Five-year fixed-mortgage rates on the rise

Rates for five-year fixed-mortgages are climbing, effectively ending the trend of 3 percent five-year fixed-mortgage rates.

According to Move Smartly, last week five-year fixed-mortgage rates rose and then rose again. The increase is a lender reaction to the Government of Canada's (GoC) bond market. The GoC's five-year bond yields have, in the past seven weeks, increased by 66 basis points.

CBC News said that  bank's are seeing their borrower's rates go higher and are therefore increasing lending rates to offset the costs.

The increase in bond yields is due to three key points, according to Move Smartly. First, the willingness to pay for safety of GoC bonds was reduced and the bond yield rose from 1.15 percent to 1.44 percent from May 1, 2013 to June 6, 2013. Second, the Canadian job market spiked with almost 100,000 new jobs in May, causing bonds to surge 19 basis points. Lastly, the U.S. Federal Reserve announced it would begin to taper off its $85 billion per month program to purchase U.S. treasuries and mortgage backed securities.The U.S. Treasury yields will rise, so higher fixed-mortgage rates in Canada are inevitable because for the past five years GoC bond yields have had a 98 percent correlation with the U.S. Treasury.

The Toronto Star said the increases in rates for five-year fixed-mortgages are small but could be definitive signs of rates returning to normal levels, according to economists and industry experts.

Move Smartly reported that five-year fixed-mortgage rates are being offered in the range of 3.25 percent.

Are there any alternative options for the best mortgage rates?
Available in the range of 3.64 percent are ten-year fixed-mortgage rates, according to Move Smartly  If a borrower believes the U.S. will recover and likes the stability of fixed rates, it might be a good choice to lock in an extra five years.

CBC news said that unlike fixed-rate mortgages that are set mainly by the bond market, variable-rate mortgages depend more on the Bank of Canada (BoC) rate set every six weeks.

Whenever a market changes, it's prudent to step back and re-examine, according the Move Smartly. With fixed-mortgage rates on the rise, variable-rates might be the better option for qualified borrowers. Five-year variable rate mortgages are available in the 2.5 percent range.

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