Factors, the variable and fixed rate mortgage Canadian influence savings bonds rates

The turbulent recent weeks has upset global economy interest savings bonds rates when the Bank of Canada under the various global central banks was their first savings bonds rates loan rates fall, to try to slow the economic downturn. The typical reaction of the big banks is to follow the Bank of Canada cut its interest rate – by a similar amount, although this did not happen last week. Royal Bank, Scotiabank and TD, along with the rest just did their prime rate by 0.25% against 0.50% for the purchase by the federal government. This resulted in the Canadian mortgage rates actually increased, which would conflict with the normal market behavior. This gives a very interesting question – what actually affected Canadian mortgage rates?

There are many factors that Canada’s economy, including unemployment, gas prices, inflation, exports and imports, the savings bonds rates, budget deficit or surplus and the list goes on influenza, and may be different to keep track of all these things and how they have to pay our daily lives and that impact mortgage savings bonds rates rates. Many people believe that the Bank of Canada to a monthly interest rate directly affects all mortgage interest rates, but it is not the case. Variable (ARM or adjustable mortgage interest) and fixed mortgage rates in Canada savings bonds rates are in fact influenced by several factors.

Fixed rate mortgages

Canadian Fixed mortgage rates are influenced by the price of government bonds and the yield. Bonds Generally considered safer investments than stocks, and if economic turmoil, investors usually dump shares in favor of bonds, especially government bonds, and if the stock market is booming, investors can make a greater return investment in shares.

This means there is less demand for bonds, so that the loss of value and increase their productivity. On the other hand, if the Canadian economy is less stable and the stock does not look so attractive, the Increased demand for bonds and reduce returns.

When the Canadian prices of government savings bonds rates to increase long-term-5 years, this translates into savings bonds rates reduced performance (return), usually by reducing the borrowing costs of five years for mortgage lenders, which then give those savings bonds rates customers as a reduction of the 5 year mortgage rates are fixed.

But while these very unusual times, due to the lack of liquidity in the markets, banks are reluctant to lend to the world any more money and treasure, which have higher financing costs and banks to pass on the increases to customers in the form of higher rates fixed mortgages.

variable mortgage rates

The Bank of Canada has an important role in determining the rates for variable mortgages, as the target overnight rate target, which they describe as a set:

“The average interest rate that the bank can be seen on the market for a day (or wants to” overnight “) loans between financial institutions Institutions. ”

This is what the big banks and their interest rates on the basis of the Bank of Canada has no say in setting interest rates the lender, as determined by a financial institution is independent and funded the cost of borrowing in the short term.

This is important, variable mortgage rates savings bonds rates advertised as the first – savings bonds rates 0.60% or the like, which means that the interest rate savings bonds rates you pay directly to the prime rate, which is and will continue to fluctuate, if such changes. So, if the Bank of Canada drops rates by 0.50% or 50 basis points lower as last week, lenders usually their prime rate and decrease their cost to borrow in order to collect payments on a variable savings bonds rates interest rate is a good option if interest rates fall.

The problem with this scenario, the dreaded “credit crunch” is that banks have stopped believing in each other in the short term because they are afraid of not having the money back because of the instability the system. As a result, interbank lending rates have risen and these savings bonds rates higher costs to customers will take the form of higher interest rates.

If interest rates fixed or variable the best choice?

This is a very common question and much depends on savings bonds rates each person’s situation and if the mortgage lead changes, both financially and spiritually, because the last thing you want is to lose sleep, because interest rates may increase or if you feel to know very well, the fixed rate constant for a few years you would pay.

There have been many studies and debates on the best shows for the borrower and the analysis that would savings bonds rates be the best Canadian homeowners historically low interest rates have been variable. There was a recent report of Dr. Milevsky, Associate Professor of Finance, Schulich School of Business released, York University, and says that, based on 1950-2007 data, the average Canadian could expect interest 90.1% of the time from a variable instead of a fixed mortgage. The average savings was borrowed $ 20,630 savings bonds rates to $ 100,000 in 15 years and says that “in the long run, homeowners pay an extra mortgage really hard.”

This may be something in the eye projected in the coming months as the Bank of Canada will keep mortgage rates decline, but remember, these are very unusual times and be the best to expect the unexpected.

Kelvin is the Mangaroo Founder of savings bonds rates RateSupermarket.ca, Canada to compare the best mortgage interest rates.

By: Kelvin Mangaroo
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