Surging Bond Yields Widen Gap Between Fixed and Variable Mortgage Rates

Bond yields are surging globally, and this trend is affecting Canadians who hope to purchase homes or refinance mortgages. The rise in bond yields can lead to higher fixed mortgage rates and other longer-term borrowing costs.

A bond yield is the return an investor can expect based on a bond's market price and its promised payments. When investors become less willing to buy bonds, their prices fall, resulting in a higher yield for new government bonds. This means lenders may increase fixed mortgage rates if Government of Canada bond yields remain elevated.

Mortgage brokers are advising borrowers not to assume either fixed or variable mortgages are automatically the better option. Some clients are starting with variable rates while waiting to see if fixed rates come down in the coming months. However, this strategy carries risk, as a variable rate can rise if the Bank of Canada raises its policy rate.

The Financial Consumer Agency of Canada recommends homeowners start shopping around several months before their mortgage term ends and compare offers from different lenders and brokers.