20 June 2011
Here are the latest forecasts from the biggest Canadian banks:
Overnight Rate
Variable mortgage rate depends on the Bank of Canada’s overnight rate.
| Bank |
2011 |
2012 |
| BMO |
1.50 |
2.75 |
| CIBC |
1.75 |
2.00 |
| NBC |
2.00 |
2.75 |
| RBC |
1.75 |
3.00 |
| Scotia |
1.50 |
2.25 |
| TD |
1.00 |
2.00 |
| Year-end Avg | 1.50 |
2.50 |
| Chg vs Today | +0.50 |
+1.50 |
(All figures were rounded to 0.25).
Variable-Rate Mortgage
If these forecasts are correct, the prime rate can be 4.50% by the end of 2012. Today it’s only 3.00%. The 10-year average prime is 4.33%.
Today’s best discount is prime – 0.95%. It means that if the economists are right, the 5-year variable rates will be about 3.55% by year-end of 2012.
5-Year Government Bond Yields
Government bond yields influence fixed mortgage rates.
| Bank |
2011 |
2012 |
| BMO |
2.93 |
3.80 |
| NBC |
3.46 |
3.88 |
| RBC |
3.30 |
4.05 |
| Scotia |
2.85 |
3.35 |
| TD |
2.70 |
3.65 |
| Year-end Avg | 3.05 |
3.75 |
| Chg vs Today | +0.89 |
+1.59 |
(Unfortunately, CIBC’s forecast was not available).
It should be noted that rate forecasts tend to change often. Many economists use overnight index swap (OIS) in order to make their forecasts. Now OIS suggests that the BoC may raise rates this year with less than 50% probability. Moreover, the next hike is expected in April 2012. But just a few months ago OIS predicted the first rate increase on July 19!
Fixed-Rate Mortgage
The major banks expect the 5-year bond yields to climb to 3,75% during the next 18 months. That’s why by the year-end 2012 the discounted 5-year fixed rates could rise to 5.0% approximately.
Big banks spend a lot of money to make accurate rate forecasts. Their economists analyze information from different sources, academic studies and historical data. But their predictions are still not perfect.
These forecasts are made by the banks and can be changed due to certain factors. Please check their April forecast. It’s absolutely necessary to consult your mortgage broker before making any decisions.