14 January 2011

On the whole, the major analysts now predict a 200bps (2.00%) increase in the overnight rate during the next 24 months.  If it’s true the prime rate can be 5.00% by the end of 2012. Today it’s only 3.00%. The 10-year average prime is 4.48%.
Today’s average discount from prime  is – 0.85%. It means that if the economists are right, the 5-year variable rates will be about 4.15% by year-end of 2012.

5-Year Government Bond Yields
Government bond yields influence fixed mortgage rates.

3.53% 4.15%
3.45% 3.81%
3.55% 4.05%
2.65% 3.00%
3.25% 3.75%
By the year end 3.29% 3.75%
Changes from today +0.75% +1.21%

Fixed-Rate Mortgage
The major banks expect the 5-year bond yields to climb 121bps (1.21%) during the next 24 months. In this case the 5-year yield will be 3.75% by the end of the next year. That’s why by the year-end 2012 the deep-discounted 5-year fixed rates could rise to 4.95% approximately.
It should be noted that these forecasts are made by the banks and can be changed due to certain factors. Please check their October forecast.  It’s absolutely necessary to consult your mortgage broker before making any decisions.

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