Whether you are looking to renew your mortgage, refinance or buy a property – this article is written with the purpose of educating you on the ‘behind the scenes’ mechanics that determine whether or not fixed mortgage rates will be moving up or down. By applying the strategy here, you may be able to time your rate hold or ‘lock in’ and save thousands of dollars by avoiding an increase in rates or by postponing your approval to hold out for a lower rate. Either way, the key strategy that you will learn here works 9 times out of 10.

Understanding Government of Canada Bond Yields

Put simply, a bond is something that our government sells to an investor to raise money to fund anything from hospitals to infrastructure development. The rate of return that investors receive from the bonds is known as the ‘yield’. The yield will increase if it looks like interest rates will remain low (as set by the central bank of Canada) and if inflation also remains low. But the point is not so much understanding why the yield changes, but what effect this has on mortgage rates.

When the government of Canada bond yield moves higher – let’s say from 2% to 2.25% (return to the investor) – this has a direct effect on fixed-term mortgage rates. 9 times out of 10 when the government of Canada bond yield moves up by an amount, the fixed term mortgage rates will also move up accordingly. Likewise, when bond yields move down, the fixed rates will move down.

What to do with this information and where to look

Lately, there has been quite a bit of fluctuation with bond yields, therefore we are seeing some fluctuation with fixed-term mortgage rates. The best thing you can do is look at what direction the bond yield is moving in. This will help to determine your timing for reserving a mortgage rate. For example, in the last week (at the time of writing) the bond yields have moved down by over 0.40%. With this said, mortgage rates have NOT moved down yet. So we are advising clients to watch for a while before they lock in their renewal or refinance rate. For purchasers – we always honour the lowest rate possible as long as the product permits it.

Visit the sites below to see what bond yields are up to.

For a longer-term view check out:

Central Bank of Canda Site

For a daily trading activity check out: