Over the last month or so, I have heard some mortgage brokers promoting the 4 year fixed rates to their clients since it coincides with the US presidential cycle based on the argument that in US election years, mortgage rates remain low for the incumbent President to be re-elected. As a mortgage broker who is driven by data and facts, I had to do some research to justify these statements. Before we dive into data, let's understand what drives mortgage rates:
- Fixed rates are driven by the bond market which moves up and down based on economic news. Good news drive the bond yields higher, therefore increasing rates and vice versa; bad economic news drive the bond yields lower therefore reducing fixed mortgage rates.
- Variable mortgages are driven by prime rate which is set by the Bank of Canada (independent of government) and the discounts on prime are driven by liquidity and credit risk factors. In good times, variable mortgages were at prime-0.8%, during the financial meltdown of late 2008, variable mortgages were at prime+1%