Key points
- Fixed mortgage rates tend to move with Government of Canada bond yields of a similar term; variable rates move with lenders' prime rates.
- Bond yields change daily, so fixed rates can shift between Bank of Canada announcements.
- The link is neither one-for-one nor instant: lenders add their own margin and reprice on their own schedule.
- The checker uses the bond-yield move only to update a benchmark that is published with a lag, and labels the result as an estimate.
A quote, and a question
Picture an illustrative household (call them the Tremblays) buying their first home with 20% down. They need a $450,000 five-year fixed mortgage with a 25-year amortization, and their first written quote is 4.59%.
Before going further, they score it. The fixed mortgage checker gives 80 out of 100 ("grade B"): the quote is 0.25% above a best published rate of 4.34%, worth about $5,386 over the 5-year term. Then a friend tells them rates are "about to go up", even though the Bank of Canada isn't due to announce anything for weeks. How can that be?
- Rate
- 4.59%
- Score
- 80
- Verdict
- grade B
- grade
- B
- Benchmark
- 4.34%
- typical
- 4.83%
- Gap
- 0.25%
- Direction
- above
- Cost vs benchmark
- $5,386
Why their lender watches the bond market
A lender that promises a fixed rate for five years has to fund that loan for five years. Government of Canada bond yields for a similar term are the market's reference price for lending money over that period, so fixed mortgage pricing tends to follow them. When five-year yields rise, lenders' cost of offering five-year fixed rates tends to rise too, and rate sheets follow.
The Bank of Canada's policy rate, the target for the overnight rate, works on the short end. It moves prime rates, and through prime it moves variable mortgages and lines of credit. Bond yields respond to the policy rate too, but they also reflect what investors expect over the years ahead, so they can move well before, after or without a policy announcement.
Three weeks later: the rate sheet changes
Suppose five-year yields climb, and the Tremblays' lender reprices its five-year fixed from 4.59% to 4.84%. On their $450,000 mortgage, that would add $63.19 to the monthly payment and $5,397 of interest over the 5-year term, and leave $1,605 more owing at renewal.
This is where a written rate hold earns its keep. If the Tremblays had a hold at the original rate, the repricing would not reach them as long as they closed within the hold period and met its conditions. Our guide to rate holds and pre-approvals explains what to get in writing.
| At 4.84% | At 4.59% | |
|---|---|---|
| Monthly payment | $2,576.39 | $2,513.19 |
| Interest over 5 years | $101,858 | $96,462 |
| Balance after 5 years | $397,275 | $395,670 |
Watch the yields if you like, but judge the offer in front of you.
What didn't change: the yardstick moved too
The checker's fixed-rate benchmark comes from the Bank of Canada's monthly effective rate on new mortgages, which is published with a lag of roughly two to three months. To bring it closer to today, the checker moves it by the change in the matching Government of Canada yield since that month, and labels the result as an estimate.
That has a useful consequence. If a lender's quote rises by roughly the same amount as yields, the estimated benchmark rises too, and the score stays about where it was: the market moved, not the lender's pricing. If a quote rises while yields are flat, the gap widens and the score falls. That distinction helps when you are deciding whether a new quote reflects the market or the lender.
Where the link breaks down
Bond yields are a strong influence on fixed rates, not a formula. Several things sit between the two.
- Lender margins: each lender adds its own spread for costs, risk and profit, and that spread can widen or narrow with competition.
- Timing: lenders reprice on their own schedule, so rate sheets can lag a move in yields or get ahead of it.
- Term: a three-year fixed relates to shorter yields than a five-year fixed, which is why the checker matches the yield to the term bucket. See mortgage term length and rate.
- Insurance: insured and uninsured mortgages are priced differently even when yields are the same. See insured vs uninsured rates.
What the household did next
None of these steps relies on predicting where yields go next. They rely on knowing what you have been offered and what comparable borrowers were paying.
- Asked their lender to confirm the rate hold, its expiry date and its conditions in writing.
- Got a second written quote for the same term, insurance status and amortization.
- Scored both in the checker and turned the gap into dollars with the rate difference calculator.
- Used the competing quote to ask for a better rate, following the new mortgage script.
- Rechecked the score shortly before closing, in case the benchmark had moved.