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Ottawa, Jan 29 (Canadian-Media): The impact of the fear of Coronavirus and its spread on Canada's mortgage market had prompted investors to put money in safe government bonds has pushed down the yield on that debt, media reports said.
Coronavirus. Image credit: Twitter handle
One of the factors affecting the rates of fixed- and variable-rate home loans is based on the price that lenders have to pay to borrow money themselves.
Although the return of the government debts is meagre, investors feel safer than losing money on riskier investments that they buy.
For fixed-rate Canadian home loans, the benchmark that sets the price that consumer rates are based on is the five-year Government of Canada bond.
The rates of variable-rate mortgages are based on what the Bank of Canada is doing, not bond yields which means home buyers with variable-rate loans can expect some relief soon.
Canada's fear of coronavirus and its spreading is one of factors that has caused the increase in the price of bonds and a drop this year in its yield of the five-year Canadian government bond from 1.7 percent to 1.3 percent.
This drop amounting to 40-point drop in a short time is considered to be huge and it's filtering down into the mortgage market.
Fixed-rate loans are falling, according to James Laird, CEO of mortgage broker Canwise Financial and co-founder of rate comparison website RateHub.ca.
In its policy decision last week, the Bank of Canada said it would keep its benchmark interest rate where it is for now.
Bank of Canada. Image credit: Wikipedia
Laird said that rate cuts are often seen in mid-February or March, regardless of what bonds are up to, but the sudden impact of the coronavirus had caused this to happen a little earlier and a little more dramatically than anticipated.
"It's not like rates were on the rise and the coronavirus caused them to do a U-turn," he said.
"I'd say this is another area which is putting downward pressure on bond yields, and therefore downward pressure on mortgage rates."