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Fixed rate mortgages are separate from variable or adjustable which follow the rise and fall of the Bank of Canada Rate.  Recently, the Government has been increased that to curb inflation.

However, fixed rates are another story.  They follow the trend of the Government Bond Rates which also, have been on the rise.  A bond is an investment that provides reasonably low risk and a fairly reliable return - it is safe.  When you buy Canadian Bonds - you are lending money to the Bank of Canada who then uses your money toward various government spending, debts and promises to pay you a certain interest rate.  It's a very safe and secure way to invest short term.  Say a 5-year bond.  In 5 years, you are paid back the initial investment plus a modest interest amount.  They can be however as short as 1 year up to 25 or even a 30 year bond.  Because they are so safe, the interest paid is quite low vs other high risk investing where your return may be substantial - or zero.

When the price of bonds go up, the return from owning a bond goes down.  When prices of bonds are low, the returns are higher. Fixed rate mortgages follow this trend and have an inverse relation to them

So Exactly How do Bonds Affect Mortgages?

They are very similar in that they have a fixed term or time period (usually 5 years).  The difference being that a mortgage is a greater risk to a lender than buying a bond.  Loaning money for a mortgage allows the lender to make more money, but they are not guaranteed they will be paid back.  While with a bond, the bank knows they are guaranteed a certain rate of return, so for this greater risk, they will charge you a higher interest above the bond rate to account for the risk they feel they are taking.  So as bond rats rise, it becomes less attractive for the bank to invest in mortgages, so they raise the fixed rates to correct for the small rate of return between the two.  So for example, if a 5-year bond is giving a return of 2.9%, for a riskier mortgage, the lender will charge 4.4% on a 5-year fixed mortgage.  However, not all lenders have the same 'spread' between the bond rate and their interest rate which is why you see different rates from different lenders. Some want a larger spread, some not as much.

At present, we are expecting the upward trend of the bond yields to continue which in turn will result in rising fixed rates.  With all the uncertainty right now, investors are looking toward the lower risk bond rates over other high risk investments.

Then of course is the question of why a 5-year fixed mortgage with less that a 20% deposit has a lower rate than a 5-year fixed mortgage with over 20% down!

Yes, it is a very confusing maze which is why it's a good idea to use the assistance a mortgage professional who is licenced to give you advice.