Hey Everyone,
As you know, there's a war happening in the Middle East. Oil just crossed $100 a barrel. And if you're like most people around here, your first thought was probably something about filling up the truck.
Fair enough. Gas prices is where we see the changes happen first, but that barrel of oil is also doing something to your mortgage rate.
Here's How It Works
Most people think the Bank of Canada sets all the interest rates. They set some of them. The overnight rate, which is what your variable mortgage is tied to through prime. But your fixed rate? That's set by the bond market.
Lenders look at the 5-year Government of Canada bond yield when they price a 5-year fixed mortgage. When bond yields go up, fixed rates go up. When they come down, fixed rates follow.
So what moves bond yields? Inflation. Or more accurately, the expectation of inflation.
And what drives inflation expectations through the roof faster than just about anything else? A barrel of oil going from $70 to $100 in two weeks.
It's not just gas. It's everything that gets shipped, trucked, flown, or moved. Groceries. Building materials. Equipment. When energy costs spike, the price of everything follows. And the bond market reacts before the rest of us even notice.
That's what's happening right now.
Why This Matters If You're Renewing
If you've got a renewal coming up this year, you were probably feeling pretty good a couple months ago. Rates were trending down. The Bank of Canada was sitting at 2.25% and people were talking about more cuts.
That conversation has changed.
With oil where it is, inflation risk is back on the table. Bond yields have climbed. Some lenders have already bumped their fixed rates. And the analysts who were predicting rate cuts this year? A few of them are now saying those might not happen at all. If this drags on, rates could actually go up.
Nobody saw this coming six weeks ago. That's kind of the point.
What You Can Do About It
You don't have to sit around and hope this sorts itself out.
A rate hold lets you lock in today's rate for 90 to 120 days. It costs you nothing. If rates drop, you get the lower rate. If rates climb, you're protected.
It's basically insurance against exactly what's happening right now. You're not trying to predict what happens in the Middle East. You're just taking the guesswork off the table.
If you're renewing in the next six months, get a hold in place now. Even if your renewal date is in the fall, we can usually secure something 120 days out.
If you're buying this spring, get pre-approved with a rate hold built in. If fixed rates keep ticking up, you'll be glad you did.
If you're on a variable rate, let's have a conversation. If the Bank of Canada's rate-cut path gets delayed or reversed, your payments aren't coming down anytime soon.
The Bottom Line
You can't control what oil does. You can't control what happens in the Strait of Hormuz. You definitely can't control what the Bank of Canada decides next week.
But you can control whether you lock in a rate today or roll the dice and hope for the best.
A rate hold is free. A rate hike is not.
If you want to give yourself a window of certainty while the world figures itself out, that's exactly what I’m here for. Reach out. Let's get you sorted.
-Andrew
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