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Mortgage Rate Outlook Panel

Our panel of mortgage experts share their views on Canadian mortgage rate trends each month by answering this question: What is your outlook for Canadian mortgage rates over the next 30-45 days?

April 2010 Overall Summary

Many people seem to believe that the Canadian economy has recovered and is on a path for continued growth. Regardless of any lingering doubts about the sustainability of the current rebound, increasing inflation and continued growth in bond yields are sending mortgage rates up.

This month, our panel members think fixed mortgage rates will continue to rise, while variable mortgage rates should stabilize around their current levels. The panel also warns that the Bank of Canada could start increasing interest rates as early as May, which would most likely result in an increase in variable mortgage rates next month.

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Over the past week we've seen a substantial raise in fixed mortgage rates. Many lenders increased their 3 - 5 year fixed rates by approximately 50 bps (0.50%). Although this increase was a bit of a shock, it was not a complete surprise given the recent increases in bond yields.

So what's in store for the rest of the month? Many of our panel members believe we could still see more fixed mortgage rate increases. Bond yields are expected to rise in anticipation of the revised Monetary Policy Report which will be published towards the end of the month. This will put upward pressure on fixed mortgage rates. However, the reality is that many mortgage lenders are still looking to gain market share so don't expect to see the same drastic increases that we saw last week.

The best thing to do if you're looking to take out a mortgage or renew in the next 4 months, is to get pre-approved at today's rates. This will give you a bit of time to speask to a mortgage professional about your personal situation before you make your final decision, while providing protection against future fixed rate increases in the short term.

Our expert panel believes that lenders are still happy lending at current variable rates, until the Bank of Canada makes a move and increases their key lending rate. They don't expect this to happen when the Bank of Canada meets at the end of the month, but an interest rate increase could hit as early as May. Now that the dollar has risen to par, the first rate increase may well be tempered, and left to less than 50 basis points. So we should expect to see a slow and steady raise in variable rates coming soon.

If you're in the market for a variable mortgage rate, just be aware that there is a big range in variable rates out there at the moment, so be sure to compare rates before making a final decision.

Video Summary - April 2010

This Month's Panelists

Dan Eisner - President, True North Mortgage

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Upward pressure is still mounting. If you haven't already received a pre-approval or rate hold, go get one!

Lenders are still happy lending at the variable rate. But there is a big range in variable rates out there so watch out.

George Hugh - President, Taurus Mortgage Capital

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The market seems to be convinced that the economy is back and kicking on all cylinders. This has resulted in a jump of approximately 50 bps in 5 year bonds yields over a very short time period.

The reality is that lenders are still hungry for mortgage product so we should see a stabilization of 5 year fixed mortgage rates in and around the 4.39% mark. I would be surprised if we saw another big spike over the next 30 to 45 days. Keep in mind, the current fixed rates are very attractive especially when you compare them to historical rates.

Even with the threat of rising fixed mortgage rates, borrowers still have a hefty appetite for variable rate mortgages. The reality is that when you look at VRM rates of 1.75% vs. 5 year fixed rates of 4.39%, the large discrepancy still has people willing to take there chances. Base your decision on your personal financial situations.

Gregory Klump - Chief Economist, CREA

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Notwithstanding lingering doubts about the sustainability of the current rebound, sticky inflation and stronger than expected economic growth have financial markets raising odds for an increase in the overnight lending rate before the second half of the year.

The Bank's Monetary Policy Report will be published a couple of days after the April interest rate announcement. Recent remarks by Bank Governor Carney suggest the MPR will move forward forecasts for when inflation will return to the 2% target and the economy returns to full capacity. The Bank's revised forecasts could result in upward pressure on bond yields, and in turn, mortgage rates. And my guess is they will.

Before hiking the overnight lending rate, the Bank will want to publish its updated forecasts. That won't happen until after the April interest rate announcement. Expect the Bank of Canada to keep grooming financial markets for upcoming overnight lending rate hikes without actually raising them in April.

Dr. Ian Lee - Program Director, Carleton University

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The US Government must raise $2.5 Trillion new funds and renew-roll over another $6 trillion of existing debt (who said health care was free?).

The 5 year Canada bond yield broke 3% - the highest since 2008. The Bank of Canada has noted that inflation is rising more sharply than expected. As PIMCO's Bill Gross noted this month, bond yields will continue to increase due to larger amounts being raised and increased fears over a Greece default.

These events suggest upward pressure on fixed mortgage rates in the next 30-45 days.

The Bank of Canada affirmed yet again that it will not increase rates before July 2010. With the dollar achieving parity, there is even less pressure on the Bank of Canada to move prematurely on the interest rate front.

Garth Turner - Author, Former MP

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Since the major lenders have responded to bond market pressures rates have raised substantially.

Waiting for Godot: Mark Carney continues to suck and blow, saying there is no housing bubble but warning emergency rates will rise. And they will. But now that the dollar has risen to par, the first BoC increase may well be tempered, and left to less than 50 basis points. Look for that in May.