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Calgary Mortgage Rates

February 24th, 2011    •  Written by    •   No Comments »

Categories: Bank of Canada, Brokers, Fixed Rates, Variable Rates

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I believe that it’s important for Calgary mortgage brokers to educate their clients on the different drivers that affect fixed and variable Calgary mortgage rates. While the complexities might overwhelm some clients, I believe that an attempt to summarize these drivers in a way that can be understood from the perspective of a layman is crucial in developing trust and long-term relationships. Since we’re dealing with what might possibly be the largest financial decision in someone’s life, a certain level of knowledge transfer should take place between the Calgary mortgage broker and client to educate and make them feel more comfortable during the decision making phase of purchasing or refinancing a home.

One piece of information in particular that should be communicated by Calgary mortgage brokers is that the factors that affect fixed Calgary mortgage rates aren’t the same as those that affect the variable Calgary mortgage rates. I’ll outline the factors that affect each rate below.

5-Year Fixed Calgary Mortgage Rates

The 5-year fixed mortgage rates in Calgary are driven by the 5-year fixed Government of Canada bond yield. For example, consecutive days of spikes in this bond yield without a subsequent correction are likely to be followed by lenders increasing mortgage rates. As such, Calgary mortgage brokers pay close attention to this yield as it forms the primary leading indicator that provides insight into the direction in which fixed mortgage rates are headed. A great resource available to everyone interested in tracking the changes in the yield can be found on Bloomberg’s site:

5-Year Government of Canada Bond Yield

2 of the main market forces that influence Government of Canada bond yields are:

Investment Trends – to put it quite simply, if investors get scared and move their money out of the stock market and into bonds, bond prices increase (supply and demand) and yields subsequently decrease. The opposite holds true as well. When times are good and investors increase the stock portion of their investment portfolios, bond prices decrease and yields increase as a result (it’s important to note that bond prices and yields are inversely related).

International Yields – an international perspective is also important when determining the outlook of bond yields. If governments from other countries with similar economies to that of Canada’s have higher interest rates tied to their bonds, investors are likely to flock to those bonds until Government of Canada bond yields climb to a comparable level. This is because investors are trying to get the best return on their investment. The opposite holds true when their bond rates have lower yields.

Variable Calgary Mortgage Rates

Variable Calgary mortgage rates go up and down with changes to the Bank of Canada’s prime rate (currently at 3.00% at time of this post). Two important factors that the Bank of Canada considers when making its decision to adjust the prime rate are:

Inflation – inflation is defined as an upward price movement of goods and services in an economy. Under an inflationary scenario, governments combat this upward price movement by increasing interest rates, which in turn reduces inflationary pressure. So when you see articles mentioning inflation in the news, it’s important that you take note as there could be a upcoming change to the prime rate.

Strength of the Economy – the strength of a particular economy also has bearing on interest rates decisions. If an economy is not doing too well, the government is likely keep interest rates low in an attempt to jumpstart the economy (such as what has been taking place in the US over the last several years). If an economy is doing well, however, governments typically increase interest rates to prevent the economy from overheating, which could result in asset bubbles (this is exactly what happened in the US – the economy heated up and the US government kept rates low for too long, which resulted in the housing bubble).

So should you choose a variable or fixed rate? That entirely depends on your personal situation and risk tolerance. I would welcome an opportunity to help you determine what mortgage product works best for you. Give me a call at 403.389.4166 or send me an email at ryans@sandrmortgage.com.


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