(November 26, 2022)
There’s been a lot of head scratching going on the past few months about interest rates. But lately, the conversation has shifted away from the actual rate and more towards the strategic selection of term length. At the moment (~Nov 26, 2022), it seems we are hovering in the 4.89% to 5.59% range for essentially all terms ranging from 1 to 5 years and this is leaving many to ponder which rate and/or term to proceed with. Regardless of where interest rates swing for the next year or two, there seems to be an industry wide consensus when it comes to rate selection. The prevailing recommendation these days is to opt for a short term rate now, then renew into what is expected to be a lower rate environment in the future.
If you weren’t aware before, you are now – fixed mortgage rates in Canada correlate directly with the bond market. From these data sets analysts are able to effectively make short term predictions on mortgage interest rates. Essentially, an increase to the 5 year Canadian Bond Yield over an extended period of time will translate to an increase in the 5 year fixed rate for mortgages. However, another data set has emerged based on similar fundamentals, but with a slightly more revealing forecast. There’s this thing called “a negatively inverted yield curve”.
In a nutshell, an inverted yield curve graph illustrates that long-term interest rates will be lower than current short-term lending rates. Furthermore, this type of yield inversion also implies that a slow down in the economy is looming…perhaps even a recession.
In summary, the data is suggesting that going short with a 2 or 3 year fixed term is a sound strategy as prevailing rates are expected to be lower in the future when the mortgage matures.
Ready to switch to a short term rate? Call or text Marko Gelo directly at 604-800-9593 cell/text, or schedule a phone call in the future with Marko at your convenience.
DISCLAIMER(s):
*short term mortgage recommendations could be 1, 2, or 3 year fixed rate terms
*variable rate mortgages have not been discussed in this post, but they can also be considered short-term
*this post is not meant to discredit the 5 year fixed rate as it is still an ideal and recommended term for many applicants
*selling your property ahead of your mortgage maturity (expiration date) can result in substantial break penalties*all of the above need to be accounted for when selecting a mortgage
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