Last week RateSupermarket.ca saw the 5 year fixed rate drop to an all-time low at 2.94 per cent – offered through Advent Mortgage Services (AMS) – and now this week there is a new record low on our best mortgage rates page! The 5 year fixed rate has dropped to 2.89 per cent. Keep in mind that the best mortgage rates page is not necessarily nation-wide, so ensure that these rates are available in your area!
Your Mortgage Broker: What Have They Done for You Lately?
Usually these extra special rates (aka no-frills mortgages) have strings attached – like any other good deal, really. Namely restricting the pre-payment privileges, often forcing a quick close, limiting the number of pre-payments in a year and sometimes even restricting an early renewal. But I got the insider’s scoop from AMS & TNM and was rather impressed to have the record set straight: These are full service mortgage products!
These brokers are hooking you up with a super competitive rate which offers a 20 per cent annual lump sum payment and 20 per cent increase to your regular payment amount.
If you’re the type of person that wants the name brand behind your mortgage but can’t necessarily negotiate your way into a rate, talk to your broker! They seem to have the key.
Low Interest Rates + High Consumer Debt Levels = Disaster (That’s Debatable)
Yes, debt-to-disposable income levels have reached an all-time high at 152 per cent … and yes, low interest rates do spark spending – but are these rates really that bad? According to CAAMP’s survey report (Confidence in the Canadian Mortgage Market) they aren’t! In fact more and more Canadians are taking advantage of these low rates to pay down their debt faster:
- 23 per cent have increased their regular payment amount (on average $400-$450/month)
- 19 per cent have made lump-sum payments (on average $12,500 annually)
- 10 per cent have doe both
- 50 per cent pay a minimum of $100 above their regular payment
When you add all of that up, you have a recipe for success! Buyers have indicated that their amortization period will be nearly 20 per cent shorter than what they originally planned for. Of the mortgages extended between 2008 and now, the average expected amortization is 22.8 years vs. the original contractual period at 31.9 years. Disaster? I think not!
Talk of the Town: One Year Fixed Rate
Yes, the 5 year fixed and variable rates are always on consumer’s minds as they wonder “Should I go with a variable rate which, historically speaking will save me money (psst… check out this link – bottom of page shows historical rates over last 4 years)? Or should I lock in? After all, the margin is so small between the fixed and variable rate… hmmmm.” Well, to add to your confusion why not consider the 1 year rate?
There has been a lot of talk around the lacklustre 1 year fixed rate, with coverage highlighting the perks of this rate in an increasing rate environment when compared to a variable rate. I agree, with the key being “in an increasing rate environment”.
A one year fixed is a great option for more than just the commitment-phobe mortgage shopper in this instance, why? Well, in an increasing rate environment understand that your variable rate moves with the market and isn’t locked in so it too is climbing (no brainer) whereas the fixed rate is just that – fixed; and resets itself less frequently therefore effectively allowing the mortgagee to harness interest savings.
Chicken Little: Rates are Climbing, Rates are Climbing, I Must Go Tell The King!
In the past, we’ve been warned time and time again that rates are increasing… hikes are coming… and rates can’t stay this low forever. But I’m calling that bluff. Bond yields are quite stagnant and actually decreasing (signalling a decrease in fixed rates) while the Bank of Canada is holding overnight lending rates steady (no change to prime). So, don’t panic just yet. Plus, the economic forecast for the US, Europe and Asia is not looking too hot either, which means that Canada will have to curb their growth and inflation.
Not only are rates likely going to stick around for longer than originally anticipated, but there are some downsides to that glorified one year rate. This rate is tougher to qualify for since your debt servicing ratios must remain in check based on the BOC qualifying rate vs. the 1 year posted rate. If you are switching lenders you may have a difficult time re-qualifying and you may incur increased costs in the form of switching fees, discharge fees etc.
Freakonomics: What Unicorns and the Market Crash Have in Common
We can (and the media continues to) fight until the cows come home over whether or not there is a housing bubble, if it will pop or if we will have a soft landing. One side argues that a crash is inevitable since prices and new builds are increasing while sales are decreasing; add in the fact that wages aren’t growing and new mortgage rules and regulations make it more difficult to qualify and you’ve got yourself a crash! However, the other side invalidates these claims, stating that supply is in line with demand, investment properties are a great way to fill the gap in the rental market… and so on and so forth.
Perhaps this market crash (much like unicorns) only really exists through storytelling in the media. Sure, both sides make compelling arguments, but I’m siding with a soft landing and think a correction is more likely than a crash.
Toronto has been in the spotlight for much of this debate and after 12-14 years of phenomenal real estate years, the natural/cyclical moves in the market tell us that a correction is in the forecast. Something has to change; either wages will have to increase to make homes more affordable at current levels, or prices will need to adjust so that buyers and sellers are mutually satisfied in the marketplace.
RateSupermarket.ca Week in Review
Yippie! A good news story this week for the changes in rates with the biggest movement seen in the 5 year variable rate which sits at Prime – 0.40; while the 3 year fixed rate and 5 year fixed rate also dropped 10 basis points to 2.59 and 2.89 per cent respectively.
The 5 year terms still remain the most popular searched rates, with just over 40 per cent checking out the 5 year fixed and 35 per cent looking for a 5 year variable rate.
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