Why Falling Oil Hasn't Cut Mortgage Costs for Everyone

Canadian bond yields have eased alongside the crude oil selloff, giving some lenders room to trim fixed mortgage rates. The cuts have been narrow, though, and mostly for borrowers who take default insurance.

Banks have been slower to reduce rates on uninsured mortgages, where margins are wider and competition is thinner. A Citadel Mortgages product at 3.83% is among the sub-4% options available to insured borrowers. For uninsured borrowers, no major bank has posted a fixed rate starting with a three, though regional lenders like Ratebuzz in Ontario and credit unions in Manitoba and British Columbia are close for local applicants.

The oil backdrop is only part of the story. The Federal Reserve's hawkish pivot this week, with officials signaling less comfort on inflation, could push bond yields higher even in Canada. A lot depends on whether the U.S.-Iran peace deal keeps pressure on crude or lets it stabilize. If inflation stays sticky, the bond market could reverse the rate relief that cheaper oil has briefly provided.

The effect is visible in the yield spread. Canada's 5-year government bond yield has pulled back from recent highs, tracking crude's decline. That is the raw input for fixed mortgage pricing. Lenders, however, have been passing through only part of the drop, keeping wider spreads on uninsured loans than on insured ones.

For now, insured borrowers have a window of sub-4% fixed options. The question is whether that window stays open through the spring. If the Fed's tone on inflation hardens or oil prices bounce, the math on fixed rates shifts in the other direction.

Robert McLister is a mortgage strategist and editor of MortgageLogic.news.

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