Money Matters Toronto

Bond Yield for Tuesday June 30th, 2009

Canadian 5 yr bond yields -.01bps to 2.48- Four weeks ago it was 2.51. The spread, based on 5 yr rate of 4.49%,  is at 2.01%.

Pressure on fixed 5 year: Down.
Financial Post - Markets

Lenders typically like to keep a spread of 1.70% to 1.80% between their fixed five year rates and current bond yields. If the bond yield increases then the spread will shrink putting upward pressure on mortgage interest rates. The reverse is also true. If bond yields decrease then the spread widens and there is downwards pressure on fixed rate mortgages.

Bond Yield for Monday June 29th, 2009

Canadian 5 yr bond yields -.03bps to 2.49- Four weeks ago it was 2.52. The spread, based on 5 yr rate of 4.49%,  is at 2.00%.

Pressure on fixed 5 year rate: down.
Financial Post - Market

Lenders typically like to keep a spread of 1.70% to 1.80% between their fixed five year rates and current bond yields. If the bond yield increases then the spread will shrink putting upward pressure on mortgage interest rates. The reverse is also true. If bond yields decrease then the spread widens and there is downwards pressure on fixed rate mortgages.

Is Canada's Housing Market Tanking or Taking Off?

This Past Wednesday's Financial Post featured an article by writer Alia McMullen commenting specifically about the variance of statistics coming from the Canadian housing market. Are we up or are we down... What do you think?

Is Canada's housing market tanking or taking off?

Bond Yield for Friday June 26th, 2009

Canadian 5 yr bond yields -.06bps to 2.52- Four weeks ago it was 2.51. The spread, based on 5 yr rate of 4.49%,  is at 1.97%.

Pressure On Fixed 5 Year: Down. Today's best rate 4.39% fixed 5 year, 2.65% variable rate.
Financial Post - Markets

Lenders typically like to keep a spread of 1.70% to 1.80% between their fixed five year rates and current bond yields. If the bond yield increases then the spread will shrink putting upward pressure on mortgage interest rates. The reverse is also true. If bond yields decrease then the spread widens and there is downwards pressure on fixed rate mortgages.

Today's Bond Yield & an LCBO record

Canadian 5 yr bond yields +.03bps to 2.58- Four weeks ago it was 2.58. The spread, based on 5 yr rate of 4.49%,  is at 1.91%.

Pressure on Fixed 5 Year: Down.
Financial Post - Markets

Lenders typically like to keep a spread of 1.70% to 1.80% between their fixed five year rates and current bond yields. If the bond yield increases then the spread will shrink putting upward pressure on mortgage interest rates. The reverse is also true. If bond yields decrease then the spread widens and there is downwards pressure on fixed rate mortgages.

On another interesting note: LCBO posted record one day sales this week. We bought over $60-Million worth in alcohol in one day. Read the full article here.

The Road Ahead - Recession & Real Estate

Last week on Friday Terrance Belford of the Globe & Mail published an article entitled Condo resales are on a roll . The article had a very upbeat feel to it, spewing out positive sales data, interviewing the likes of Brad Lamb and the general under lying tone of the article is that the good times of real estate are back in Toronto & especially in the Condo market. The article generated some very colorful commentary from readers... an entertaining read for anyone with the time.

Don't get me wrong, my fate is tied to a healthy economy. When people are buying houses that is good for my mortgage business however at the same time we need to be realistic and call things the way they are with some perspective. One client who is currently in the market for a condo picked up on the buzz coming from the realtor community and expressed some fear that she has missed the boat. To which I replied "Non Sense!". Lets face it... you know we are in a recession when CBC is airing stories entitle "Wedding Bills" about how brides are cutting back on their wedding due to tough economic times!

I Hate Paying Mortgage Interest- Episode #4 Capital

Bonds & Fixed Rates

Canadian 5 yr bond yields +.06bps to 2.65- Four weeks ago it was 2.26. The spread, based on 5 yr rate of 4.49%,  is at 1.84%.

Pressure on Fixed Five Year: DOWN

To follow up further on my previous posts about bond yields and their relation to fixed rate mortgages Fred Langan of the financial post wrote a very simple article yesterday about the relationship between Bonds & Fixed Rate mortgages. Read his article here If You Want To Know Where Rates Are Headed Watch The Bond

How Are Fixed Mortgage Rates Determined? Part II

A couple of days ago one of our readers responded to our post "How Are Fixed Mortgage Rates Determined?". He asked me: what should he really be looking out for when it comes to protecting himself from mortgage rate fluctuatations?

I responded....there are so many factors to consider and even economists who dedicate their whole lives to predicting the direction of markets and behaviors of investors can't figure it out. There is no "silver bullet" in regards to knowing where fixed 5 year mortgage rates are headed. If you are really interested in determining where rates are headed and you want to put your energy into it here is what I would do:

#1- At least once a week visit a site like the Financial Post and have a look at the Canadian 5 year bond yield and pay attention to trends. Today the yield is 2.64%... As I mention in my previous blog post the mortgage lenders like to keep a spread of between 1.70% to 1.80% from the bond yield when it comes to the fixed 5 year price. So today the bond yield is 2.64% + 1.80%=4.44% .... currently lenders are offering 4.49%. If this trend continues there will be downward pressure on the fixed 5 year rate.

#2- You have to understand a little about bonds and how they work. In a nutshell bonds are a way for governments to borrow money from the public. When issued the government agrees to pay the holder of a bond an interest rate or yield of x amount over the term of the bond. Once issued the bond price will fluctuate with market conditions but the yield rate promised by the government stays the same.

Bonds are considered to be one of the safest investment choices for investors. When times are bad investors flock to the bond market to park their money in a safe place. When this happens increased demand causes the price of bonds to increase and the bond yields decrease. This of course causes fixed interest rates to decrease. When other investments like stocks & other securities are performing well investors take their money out of the bond market and the price of bonds drops meaning the bond yield increases which in turn causes the fixed mortgage rates to increase.

This means you need to really pay attention to investor moods... not an easy thing to do.

I hope this helps you out... feel free to contact me with any further questions or comments. I invite you to call me at Tridac Mortgages if you have any questions about your mortgage. I would be happy to help you. Ask for Chris. 416.461.0204. Toronto Mortgage Broker.

Fixed Mortgage Rates Are Up. What Is Happening?

If you are tossing and turning every night trying to figure which way mortgage interest rates are moving join the club. My impression is that nobody knows exactly which way rates are moving and what the long term trend is. I certainly wouldn't rely on the sound bytes that come out of the media on a daily basis... you'll drive yourself crazy!

Take this morning's paper. The Globe & Mail and Toronto Star each ran an article in their respective business sections about mortgage interest rates. In the Globe & Mail article the author interviews an Ottawa mortgage broker about what he is personally doing. The broker is locking in his ridiculously low variable rate mortgage to curb the risk of higher rates in the future due to inflation.

Then you read the Toronto Star article where numerous economists are interviewed about their predictions for the future. They feel that the recent increase in fixed rate mortgages due to an increase in bond yields was an over reaction by bond investors and that we are certainly not at a critical point where rates will be increasing with speed. We are still far away from inflation and the high interest rates that are associated with it.

My advice echos that at the end of the Star article... take your time before making any rash decisions. If you are in a variable have a good long look before you give up your low effective rate. Just because rates have increased doesn't mean that they won't come back down. If you are in the market for a new mortgage you may still want to consider a variable because there exists the potential for fixed rates to decrease again... maybe not as low as we saw two weeks ago. If you are really on the fence consider a product like the Merix 50/50 mortgage where you get half your mortgage as a fixed mortgage and the remainder as a variable.

Do you have a question about your mortgage?  Tridac Mortgages has been helping clients for over 30 years. Call our Toronto office at 416.461.0204 and ask for Chris. We're here to help you.