A new 1 year variable rate product has recently come onto the market which is being offered by one of our broker partners, True North Mortgage. This is interesting as the most popular closed variable mortgage term has historically been the 5 year, with a 3 year increasing in popularity over the last year as well.
The 1 year product is being offered to take advantage of mortgage shoppers who believe that variable mortgage rates with larger discounts to prime will come back into the market. This is the view of True North Mortgage’s President, Dan Eisner, who in our last Mortgage Rate Outlook Panel that, “It is a New Year and banks want to kick it off with lots of mortgage volume. Thus, more banks are going to discount their rates off of prime. That’s good for home buyers!”
Before the economic crisis happened last year, variable rate mortgages were being offered with large discounts to prime (the Prime Rate is currently 2.25%) such as Prime – 0.65%, and that’s how there are some lucky home owners out there paying under 2% on their mortgage right now. As the banks liquidity started drying up and capital was hard to come by, the discounts disappeared and variable rates were being offered above prime. As Canada started heading out of the recession and liquidity returned to the banking system, many lenders are now looking to re-gain market share lost over the past year.
Variable mortgage rates with discounts to prime are back, with the best variable rate product with a 5 year term on RateSupermarket.ca currently being offered at Prime – 0.30% or 1.95%, and the 3 year variable at 1.85%
So the thinking with the 1 year variable is that if you believe larger discounts to prime will come back to the market in the next year, you can take out a 1 year variable rate for now, and then switch into a longer variable rate term next year without a penalty, rather than waiting for 3-5 years. The 1 year product comes with:
- A 60 day rate hold
- And 20% annually and 20% monthly prepayment privileges
So this might be an interesting option to discuss with your mortgage planner and as always be sure to speak to a a mortgage expert before making any final decisions.
Best of luck and you can compare the best variable mortgage rates in your area now.