Indeed, interest rates are likely to remain trending downwards as central banks continue easing monetary policy in response to slowing inflation and increased economic uncertainty amidst the recent economic shifts. However, for homeowners and home buyers who look to take advantage of this sweet deal, the clock ticks because experts report that fixed mortgage rates have already hit bottom.
Present Interest Rate Regime
In fact, following a long spree of rate hikes to quell inflation, most central banks, including the Federal Reserve and the Bank of Canada, are currently in a process of reducing the speed of their rate-hike increases. As inflation appears to have peaked and is now beginning to decline, analysts even mention possible cuts for 2024. Expectations are pouring into markets, an indication that borrowing conditions will improve soon.
But while the general direction of policy rates appears to trend downward, fixed mortgage rates-which are influenced by bond yields and market expectations rather than immediate rate decisions-are already approaching their trough.
Why Fixed Mortgage Rates Are Stabilizing
Fixed mortgage rates typically suggest how the broader economy is thought to be acting over a longer cycle: inflation pressures, future interest rate trajectories, etc. Even accounting for the higher likelihood of cuts, most lenders and analysts believe that much of the downward move in fixed mortgage rates is behind them.
These are the reasons why:
1. Market Stabilization of Bonds: Mortgage rates go hand in glove with yields on government bonds. Now that the yields stabilize at expectations of slower growth, there is not much more room left to compress fixed mortgage rates significantly.
2. Competition Among Lenders: The cutthroat competition from most of the banks has already prepared themselves by adjusting rates to survive in such an environment. Without bleeding away some profit margins, there doesn’t seem much left for further cuts at this juncture.
3. Borrower Sentiment: Lower fixed rates have led to an increased demand for mortgages, including refinancings and first-time homebuyers. To control such demand and keep lending standards at bay, banks may not want to continue cutting further rates.
Variable Rates May Still Decline
Whereas fixed rates are expected to go up, variable mortgage rates, which are dependent directly on the prime lending rate and the short-term moves of the central banks, may decline further this quarter. Payments for homeowners who operate under variable-rate mortgages might go down if more policy rate cuts are implemented by central banks. However, rate cuts may be slower in arriving than what borrowers would hope for, considering the market’s uncertainty.
What This Means for Borrowers
1. Lock in Fixed-Rate Mortgages: If you’ve been considering a fixed-rate mortgage, this may now be the time to lock in your rate. In fact, lenders are unlikely to do much further cutting at this point, and rates could creep upward again if bond yields rise or inflation pressures re-emerge.
2. Keep watch on Variable-Rate Fluctuations: something one needs to keep a watchful eye for in variable-rate loans, but the changes made by the central banks need to be closely scrutinized; perhaps in the future such relief will come in the form of rate cuts, but again, there is market volatility.
3. Weigh the Risks and Rewards: The choice between fixed and variable rates, according to various financial situations and risk tolerance, has thus been drawn. With fixed rates comes stability and predictability but fewer opportunities for savings when interest rates drop further.
The economic outlook has ample evidence that interest rates may fall yet, but perhaps the era of plummeting fixed mortgage rates may be over soon. Prospective buyers and existing homeowners looking to refinance should move fast to take advantage of low rates while they last.
The good times might come to an end-the economic environment is always uncertain, and planning is a must along with decisive action if favorable mortgage terms are to be sealed. Fixed or variable-it makes little difference which one you choose-once you have narrowed it down, keep an eye on market trends, and get a consultation from a mortgage advisor to make the best-informed choice.
