How low can 5 Year Fixed really go? It’s a question we’ve been asking since mid-January ushered in the 2.99 per cent mortgage rate. That was trumped last week, however, when we caught a glimpse of the lowest rate yet – 2.94 per cent. Popping up on July 18th and 19th, it was gone again in a flash – but now it’s back.
This rate is just the latest in a year of record lows for the 5 Year Fixed – and as it’s consistently the most popular searched mortgage rate on our site, home seekers are clearly snapping it up while it’s hot. As Government of Canada bond yields continued to plummet, and we caught teases of 2.98 per cent in early July, it was contested whether rates could dip any lower.
Psst: Check out RatePulse for even more insight to the Canadian mortgage market.
All the Bells and Whistles
Offered through Advent Mortgage Services and available in Ontario, a unique aspect about this rate (other than its record breaking status), is that it’s a full service mortgage. That’s right – not only is it also available to those requiring a high ratio mortgage (less than 20 per cent down), it comes with the option to increase your regular payment amount (by 20 per cent) and apply a lump sum payment (also of 20 per cent annually) to help you pay off that mortgage even faster – and for those of you who’ve come across “no-frill” mortgage products can attest, that’s certainly a sweet deal.
Want To Speed Things Along?
So, what would a monthly mortgage payment look like at 2.94 per cent over 5 years with a 25-year amortization? Well, using our handy mortgage calculator, let’s say you’re buying a home at $387,200 (the point forecast for the MLS average price in Ontario for 2012, CHMC). You’re looking at a monthly payment of $1,821 and a balance at maturity of $330,575.05. But let’s say we take advantage of that available bi-weekly rapid option: you’ll be making payments of $910, and will come to a balance of $320,702.65 at maturity – and you’ll be saving to the tune of $9,872.40 over 5 years.
And don’t rule out the benefits of lump sum payments. Let’s say you come up with an extra $1000 each year to put toward your mortgage for that 5 years – that’ll come to a $315,246.59 at maturity – and savings of $5,456.06.
Increasing your regular payment amount is just another way to rake in the savings at a low rate. So let’s say you’re on a regular bi weekly rapid payment schedule, and you up your payments by 17 per cent to $1,066. Suddenly you’re looking at $298,893.20 at the end of your mortgage – and you’ve shaved off 5 years from your amortization while you were at it!
NOW let’s say you add in the $1000 on top of that for lump sum payments: that’ll bring your balance down to $293,437.06
What Is A No-Frills Mortgage?
If you’re adept at comparing the mortgage rate market (and if you’re looking to buy a home, it’s really in your best interest to be), you’ve probably come across rock bottom prices before on “no-frill” mortgage options – and realized they were too good to be true. Such low rates are usually saddled with a lack of payment options so restrictive they outweigh that unbelievable rate.
For example, with a no-frills product, you’re waving goodbye to:
- Minimal lump sum privileges
- Minimal payment top-up options
- Limited number of pre-payments in a year
- Restricted from early renewing without paying a hefty penalty
That means you’re stuck with your mortgage for the full term – and no way out of paying the full interest amount as you chip away at that principal. You’ll also have to contend with quick close deadlines and often a longer turnaround time on approvals.
So it’s no doubt that fans of the 5 Year Fixed will make quick work of a full service 2.94 per cent. The question is – how long will it be here? And is a lower rate even possible?