Monday Morning Interest Rate Update – How Job Losses Are Impacting our Mortgage Rates

Last week Statistics Canada estimated that our economy shed an estimated 41,000 jobs in July, reversing about half of the gains we saw in June. (I am happy to report that, unlike in the US, no Stats Can employee was fired in response to this latest report.)

Last month’s disappointing employment data provided further confirmation that heightened uncertainty tied to US President Trump’s on again/off again tariff announcements is weighing heavily on our economy.

In the US, weaker than expected employment data now has more of the US Federal Reserve’s voting members talking about a rate cut at its next policy-rate meeting on September 17. The bond-futures market is now pricing the odds of a cut at 95%. But something unusual is happening at the long end of the US Treasury yield curve.

Normally, the rising prospect of an imminent Fed rate cut would cause long-term US Treasury yields to drop, but that didn’t happen last week. Instead, bond-market investors bid up longer-term US bond yields over concerns about the inflationary impact of both tariffs and profligate government spending.

Last week’s atypical response by the US bond-market should be a warning to US policy makers that the bond market will make up its own mind about whether US inflation pressures are being sufficiently contained.

The Latest on Mortgage Rates

Government of Canada (GoC) bond yields drifted a little lower last week. The next big catalyst will likely come from the release of the latest US inflation data this Tuesday.

Fixed mortgage rates held mostly steady last week. A few lenders unwound their most recent rate increases which, unluckily, they had enacted on the same day that our weaker-than-expect employment data were released, causing GoC bond yields to tank in response.

Variable-rate discounts held steady. While our disappointing employment data will bolster the BoC’s concerns that tariff-related uncertainty is having a deleterious effect on our economy, our inflation data (due out on Aug 19) will matter more.

Insider’s Tip for Borrowers

For most of the past decade, Offers to Purchase that included financing conditions have been about as rare as hen’s teeth. Realistically, home buyers in our hottest real-estate markets had to show up on offer nights with a clean offer in hand to have any chance of success.

But our housing markets are more balanced now, and financing conditions are making a comeback.

To learn more about how they work, and, more importantly, when they should be waived, check out this post.

Mortgage Selection Advice

My mortgage selection advice this week is repeated from last week.

Fixed rates are now near their long-term averages. The term premium, which is the additional cost that borrowers must pay to lock in for longer terms, is slowly being restored as our bond-yield curve continues to normalize.

Right now, the best available three- and five-year fixed rates are roughly equal. As long as that remains the case, I think five-year fixed rates offer better value.

I continue to believe that today’s variable mortgage rates will likely produce the lowest borrowing cost over their full term, even now that additional BoC rate cuts are taking longer than expected.

Anyone choosing a variable rate should do so only if they can live with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs (and, in some cases, higher payments) should my forecast prove incorrect.

Three Posts I Think Every New Visitor to My Blog Should Read

1. Should Canadians Choose a Fixed or Variable Mortgage Rate During a Trade War?

This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages.

2. What Every Canadian Borrower Needs to Know About Fixed-Rate Mortgage Penalties

This post provides a detailed breakdown of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender. A lower penalty can save borrowers thousands of dollars if rates drop.

3. What’s in the Fine Print

This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract.

David Larock is an independent full-time mortgage broker and industry insider who works with Canadian borrowers from coast to coast. David's posts appear on Mondays on this blog, Move Smartly, and on his blog, Integrated Mortgage Planners/blog.

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