Major Canadian banks are all predicting higher interest rates in 2018. Depending on the bank between 1 and 4 rates hikes are expected this year. As we begin the year bond yields are at new highs.
A 1 year bond is trading 52 bps higher than overnight rate, a 2 year bond is 70 bps higher than overnight rate, and 5 year bond is 89 bps higher than overnight rate. The market is telling us that on average the overnight rate is expected to be 0.52% higher over the next year, 0.70% higher over the next 2 years and 0.89% higher over the next 5 years – something to keep in mind when comparing fixed and variable rates. Also worth noting that the market is expecting more than 2 hikes in 2018.
If you are planning to buy a house or renew your mortgage it is a good idea to take advantage of 120 days pre-approvals offered our lenders. This will allow you to protect yourself from higher interest rates over the pre-approval period. You can also take advantage of pre-approval to protect yourself even before the end of your term.
Keep in mind that the major Canadian banks have a much steeper penalty if you prepay a fixed rate mortgage than other lenders and this should be a major reason to avoid getting a fixed rate mortgage with a Canadian Bank Most clients will refinance before the end of a five year term.
Call anytime if you have question about how you can protect yourself from higher interest rates in 2018.