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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?

August 2014 Overall Summary

Fixed-rate mortgages will remain on their discounted trend, as low bond yield levels give lenders the ability to competitively price their offerings. Variable mortgage rate borrowers can also sleep tight, as the Bank of Canada maintains the Prime rate will not be changed until 2016.

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Government of Canada bond yields are trending at a 2014-record low, between the 1.40 and 1.50 per cent range, leaving lenders the slack they need to continue the sub-three per cent discounting trend.

A surprisingly high $1.8-billion trade surplus has sparked speculation that Canada may be on the path to achieving growth benchmarks - however, raising rates now would only reverse the economic leeway provided by the low loonie. It appears the Bank of Canada is adhering to its 2016 growth forecasts, leaving variable rates untouched for the summer.

This Month's Panelists

Ron Butler - Mortgage Broker at Verico Butler Mortgage

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Five-year bond yields have fallen to the lowest yet this year (below the 1.50 per cent range), and point to a downward trend among the lowest five-year fixed mortgage rates - we could see them falling below 2.79 per cent over the coming weeks.

Regarding the Prime rate, the Bank of Canada remains eternally unchanged on the overnight bank rate. However, capital seems plentiful to the point where we may see five-year variable rates discounted to Prime - 0.75% all over the place over the next few weeks.

Dan Eisner - President, True North Mortgage

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Low and slow; bond yields have not been moving and they remain low - really low. As a result, I expect mortgage rates to remain below the 3 per cent mark for the next while.

The economic recovery in the U.S. remains tepid and the politicians can't seem to get together to do anything about it. The central bank will keep rates low until they see a sustained recovery in the U.S. economic situation. As a result, we don't foresee any changes to the variable rates in the next while.

Will Dunning - Chief Economist, Mortgage Professionals Canada

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Mortgage rates depend a great deal on trends for bond yields. Those yields trended downwards during the spring of this year, allowing mortgage interest rates to gradually ease. The reduction in bond yields and mortgage rates resulted from a softening of confidence about economic prospects. At this point, that weakening of confidence may have gone a bit too far (the U.S. economy is likely to continue it gradual improvement). Therefore, it is possible that the recent drops in rates for five-year fixed rate mortgages may also have gone a bit too far. In consequence, interest rates might back-up (a bit) in the near term. Any rises should be minimal - I still believe that it will be quite some time before there is a meaningful and sustained rise in interest rates.

The inflation rate in Canada has increased for four consecutive months, reaching 2.4 per cent in June. But, the higher inflation rate is narrowly focused, mainly from energy costs as well as rising food prices. Because inflation is not becoming widespread or ingrained in the economy, the Bank of Canada is unlikely to raise its target interest rate (which means that there should not be any meaningful change in rates for variable rate mortgages). Analysts continue to expect it might be another year before these short term rates increase, and even then the expectations are for moderate rises (one-quarter to one-half percentage points by the end of 2015).

Kelvin Mangaroo - President of RateSupermarket.ca

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Bond yields, which set the tone for the fixed cost of borrowing in Canada, have dipped below the 1.50 per cent mark over the past month, and have settled into the mid-1.40 range over the first week of August. Already, Scotiabank and CIBC have introduced special offers to a number of their fixed-term rates, and many of the most competitive rates on the market are priced below the three per cent threshold. Continued slack offered by the current low-yield environment gives lender the room to discount further.

Economic growth factors such as core inflation and CPI have yet to meet the benchmarks established by the Bank of Canada, offering no reason to hike rates in the near future. In fact, BoC Governor Stephen Poloz has gone as far to say that the Bank could take a neutral stance on interest rates, taking a step back from influencing rate growth either negatively or positively. While it remains to be seen if the Bank will take such measures, variable mortgage borrowers can count on unchanged rates for the month of August.

Dr. Ian Lee - Program Director, Carleton University

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As stated in previous Monthly Outlooks, the steady tightening of the mortgage underwriting rules has incrementally reduced demand for mortgage financing. Moreover, the five-year bank of Canada bond yield is hovering around 1.4 per cent to 1.5 per cent, suggesting stability in the fixed rates for the near future.

Governor Poloz must be smiling like Alice's Cheshire Cat with the latest surprising trade surplus of $1.8 Billion – driven by rising exports and falling imports – due in part to the depreciation of the Loonie. Several economists have suggested Poloz is talking down the dollar to help produce an export driven recovery. Why would the good Governor want to end the party by increasing interest rates which would – as surely as it snows in January in Ottawa – drive up the value of the loonie and drive down exports?