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If you forgot that interest rates are unpredictable, last week’s bond action was a fresh reminder.

The mid-March spike in bond yields has turned into another head fake.

(Government bond yields generally lead fixed mortgage rates in the short term.)

On Thursday, the 5-year government yield sank to 1.388%, a fresh 3-month low. (Source: Bloomberg)

On Thursday, CMHC head Karen Kinsley spoke before a Senate committee about changes that will impact the nation’s largest mortgage insurer once Bill C-38 becomes law.

Those changes include:

• New supervision by Canada’s financial regulator, OSFI
• A revised mandate, and
• Changes to CMHC’s role in the covered bond market.

(For more on these issues, see: CMHC & Covered Bonds - The Impact.)

Regarding CMHC’s new watchdog (OSFI), Kinsley told senators:

Mortgagors incur borrowing costs on three occasions:

1. At origination
   (i.e., closing costs)
2. During the term 
   (payments and misc. fees)
3. At discharge
   (penalties, discharge fees, etc.)

If you pick the right mortgage from the outset, you can minimize costs at each stage.

Besides the term and interest rate, numerous characteristics impact borrowing costs, including:

Bloomberg News, OSFI’s manager of policy development, Vlasios Melessanakis, answers CMT’s March 20 review of its draft mortgage guidelines.

Bloomberg was kind enough to share the source document with us, which it had to obtain under  freedom-of-information law.

No one wants to pay more for a mortgage. But tomorrow during a live chat we'll discuss when it actually might make sense…

Date: Wednesday, May 16th
Time: Noon (ET)

Here is the link.

Hope to see you there!

How low is too low when it comes to mortgage rates?

Apparently the answer to that question is 2.99% on a 5-year fixed.

Finance Minister Jim Flaherty wasn’t too happy that banks broke the 3% barrier on 4- and 5-year rates back in January and March. He implied that those rate promotions were essentially irresponsible with Ottawa trying to temper credit growth.

"I think they've moved away from offering sales on mortgage interest rates. That was something we discouraged," he told the Globe & Mail recently.