Before you start house shopping, it’s important to understand mortgage basics first. The mortgage rate you lock in will affect a number of things, from your purchasing power to the amount of money you’re left with each month for regular living expenses. Mortgage rates can change daily — learning the reasons why mortgage rates fluctuate can help you take advantage of a better rate before a hike. Read on to learn more.
Changes in Economic Growth
Lenders adjust their mortgage rates to maximize their profits. So, when the economy is growing and doing well, an increase in interest rates will occur to offset the impact of inflation. This in turn often results in an increase in mortgage rates and vice versa when there’s a decrease in economic growth.
Our government also controls the interest rates by adjusting the supply of money in the economy. They do this by buying Treasury bonds in order to prevent a drop in the purchasing power of money when inflation rates rise too quickly. By buying Treasury bonds, the government virtually injects more money into the economy and helps to move interest rates to a more sustainable level.
Fixed rate mortgages are directly linked to the Government of Canada bond yields. This relationship causes the fixed mortgage rates to rise when the bond yields rise because of the decrease in bond prices.
The overnight rate that the Bank of Canada sets influence other interest rates, like rates for consumer loans and prime lending rates for mortgages, they can also impact the exchange rate for the Canadian Dollar. The bank announces whether or not they will change the overnight rate over 8 pre-set fixed dates annually.
When the stock market is booming, there’s normally a decrease in interest for bonds as investors believe they will make more money off of equities. This causes mortgage rates to decrease in return.
World events can even cause the interest rates to change. When consumer confidence is low, and there’s a lack of spending activity, especially in the housing industry, interest rates can fall (and vice versa).
Lenders keep an eye on all these economic factors and adjust their mortgage rates accordingly. If you find a specific interest rate that is favourable, it’s important to lock it in as soon as you can. The best way to know if you’re getting a good rate is to talk to a mortgage advisor — an expert in the industry. When you’re getting ready to buy a home, get the right advice from one of our professionals at The Mortgage Advisors.