What direction will mortgage rates head in 2011? Well bond yields have increased to record a 5-month high, so fixed mortgage rates should continue to rise. However variable rates are of interest. Speculators believe that Prime rate will increase, but it will not move significantly. Many believe that Prime rate will not move above 4.00% (it is currently 3.00%). However, with the Canadian real estate market remaining strong in 2011 and mortgage lenders competing for business, spreads off the Prime rate will continue to grow in a favourable direction for borrowers. So if Prime rates does increase by 50 or 100 bps, lenders will likely increase the spread favourably so borrowers will not be paying the full amount. It is possible that mortgage rates on variable products in 2011 remain stable. What does remain perfectly clear is that cost of borrowing to secure a home will still remain low in 2011, and buying a home will remain a smart move for Canadians.
Posted by Kevin Somnauth, CFA
First Toronto Mortgage (http://firsttorontomortgage.com)