• Nikole Krupka Rolof

How do Mortgage Rates Come to be?

Fixed and variable mortgage rates follow different indicators. Fixed rates follow the bond market and variable mortgages follow prime rate.

Below is a screen shot of 5year bonds as of today, May 5/22. We have just gone through several fixed rate increases, see below how sharply the bond market also rose:

Thank you to the Bank of Canada who posts this great info, click here to go to their website.

So, can someone just follow this for best rates? If you have that capability to foresee which way it will go, you should be making millions in the stock market. Look within the swings on the chart, it bounces. I do though think this is a great tool to get a sense of overall swings and I, as a Broker, do reference this often.

Next will we move onto how Variable Mortgage rates change, but first let's look at the below chart that shows you the history of fixed vs variable rates. I love this chart, thank you to my friends at CMLS Financial for putting this together.

What this shows us is that the variable, 99% of the time, is the cheapest option at any point in time.

But how does it come to be? It starts with the Bank of Canada and their Overnight/Policy Lending Rate (currently at 1%). This is what lenders pay to borrow money and then the lenders add a profit spread (of course, they are business') which becomes consumers Prime Rate (currently 3.20%, except for TD Bank who is at 3.35%).

The Bank of Canada lending rate and prime rate change in unison. So if the overnight rate goes up/down by .25%, you can expect prime rate to change by the same amount.

Fixed rates follow the bond market. Variable mortgages follow prime rate.

Thanks for reading, always happy to help.

Nikole Krupka-Rolof

TMG The Mortgage Group

Edmonton Mortgage Broker