Fixed rates continue to go up and the banks continue to take away the discount on variable rate mortgages.
Well, this can be good news in a way, although very suspicious.
The reason banks are taking away the discount on the variable and increasing the rates on short term rates is simple. They do not want clients taking a variable or a short term fixed. Why? Because it’s more profitable for you to take a 5 year fixed, and especially now with some of the biggest spreads between the 5 year bond yields and the 5 year fixed given in history. This means that they are making a lot of money right now on the spread.
These are some dirty tricks, but common ones. We have seen this from the banks a few times in history, including the recession in 2009/2010.
The banks basically believe rates will go down in the short term (short term meaning in the next 12-24 months), so if you can get clients to lock into a 5 year fixed, that’s a win-win. And let’s be honest – the banks are very good at making money.
Therefore, myself and any good, experienced broker will still recommend a variable or a short term fixed rate.
The 5 year fixed is now at a 14 year high, and what goes up must come down. Unfortunately, we cannot say for sure when.
Stay the course and never panic. Panicking or making rash decisions almost always leads to a regrettable decision. We will all be fine.
This is a very good video on all of this from the President of Mortgage Architects.
Watch and share: Bank of Canada
As always, if you or your customers have any questions or concerns, call or email us any time. We are always happy to help and put all of this into perspective.
Stay strong – and good luck out there this fall!