How to Predict When Interest Rates Will Rise
Good morning everyone,
Many of my clients have been riding a variable rate mortgage for quite some time now and have definitely saved thousands of dollars in interest by doing so. Over the past months, interest rates have plummeted to record lows, which leads us to beg the question, "Is now the right time to lock into a fixed rate?" The answer to this question is based on the type of risk an individual is comfortable with. Yes, fixed rates have never been this low, but will they drop even lower?
Last week, I sent out an email to all of my clients who are currently on variable rate mortgages and today I would like to share the information I provided them to all my subscribers. A number of factors can contribute to change in interest rate. What we are seeing today is a result of a struggling economy, which has lead banks to drop interest rates in hopes that consumers will be enticed to borrow money even during times like these. Interest rates fluctuate however and when we experience a drop, eventually we will experience the reciprocal of this.
One way to predict when interest rates are about to climb is by looking at government bond yields.
Look at the 5 yr. bond yield http://www.bank-banque-canada.ca/en/rates/bonds.html 2.15% as of yesterday. The current 5 yr. fixed rate is 3.89%. The spread is usually 1.80 - 2.0% so if yield jumps to 2.50% we will most likely see 5 yr. fixed rates increase to around 4.30% (based on the spread).
So there you have it. Looking at government bond yields will help you better understand where interest rates are headed and help you choose the right time to lock into a fixed rate if you are currently on a variable rate mortgage.