Mortgages Rates - Fived vs. Variable - Why and How are they changing ?
Why are the interest rates going up and down when the prime and variable stay the same ? This is a good question and most of the public at large are connecting the movement of the fixed rates to the prime. As the interest rates are at an all time low you are expecting to have the mortgages rates doing the same. to a certain extent, yes. The true is the mortgages rates are based on the bond market activity.
If you are having a five year bond going down automatically the five year mortgage fix will go down. And of course the bond market can change daily. It is based on what the market considers a good investment and ready to pay for this five years bond. Sometime money are shifting from bonds to other investments such as gold, oil and others which will depress the bond market of investors and will bring down the interest rates and in the same time the mortgage rates.
The variable rates are some how connected to bonds but mostly to on prime lending rate . Each bank will have their prime and they are based on the bank of Canada prime. The Bank of Canada also can change the rates ( six times per year or so ) and their movement will have an dramatic impact on whole economy of the country. for this reason they do not change so easy and most of the time constant with minor increase or decreases , Same time the variable rates will stay lower and very close to their prime value.
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