Quote:
Originally Posted by blankall
A thing to consider about raising federal interest rates is that it doesn't always translate into much higher mortgage rates. Currently the banks are offering relatively high interest rates, in relation to federal rates, because they expect rates to rise.
At many times, the banks will actually offer less than prime rates for mortgages. For example, right now CIBC has a fixed 5 year rate of 3.29% and a variable rate of 1.65%. The fixed rate is above prime now, but that's not always the case.
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Mortgage rates are a function of the yield curve (longer term bond rates for corresponding terms). For example, 5 yr mtge rates are a function of 5 yr bond rates.
Mtge rates can be lower than prime, when the yield curve is very flat (as it has been for the past few years)
But now that there are expectations of higher rates in the future, the yield curve has/will steepen in reaction to that. And as it steepens, mtge yields will rise with it