During the holidays, it seems that we have (finally) won... real estate.
And now that our attention is on the election, the price of pencils and the fourth dose of vaccine, the mortgage market could be the scene of a rather rare phenomenon, something comparable to the passage of a comet in the evening of a total lunar eclipse.
What message does this astonishing situation send us?
A rare phenomenon
Let's put an end to the suspense: we're talking here about the possibility, for those shopping around for a mortgage, of finding themselves faced with offers where the variable interest rate exceeds that of a five-year fixed-rate loan.
Mortgage broker Hugo Leroux would probably not bet his house on it, but, according to him, the scenario seems more plausible than ever.
"It could happen in two to three months," thinks this old hand in the industry.
What is it based on?
The "variable" could go up again...
The spread between fixed and variable rates has narrowed at surprising speed since the beginning of the summer, in particular due to the one percentage point increase in the key rate decreed in July by the Bank of Canada, which had an impact on variable rates. Further increases are expected by the end of October.
Also, lenders make less attractive offers to customers attracted by the "variable".
“At the end of last year, the banks were offering their prime rate, minus 1.1%. Today, it's prime, minus 0.4%, ”explains the broker from the firm Hypotheca.
The fixed goes down
At the same time, the five-year fixed rate stopped rising. Better, it started to go down slightly.
The conditions for this type of loan are determined by the bonds of Canada. At the start of the summer, five-year bond yields peaked at 3.60% in mid-June. Two months later, they fell back to 2.74%. [Pour plus de détails, lire ma chronique « Les taux hypothécaires fixes explosent »]
However, lenders are slower when it comes to pass downs to their clients, and quicker to pass on increases to them, when bond rates soar.
Dimitri Rougas points out that the traditional banks have hardly moved on that side.
“We are starting to see some lenders offering reduced rates on five-year fixed-rate insured mortgages,” observes the mortgage broker at Planiprêt.
Nevertheless, it is enough for an important player to start the ball rolling for the others to follow suit. If that happens by the fall, that's where the variable rate and the fixed rate could intersect.
For example, the first could reach 4.50% and the second, 4.25% (respectively at 3.75% and 4.50%, this week, under the best conditions).
Should the rate be fixed?
Such a situation brings us back to the eternal question: fixed or variable?
And for holders of a floating rate mortgage, should they lock it in?
For the first question, remember that the variable rate, after five years, has proven to be more advantageous almost nine times out of ten in the past. Even with a delay at the start, he can end up winning at the finish line. All that is needed is for the Bank of Canada to reduce its key rate a little by 2027, a most likely scenario.
As for the idea of fixing the interest on a variable loan along the way, the two brokers are not keen on it.
Someone who has three years left on their agreement will have their variable rate mortgage converted to a three year fixed rate loan. For this type of loan, the interest is currently higher than for five-year contracts.
Let's sum up: less advantageous variable rates, fixed rates that don't drop as they should... Lenders don't give gifts.
"For those who will shop for a loan in the fall, one option would be the one-year fixed mortgage, until things get better," suggests Hugo Leroux.
Update on the Federal Notice of Assessment
Last August 3, I told you about accountants' concerns regarding the federal plan to no longer provide paper notices of assessment to taxpayers who file their income tax returns electronically. Well, less than a week later, the Department of Finance Canada offered to back down. It's not cast in stone yet, but individuals will likely have to give their consent to receive the electronic notice. Also, the change is pushed back to 2024. Don't thank me ;-)