Since the Bank surprised markets in January, expectations for future rate decisions have fluctuated wildly, whipsawing longer-term interest rates. The five-year bond yield has recently rebounded after breaching the 1 per cent mark on its way to a record low of 0.59 per cent. Meanwhile, the five-year fixed mortgage rate, the qualifying rate for all insured mortgages, currently sits at 4.74 per cent. That may be the absolute floor on the posted five-year fixed given that a 75 basis point decline in the five-year bond yield translated to only a 4 basis point reduction in the qualifying rate.
It may be quite some time before mortgage rates move materially higher. The last time the qualifying rate was above 5 per cent it corresponded with a five-year yield of around 1.8 per cent. Our current interest rate projection shows that the most likely scenario is for five-year yields to begin closing in on that level around the first quarter of 2016.
We expect that mortgage rates will remain at current historically low levels for a considerable part, if not all, of 2015. In addition, one-year mortgage rates are likely to remain at 2.85 per cent, or equal to the prevailing prime rate for much of 2015 as well.
As the Canadian economy recovers from the dramatic decline in oil prices, and if the US Federal
Reserve begins tightening as expected in the summer months, we could start to see some upward pressure on long-term interest rates towards the end of the year and into 2016.
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