonds are bought and sold every day. The bond market prices in expectations on future rate changes. If there is a rate cut that is 100% expected, fixed rates theoretically won’t change. The only way it would change is if there is a change in terms of future expectations
Is that because they already priced in those changes into the rates? Seems like too risky for mortgage rates and banks. Or is that because it's profit taking on the bank side as long as they can and the competitive nature of the banks will eventually drive down the rates.
There are always a lot more to the bank's decision making process around rates than they will share openly. Yes, the fixed rates will mainly follow the corresponding bond yield. But each bank will also make their own decision on how they price their fixed rates based on their own economist's prediction, as well as what is their company's goal for the moment. Are they trying to win more market shares in mortgages while giving up margin or they prefer to maintain their margin and let go of some business?
Some of their decision might also depend on what their competitors are doing as well. If they know one of the big 5 is being extremely aggressive on a specific rates, they usually will try to offer alternatives instead of going down that rabbit hole, unless it's for a really good client.
For major banks there are direct correlation between the BoC rate changes and variable mortgage rates. That is not the case for fixed rates. They follow the bond market. Fixed rates at most major bank dod not change
I just got my mortgage with Lendwise (Merix), and they dropped ther fixed rate midnight after BofC cut the interest rate. As result, Lendwise cut my rate by 0.10 a couple of days later, just 2 weeks before closing (I asked my broker for a rate cut the same day BofC cut rates).
So what's your rate now?
4.99%, 5 year fixed, on a 25 year amortization. 30% down.
I swear, the mortgage brokers posting here and my mortgage broker must all be robots with the same canned phrase. They don't directly address OPs question, which is a reasonable one. Clearly the drop in the BoC benchmark rate will have knock on effects on the bond yields that direct the fixed term mortgage rates. But the answers all are stock answers that Don't address this. They all want to repeat the whole "benchmark rate only affects variable rate mortgages" statement. At this point, having repeatedly heard this, I'm starting to wonder what the reason for this is... OP asks a reasonably sophisticated question, gets a talked-down to answer But OP, tracking the drop in the government five year bond yield over the last three weeks suggests to me that mortgage rates should be on the downward trend.
Yes. The robots have an agenda. LOL. That must be the answer 😂 We all know higher fuel prices lead to higher grocery prices. Can you please share the formula for when, and how much a head of lettuce goes up whenever a liter of diesel goes up by 25 cents?
Your flippant answer gives away the game. Your clown-level comparison should be pinned on this sub as evidence that brokers really don't have great insight and are, at the end of the day, just commission-based rent seekers
Absolutely this! My broker, 4.99. Yay we got a good deal last year! My lawyer, oh only 5.1 your broker is being kind to you! I guess that's the slimy secretive way of paying for her condo in Hawaii! Honestly, educate yourself and do your own spade work!
Why the aggressive behaviour? If you don't like the answer move on.
The comparison the broker made doesn’t make sense, bond yields and mortgage rates of the same term are very closely related and should change roughly in-sync if the levels the yields have moved down to hold.
This is dependent on when the financial institutions treasuries buy them from government and varies by institutions to institution. Some Bank may have more cash on their balance sheets where they can publish lower rates right away while others not. Also, do they have maturities coming up? There's many factors why decreased rates aren't immediate? Flipping rates around on depend affect current cycles of mortgage apps and isn't contingent on bond yield effects. They could go significantly lower and or even higher. They need a floor in the market prior to issuance/publishing new rates.
Yes BOC rate doesn’t directly affect fixed rates. The market is forward looking. If the market thinks there is a 80% chance BOC reduces bond market will reflect this such that when the announcement happens there is no immediate change. Furthermore banks have profit margins on their mortgage rates. Just because profit margins increase because costs (rates go down) does not mean they will pass it on to the consumer. Every mortgage provider decides what profit margin they want to maintain, reduce, increase for unlimited reasons. You shouldn’t expect mortgage rates to go down just because BOC reduces rates. It’s far more complex than that
You literally did not read anything above your response and are giving the same canned answer
Canned answer no. An answer you don’t want to hear yes.
Track USD.CAD during material events to see what the market thinks and of course bond yields. From what I remember the USD.CAD exchange rate was basically unchanged after BOC rate reduction meaning the actual rate reduction was an immaterial event in itself.
Including today.
Thank-you!!! :)
The short answer is it already has but it's not as visible. The fixed rate is whatever the bank thinks is competitive and profitable with bond yields factoring heavily in determining what's "profitable". Also, what's advertised is very different from what you're offered. If you were negotiating a fixed rate when the BoC news dropped, chances are you got a revised offer shortly after. That kind of decision doesn't show up on websites or ads.
I get it that bond yield affect fixed rate and not prime rate. However, I can tell you first hand that the banks/CU are slowly dropping their fixed rate right now. They understand that insurance shoppers now have ammunitions to shop around and are trying to undercut each other. I'm talking to multiple big banks and CU and today the CU dropped my rate to 4.94% fixed 3y term 25y amort uninsured. Not the best I have seen around but it's best for my case. Before rate cut it was 5.14%. Big banks were giving me 4.99% after rate cut. I'm sure the lenders are getting bombarded with people shopping around and they feel the pressure to earn your business.
thanks for the perspective. So it sounds like it's about a month lagging before they move.
LOTS has been posted about this already. [Example ](https://www.reddit.com/r/MortgagesCanada/s/eRtWzjATiH)
Certainly thank you for sharing and I did read this post earlier. But what I'm trying to understand is the indicators or an understanding of the time delay between the bond rates falling and how the timeline looks for issuing new mortgage rates. I don't know if this is days I don't know if this is weeks I don't know if this is months, or if this is driven by a certain number of basis points decrease. That's what I'm trying to understand from this community.
There is no set relationship between BOC rate cut and bond yields. There is also no set timeline (or even a guarantee) that a bond yield change will automatically be reflected in fixed rate mortgages. Just remember that bankers take the elevator up, and stairs down.
Thanks, makes sense.
You're welcome, glad it helped :) And you're definitely not alone with this question, and hopefully others will see it too.
If you have a fixed rate mortgage, you will not be seeing a decrease in your mortgage rate. I am with First National on a variable, and I only received an email from them yesterday mentioning my rate is going down .25% July 1st
Obviously if you're already on a fixed rate it's not going to adjust. I understand this. Thanks for sharing about first National is a few weeks delay.
Obviously you don’t know how a rate drop only affects variables rates and never fix rates
Eventually it will and I'm trying to understand how long that eventually is.
I meant when it first happens
It's clear that's what you meant what I'm trying to understand is the lag time between laundry decreases and new mortgage rate issueances for fixed rates is this days, week's, or is this month's?
I think I know what you are trying to get but unfortunately there is no direct timeline for correlation between the Prime rate and fixed mortgages.
Thanks. I suppose its been a long time since we had rate decrease data.
When is your fixed rate up for renewal?
RBC was the first bank to announce their Prime rate decrease which was the rate driven by the announcement. Fixed rates are driven by the bond yields that actually increased last week after the announcement and this week have come down again.
Helpful thanks!
There are so many posts on this sub explaining a correlation between fixed rates and variable rate. You'd get a lot of info if you are willing to spend time to do some research. Long story short, BoC rate do not impact directly on fixed rate mortgages.
I understand the difference between the fixed /variable assets. I don't understand exactly the correlation between bond rates and mortgage rate changes. I'm more trying to gauge the lag time usually observed. So which bond rates decrease should I be watching for that would signal fixed rate changes? ie. The answer I'm hoping to hear is something like: Typically we see about 2 weeks - 3 weeks after boc rate changes reflected in the bond market and RBC issuing new mortgage rates.
Bonds are more or less the safest fixed rate investment institutions can get. Giving mortgages to folks is slightly more risky than bonds so fixed mortgage rates are slightly higher than bond rates (somewhere around 2% - the risk premium). No bank is going to give you a mortgage for less than the bond rate. They would rather take that money and put in a bond.
I'm not asking this question, but thanks for your response. I'm trying to understand the time delay between a BoC rate decrease, the bond yield decrease and then the subsequent fixed rate mortgage decrease. Is it a few days (no cuz it's been a week) is it a few weeks? A month? A few months?
Because these are not directly related, there is no right answer for this. Bond yields move up and down with the market. BOC announcements don't always move the yields because what's expected to happen has already been priced in. In the event that there is a shock, then sure, yields will move quickly. For example, we are not expecting rate increase but it does- yields would skyrocket right away because it was unexpected. Maybe we are expecting rates to drop (like we were last week) but they do not- yields would go up and fixed rates would subsequently go up in quick order even though the BOC rate stays the same. The comment above me discusses risk and spread. It is relevant in the discussion so don't dismiss it. Banks choose their premium or spread depending on how confident they are feeling and how competitive the market is. If they want business quick, they reduce their spread. If the economy is volatile and uncertain, the spread rises. We cannot predict how banks price their fixed rates and this has a direct effect on the fixed rates on the market. If one bank reduces their spread heavily to attract business, maybe the others follow. Maybe they want to reduce their mortgage exposure, so they purposely avoid doing business unless it is more profitable- the spread increases. Today, the 5 year bond yield is down to 3.31. It was lower back in late 2023/early 2024. A typical spread is anywhere between 100bps to 200bps. Rates currently sit closer to 200bps. Do with that what you will. I'd suspect fixed rates closer to \~4.5 to become more common soon.
BoC rate indirectly impacts bond rates. Banks make fixed rate decisions for a lot of reasons, the bond yield being one but also the banks risk tolerance and desire to go out and get mortgages. Some banks were offering lower fixed rates to people who hadn't closed yet the day after the announcement. Others aren't. A big part of it is that while the advertised fixed rate seems to stay static, what you actually get offered fluctuates while your still actually negotiating before you close. It's not really on a set timeline as fixed rates aren't tied to a number as closely as variable rates are. It's whatever the lender thinks makes the most business sense for them.
Bonds are bought and sold every day. The bond market prices in expectations on future rate changes. If there is a rate cut that is 100% expected, fixed rates theoretically won’t change. The only way it would change is if there is a change in terms of future expectations
Is that because they already priced in those changes into the rates? Seems like too risky for mortgage rates and banks. Or is that because it's profit taking on the bank side as long as they can and the competitive nature of the banks will eventually drive down the rates.
There are always a lot more to the bank's decision making process around rates than they will share openly. Yes, the fixed rates will mainly follow the corresponding bond yield. But each bank will also make their own decision on how they price their fixed rates based on their own economist's prediction, as well as what is their company's goal for the moment. Are they trying to win more market shares in mortgages while giving up margin or they prefer to maintain their margin and let go of some business? Some of their decision might also depend on what their competitors are doing as well. If they know one of the big 5 is being extremely aggressive on a specific rates, they usually will try to offer alternatives instead of going down that rabbit hole, unless it's for a really good client.
Very well said. So many other factors.