Why do Mortgage Rates Fluctuate?

When you’re keeping track of the current mortgage rates and notice the difference from a week ago, it can be a shock to realize how quickly they can really rise and fall. But why do mortgage rates fluctuate? Well, it depends on the changes in key micro and macroeconomic factors that are constantly at play. The lenders will adjust the rates based on these economic factors in order to stay profitable.

To get into the nitty-gritty of the process, let’s look at some of the main reasons why mortgage rates fluctuate.

Economic Growth

During periods of strong and weak economic growth, lenders adjust their mortgage rates to maximize their overall returns best. And they will closely follow the changes in economic growth in Canada to determine when to increase or decrease the rates.

Inflation

Lenders also study how inflation is expected to change due to potential future economic changes. If inflation is expected to occur as a result of continued economic change, then lenders will adjust their rates to ensure they are keeping up with the forecasted inflation rate.

Government Policy

Government policy also drives mortgage rate fluctuations. The government can act to control interest rates and inflation by controlling the supply of money into the economy. This will have an impact on the overall rates, including the mortgage rates.

Real Estate Market Conditions

Mortgage lenders will also pay close attention to the condition of the real estate market. When the real estate market is bringing on more supply, and there is an increase in building development, lenders can expect that there will be more of a demand for mortgages. When the need for mortgages is on the rise, lenders will react by increasing the mortgage rates in the market, creating yet another common reason for why mortgage rates fluctuate.

The Overnight Rate

The overnight rate refers to the interest rate that large banks use to charge other large banks when they borrow and lend one-day funds with each other. This rate has the power to influence the prime rate. And, since variable rate mortgages are linked to the prime rate, you can see the mortgage rates fluctuate as a result.

Bond Rates

Fixed mortgages are linked to the Government of Canada Bond Yields. And, they generally have a relationship with bond yields that will result in an increase or decrease. Lenders will keep an eye on the bond rates to adjust their mortgage rates accordingly.
There’s a lot to understand when it comes to mortgage rates fluctuations, and how they will change over time. When you’re getting ready to buy a home or looking to renew or change your mortgage, you need the right advice for professional mortgage advisors who understand the rates and all of the factors that will affect your purchase. Talk to us at The Mortgage Advisors; we can help you every step of the way.