2.99% is back… does that mean we should take it?

5 year fixed @ 2.99% is back.   This is NOT a NO FRILLS product (for those of you that saw a similar rate elsewhere earlier this year) but there is tougher qualifying.   This seems to have become an annual event.  For the past 3 years, we’ve seen 2.99% or less, being offered each Spring.   So, why haven’t rates gone up like the Bank’s economists, government analysts and other so-called ‘experts’ had predicted?

There are several reasons but, to sum it all up, the global economies haven’t recovered from the 2008 recession.    The US recovery is slower than expected.   Canada’s inflation rate is below target levels.   There were even concerns we could see deflation, which would cause the Bank of Canada to lower rates… those concerns have gone away…. for now!

WHAT’S THE FORECAST NOW?

The newly appointed Bank of Canada governor, Stephen Poloz, has come in with a completely different message than former BOC governor, Mark Carney.  For years, we kept hearing that interest rates would go up soon…real soon… really, really soon!  But it hasn’t happened.  The Bank of Canada Rate has remained the same since September 2010.

Around 6 months ago, in October, Poloz said interest rates would not go up for quite a while.  Most of us interpreted that to mean it would be a few years before rates went up.  Then, in January, Poloz said we are in danger of deflation and that could trigger a rate drop.  On March 5th, during the most recent Bank of Canada meeting, Poloz kept the rate the same.  Deflation was less of a concern.

And now, on March 18, Mr. Poloz said some analysts are suggesting we are facing a long period of stagnation.   This is something that caught my attention.  I’ve heard other industry insiders echo the same message.   We are in a period of sustained low rates due to the stagnate economy.   We need to pay attention to this.  If rates aren’t going anywhere soon, then perhaps my long-term strategy of wanting to see a 1.00% spread, between Variable and 5 yr fixed, should be adjusted?

If interest rates aren’t expected to go way up for the next 2 or 3 years, then perhaps we don’t need to see a 1.00% spread?  The right choice for you will depend on you, your circumstances, needs, goals and risk tolerance.

I have these discussions daily.  Some of my clients that insisted on taking a 5 yr fixed rate, just a few years ago when rates were around 3.19%, will call me with regret.  They wish they would have taken the then current Variable rate at Prime less 0.75% (that was available back then).   Sure, I was recommending the Variable rate at that time.  It was a much easier decision given the larger spread.  But what about today?

I still think Variable rate has several advantages.  Better rate, lower penalty cost if you have to get out and the option to lock into the best discounted fixed rate should we see interest rates go way up (remember, not all Variable rate mortgage are alike).    One thing is for certain.  Today, more than ever, you need to get professional, unbiased advice from someone that doesn’t work for any one Bank or Lender.  Speak with an experienced Mortgage Broker.  Compare the options.  Do some math.  Get some advice.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca