In an exciting turn of events for prospective homebuyers, mortgage rates below 5% are staging a comeback, marking the first time since last spring that mortgage shoppers can enjoy a condition-free sub-5% fixed mortgage rate option.
Bond Yields Drive Rate Reductions
Mortgage providers nationwide have been quick to respond to a recent significant drop in bond yields, influencing fixed-rate pricing. Over the past week, the 5-year Government of Canada bond yield has decreased by 38 basis points (0.38%), contributing to an overall drop of almost a full percentage point since October.
Rate Cuts by Major Banks
In response to these changing market conditions, mortgage providers, including major players like Scotiabank and CIBC, are actively reducing fixed rates. Decreases of 20-30 basis points have been observed, with Scotiabank’s online eHome rates and CIBC’s 5-year fixed rates leading the way with an average reduction of 20 basis points.
Significant Savings for Borrowers
A quarter-point (0.25%) rate decrease may seem modest, but it translates to tangible savings for borrowers. For every $100,000 of mortgage debt over a 25-year period, this reduction results in approximately $13 less in monthly payments, providing some welcome relief to homeowners.
Sub-5.00% Rates Are Back
Thanks to these recent rate drops, today’s mortgage shoppers can secure a condition-free 5-year fixed rate under 5%, a milestone not seen since the spring. Butler Mortgage has taken a bold step by reducing its insured 5-year fixed product by 30 basis points to an impressive 4.99%. This market-leading rate is specifically tailored for purchases with a down payment of less than 20%, involving what Ron Butler calls “tight underwriting.”
Expectations for Competitive Rates
Ron Butler anticipates that other lenders and brokers will soon follow suit, thanks to the recent drop in bond yields. He emphasizes that this high-ratio rate is the easiest to securitize, making it more likely for borrowers to benefit from competitive rates in the near future.
Concerns About Shorter Terms and High Costs
In response to rising mortgage rates over the past 18 months, borrowers shifted away from 5-year terms in favor of shorter durations. However, concerns arise about the high costs associated with shorter 1- and 2-year fixed rates. Mortgage broker Dave Larock suggests that 5-year fixed rate terms might lock borrowers into today’s historically high rates for too long.
Rates Lagging Behind Bond Yields
While the recent rate cuts are welcomed news, some industry experts note that rates aren’t decreasing as quickly as expected based on bond yield movements. Broker Ryan Sims points to risk premiums and profit-taking by lenders as contributing factors. A sustained easing in bond yields will be crucial for a continued decline in mortgage rates.
Addressing the Mortgage Renewal Cliff
The drop in bond yields, coupled with a slower decline in fixed rates, is helping alleviate concerns about the impending “renewal cliff.” Recent earnings calls from the big 6 banks indicate that hundreds of billions of dollars worth of mortgages are set to renew over the next three years. However, every drop in rates between now and then eases the payment shock faced by borrowers.
Optimistic Outlook for Borrowers
Ron Butler suggests that the feared “renewal cliff” may not be as disastrous as anticipated. While it remains challenging for borrowers facing substantial payment increases, there’s optimism that, by the latter half of 2025 into 2026, they won’t be dealing with rates starting with a 6 but more likely with a 4.
Stay tuned for further updates as the mortgage landscape continues to evolve.
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