6 Dec

The bond market is now sending a clear signal: Go with a variable-rate mortgage


Posted by: Angela Lavender

Many people started out Wednesday morning expecting three or more rate hikes in the next 18 months.

Now, they’re wondering if we’ll see more than one.

That’s how much rate expectations have changed since the Bank of Canada’s latest rate statement.

If you’re shopping for a mortgage and believe what the bond market is telling us, it implies your odds of success with a fixed rate may have just changed.


The Bank of Canada still maintains that its key bank rate is headed toward its estimated “neutral range,” which means 75 to 175 basis points higher than today’s 1.75 per cent (75 basis points equals three-quarters of a percentage point).

But the bond market, which bakes in virtually all available information, is losing faith in the bank’s words. The market is focused on the facts: economic growth stalled this quarter, Canadians’ savings rate is near all-time lows, the economically critical oil sector is near crisis mode, trade war threats persist, the all-important housing sector is slowing, consumer spending is dropping, business investment is falling, the stock market is diving, and now even the U.S. Federal Reserve is chirping dovish.

That’s why Canada’s five-year bond yield, which guides five-year fixed mortgage rates, has fallen out of bed – dropping all the way down to its one-year midpoint.

All of this is inconsistent with a “rising rates” narrative.


First off, variable rates are going nowhere fast. Now, the market is not expecting the next rate hike until spring. There is almost more risk of lenders reducing variable-rate discounts due to credit, risk or margin concerns than due to Bank of Canada rate hikes. (If any of that happened, it would directly impact new variable-rate borrowers, not existing ones.)

As for five-year fixed rates, banks are doing what banks do: maintaining elevated profit margins for as long as they can. In a typical market, with bond yields down 40 basis points (bps) in less than a month, five-year fixed rates would’ve dropped by now, but they haven’t.

Previous rate hikes and tighter mortgage rules have shrunk the prime mortgage market. Intense competition for this smaller pie has led to skimpier mortgage revenue all year. Now the banks want their profit margins back.

If you want to get technical, consider mortgage “spreads,” the difference between banks’ going rates and the government’s five-year bond yield. Many big lenders have been settling for just 130-140 bps for most of this year. Normally they like to make 150-plus bps.

On top of this, if we really are nearing the end of the economic cycle, as the yield curve suggests, banks will want to price in a little extra margin for market risk and credit risk. And, let’s not forget, banks are facing stricter capital rules and higher deposit rates, which also affect their funding costs.

As we approach the winter doldrums, the slowest time of year for mortgages, banks figure that slashing rates now would barely move the needle on their mortgage market share, so why give up margin for no reason?


After today, more people are going to like their chances with floating rates (variable- and adjustable-rate mortgages). The best variable mortgage rates for well-qualified borrowers are currently:

  • 2.80 per cent or less, if the mortgage is default insured
  • 3.04 per cent if you’re refinancing

A rate near or under 3 per cent gives you at least a three-rate-hike head start over conventional five-year fixed rates. In the weeks to come, expect fewer borrowers to bet on the “over” (four-plus hikes), so variable-rate popularity will rise.

By the way, last quarter saw the highest percentage of insured borrowers going variable since Canada Mortgage and Housing Corp. started regularly publishing such stats. So, it has already started. People are becoming more educated every day about the risk/reward of variables and their other benefits, such as penalties that are drastically lower than those on big bank five-year fixed mortgages.

In short, floating-rate mortgages (which you can get with a fixed payment for peace of mind) are once again the value du jour for financially stable, risk-tolerant borrowers, despite Bank of Canada rate-speak.

Robert McLister is a mortgage planner at intelliMortgage and founder ofRateSpy.com. You can follow him on Twitter at @RateSpy.

3 Dec


Mortgage Tips

Posted by: Angela Lavender

11 APR 2017

Insured, Insurable & Uninsurable ss High Ratio & Conventional MortgagesYou might think you would be rewarded for toiling away to save a down payment of 20% or greater. Well, forget it. Your only prize for all that self-sacrifice is paying a higher interest rate than people who didn’t bother.

Once upon a time we had high ratio vs conventional mortgages, now it’s changed to; insured, insurable and uninsurable.

High ratio mortgage – down payment less than 20%, insurance paid by the borrower.

Conventional mortgage – down payment of 20% or more, the lender had a choice whether to insure the mortgage or not.


Insured –a mortgage transaction where the insurance premium is or has been paid by the client. Generally, 19.99% equity or less to apply towards a mortgage.

Insurable –a mortgage transaction that is portfolio-insured at the lender’s expense for a property valued at less than $1MM that fits insurer rules (qualified at the Bank of Canada benchmark rate over 25 years with a down payment of at least 20%).

Uninsurable – is defined as a mortgage transaction that is ineligible for insurance. Examples of uninsurable re-finance, purchase, transfers, 1-4 unit rentals (single unit Rentals—Rentals Between 2-4 units are insurable), properties greater than $1MM, (re-finances are not insurable) equity take-out greater than $200,000, amortization greater than 25 years.

The biggest difference where the mortgage consumers are feeling the effect is simply the interest rate. The INSURED mortgage products are seeing a lower interest rate than the INSURABLE and UNINSURABLE products, with the difference ranging from 20 to 40 basis points (0.20-0.40%). This is due in large part to the insurance premium increase that took effect March 17, 2017. As well, the rule changes on October 17, 2017 prevented lenders from purchasing insurance on conventional funded mortgages. By the Federal Government limiting the way lenders could insure their book-of-business meant the lenders need to increase the cost. We as consumers pay for that increase.

The insurance premiums are in place for few reasons; to protect the lenders against foreclosure, fraudulent activity and subject property value loss. The INSURED borrower’s mortgages have the insurance built in. With INSURABLE and UNINSURABLE it’s the borrower that pays a higher interest rate, this enables the lender to essential build in their own insurance premium. Lenders are in the business of lending money and minimize their exposure to risk. The insurance insulates them from potential future loss.

By the way, the 90-day arrears rate in Canada is extremely low. With a traditional lender’s in Canada it is 0.28% and non-traditional lenders it is 0.14%. So, somewhere between 99.72% and 99.86% of all Canadians pay their monthly mortgage every month.

In today’s lending landscape is there any reason to save the necessary down payment or do you buy now? Saving may avoid the premium, but is it worth it? You may end up with a higher interest rate.

By having to wait for as little as one year as you accumulate 20% down, are you then having to pay more for the same home? Are you missing out on the market?

When is the right time to buy? NOW.

Here’s a scenario is based on 2.59% interest with 19.99% or less down and 2.89% interest for a mortgage with 20% or greater down, 25-year amortization. In this scenario, it takes one year to save the funds required for the 20% down payment.

  • First-time homebuyer
  • Starting small, buying a condo
  • 18.9% price increase this year over last

Purchase Price $300,000
5% Down Payment $15,000
Mtg Insurance Premium $11,400 (4% as of March 17, 2017)
Starting Mtg Balance $296,400
Mortgage Payment $1,341.09

Purchase Price $356,700 (1 year later)

20% Down Payment $71,340
Mtg Insurance Premium $0
Starting Mtg Balance $285,360
Mortgage Payment $1,334.40

The difference in the starting mortgage balance is $11,040, which is $360 less than the total insurance premium. As well, the overall monthly payment is only $6.69 higher by only having to save 5% and buying one year sooner. Note I have not even built in the equity that one has also accumulated in the year. The time to buy is NOW. Contact your local Dominion Lending Centres mortgage professional so we can help!

Michael Hallett


Dominion Lending Centres – Accredited Mortgage Professional
Michael is part of DLC Producers West Financial based in Coquitlam, BC.