Last week, the Bank of Canada governor, Stephen Poloz, held the first of 8 scheduled meetings to set the Target Rate. This is the rate used to set the Bank Prime rate which currently sits at 3.00%. No surprise, no change in the rate. It has been the same since Sept 2010.
From 2011 to 2013, the previous Bank of Canada governor, Mark Carney, continually announced of a pending rate increase. But late last year, Poloz changed the tide when he announced it could be a few years before rates go up. One of the key drivers for rate hikes is inflation. The BoC target for inflation is between 1% and 3%. If inflation goes above 3%, we can expect rate hikes.
Inflation is not a concern. In fact, there are concerns about deflation as the current inflation rate sit at 1.2%. Some experts believe we could see the BoC rate drop. Great news for anyone in a Variable rate. We are also seeing the govt of Cda bond yields drop. Friday’s close was down to 1.59% for 5 yr bonds. Haven’t seen that level since June 2013. This means Fixed mortgage rates will probably go down further.
WHICH MORTGAGE PRODUCT IS BETTER NOW?
Last Spring, 5 yr fixed rates were below 3.00% and Variable rate products were not much better. My rule of thumb for considering Fixed rate is when we get below a 1.00% rate spread between Variable and the 5 yr Fixed rate. Right now, we are just under that level. Variable rates sit at around 2.55% and 5 yr fixed sit at around 3.39% (more on rates below). BUT, the difference from last year is that we don’t expect interest rates to rise until next year or maybe later. This means we could be paying 2.55% or less for the next 1 to 2 years… maybe longer. So Variable is a definite consideration when choosing your mortgage today.
BEWARE THE FINE PRINT MORTGAGES
What’s that you say? You’ve seen lower rates advertised? It’s true, there are lower rates available. And I have access to 50 different Lenders and hundreds of mortgage products. In some cases, I can actually earn a higher compensation if I recommended these products. But not all mortgages are alike. If you are just looking at rate, you are making a BIG mistake that could cost you $thousands down the road. I’ve taken the approach that I will ONLY recommend FAIR and TRANSPARENT mortgage products to my clients and readers. I won’t promote ‘NO FRILLS’ products or products with inflated penalties, terms and limitation that won’t allow you to exit the mortgage (believe me there are plenty of these products around and they also come from the BIG SIX BANKS). I will never sacrifice a client’s best interests for financial gain. That’s short term thinking and I’ve been doing this for 25 yrs. No thanks.
Last year, I conducted a study on some of the more popular rate shopping sites. These sites have grown in popularity over the last 4 or 5 years. The study shocked many as we reported that these sites were not “shopping all Canada’s brokers” but were only quoting a small handful of brokerages, charged fees for leads and in many cases, just didn’t offer adequate advice. The jury is still out on these sites. It will be interesting to hear how much repeat business they will get. Good Advice is becoming a rare commodity in our business. If you have a good Mortgage Broker, stick with them. If not, call me for help.
You might be able to book a trip online with no one’s help… but getting the best mortgage? Some things shouldn’t be done on your own. The biggest debt for most of us is our mortgage. Please take the time to understand the product choices, options and differences available in Canada. It could cost or save you several $thousand dollars.
Your best interest is my only interest. Buying, refinancing or renewing your mortgage? Contact me for the best rates and terms.
As always, I welcome your comments, calls and questions.
Steve Garganis 416 224 0114 firstname.lastname@example.org