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%

Based on the above 2 points I don't see how US elections can drive the bond market or influence the decisions of the Bank of Canada. The only connecting factor is the Bank of Canada benchmark rate has to remain relatively close to the US Federal Reserve benchmark rate. If Canada's benchmark rate was much higher, the Canadian dollar would rise in value negatively affecting exports and would dampen the economy.

Let's look at the numbers. Over the last 25 years, fixed rates on US re-election years: 2012, 2004, 1996 and 1988 the fixed rates based on the chart do not show a dip in these specific years. The data shows that interest rates have been decreasing over the last 25 years.

Finally, when someone makes a statement, always ask for data to back up their claim. It's easy to make generic statements.

To discuss your mortgage situation and to make decisions based on data and facts, please contact me.