Mortgage Lenders such as banks, trust companies and credit unions, use 5 indicators when setting up their fixed mortgage rates. These 5 indicators are bond yield, lender competition, expenses, possible risks and profitability. These 5 indicators vary all the time and therefore rates will vary from one lender to another. Each mortgage lender decides their interest rate it wants to charge for their mortgages. That is why a mortgage broker is able to help Canadian home buyers source the best mortgage rates because of the access to dozens of these lenders who distribute their mortgage products through the broker network only and not accessible directly to the public.
Bond yield is typically driven by investors analysis of our economy. They compare Canada’s economy with the rest of the world, cross reference current and historical trends, and they assess the country’s economic future. Currently, investors are predicting bond yield will rise over the next few years. To track bond yield visit www.bankofcanada.ca/en/rates/bonds.html
Mortgage lenders set their variable rates based on the ‘overnight rate’. The overnight rate is the interest rate the big financial institutions pay when they borrow from each other. Lenders call the rate they set based on the overnight rate their ‘prime rate’. Lenders set their prime rate based on profitability, expenses, possible risks and competition from other lenders. Many lenders offer discounts off their prime rate.
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