Free Report: Avoid Costly Mistakes During Your Mortgage Renewal

Free Report: Avoid Costly Mistakes During Your Mortgage Renewal

December 03, 20242 min read

Free Report: Avoid Costly Mistakes During Your Mortgage Renewal

Free Report: Avoid Costly Mistakes During Your Mortgage Renewal

Overview

  • Variable rates are falling due to Bank of Canada’s ongoing interest rate cuts.

  • Fixed rates, influenced by long-term bond yields, appear to have reached a potential bottom and are unlikely to drop significantly in the coming year.

Key Factors to Consider

  1. Bank of Canada’s Policy Rate Cuts

    • The Bank of Canada is aggressively cutting its policy rate to stimulate the economy.

    • Since June, the policy rate has dropped by 125 basis points, now at 3.75%.

    • Further reductions of up to 100 basis points are expected in 2024, bringing the rate to 2.75%.

    • These cuts primarily influence variable rates, short-term borrowing, and high-interest savings accounts.

  2. Fixed Rates Are Tied to Long-Term Bond Yields

    • Long-term rates, such as those for five-year fixed mortgages, are influenced by government bond yields and broader market factors, not directly by the policy rate.

    • Five-year Government of Canada bond yields have fluctuated, hitting a low of 2.7% in September 2023 before rising to 3.21% due to inflation concerns and global market trends.

  3. Market Outlook for Fixed Rates

    • Long-term rates have likely bottomed and may stabilize or slightly decrease, but significant declines are unlikely unless a recession or unexpected economic shock occurs.

    • Current bond yields reflect market expectations, with only a marginal seven basis points decline forecasted in the next year.

Implications for Mortgage Renewal

  • If You Have a Variable-Rate Mortgage:

    • Expect reductions in your interest rate in the coming year as policy rate cuts take effect.

    • Renewing at a variable rate might offer lower costs in the short term.

  • If You Prefer a Fixed-Rate Mortgage:

    • Current fixed rates may represent the best deal you’ll see for the foreseeable future.

    • Locking in a five-year fixed rate now could provide stability amid market uncertainties.

Economic and Market Uncertainty

  • Recession Risks: While the threat of a Canadian recession has eased, it hasn’t disappeared. A renewed recession risk could drive long-term rates lower.

  • Inflation Risks: Rising inflation could push both fixed and variable rates higher, especially if U.S. policies amplify inflationary pressures.

Expert Opinions

  • Douglas Porter, BMO Financial Group: Long-term rates may hover near current levels despite policy rate cuts.

  • Robert McLister, MortgageLogic.news: The bond market has already priced in anticipated rate cuts, limiting the scope for further long-term rate drops.

Conclusion: Get Expert Guidance for Your Mortgage Renewal

Conclusion: Get Expert Guidance for Your Mortgage Renewal

Renewing your mortgage is a significant financial decision. To make the most of it:

  • Consider locking in a fixed rate if you value stability and want to protect yourself from potential rate increases.

  • Explore variable rates if you anticipate further reductions and can handle potential fluctuations.

  • Stay informed about market trends and economic developments to refine your strategy.

For personalized advice, speak with an iMortgage Agent who can assess your unique situation and guide you toward the best mortgage option. Their expertise ensures you avoid costly mistakes and secure a deal that aligns with your financial goals.

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