12 October 2010

It should be noted that it’s only a rough guide – the forecasts can change any moment.

Overnight Rate
Variable mortgage rate depends on the Bank of Canada’s overnight rate. Last column for 2011 was taken from August forecast to illustrate that situation has been changed:

Bank
2010
2011
2011 (from August forecast)
BMO
1.00% 2.25% 2.50%
CIBC
1.00% 1.75% 2.00%
RBC
1.00% 2.25% 2.75%
Scotia
1.00% 1.75% 2.25%
TD
1.00% 2.00% 2.00%
The Average till
the year end
1.00% 2.00% 2.25%
Compared with  
Today
0.00% +1.00% +1.00%

(All figures were rounded to 0.25).

5-Year Government Bond Yields
Government bond yields influence fixed mortgage rates. Last column for 2011 was taken from August forecast to illustrate that situation has been changed:

Bank
2010
2011
2011 (from August forecast)
BMO
2.03% 3.05% 3.58%
RBC
2.45% 3.50% 3.50%
Scotia
1.85% 2.50% 3.50%
TD
2.30% 3.10% 3.05%
The Average
till the year end
2.16% 3.04% 3.41%
Compared with  
Today
+0.28% +1.18%

Variable-Rate Mortgage
On the whole, the major economists now predict a 100bps (1.00%) increase in the overnight rate during the next 15 months.  If it’s true the prime rate can be 4.00% by the end of 2011. Today it’s only 3.00%. The 10-year average prime is 4.50%.
Today’s best discount is prime – 0.80%. It means that if the economists are right, the 5-year variable rates will be about 3.20% by year-end of 2011.

Fixed-Rate Mortgage
The major banks expect the 5-year bond yields to climb 118bps (1.18%) during the next 15 months. In this case the 5-year yield will be 3.04% by the end of next year. In this case by the year-end 2011 the deep-discounted 5-year fixed rates could rise to 4.24% approximately.
It should be noted that these forecasts are made by the banks and can be changed due to certain factors. Please check their August forecast.  That’s why it’s absolutely necessary to consult your mortgage broker before making any decisions.

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