Mortgage Rates have Dropped and Will Fall Further

Rate forecasting isn’t rocket science – it’s more common sense than you think! But, it requires a clear mind to make sense of all the rubbish that’s being published these days.

I’ve been forecasting for a while now that interest rates would start to come back down this year. Currently, interest rates are down by around 0.4% and will come down further.

WHY ARE RATES FALLING? 

In 2017, the Bank of Canada started raising the prime rate. Rates were raised five times over a 15-month period from July 2017 to October 2018. That’s a 1.25% increase. Most experts believed rates would continue to increase by another 1-2%. This is hard to imagine when you look at the facts, but this is what the “experts” forecasted.

I couldn’t understand how or why anyone could expect the average homeowner would be able to absorb these anticipated rate hikes. Over this 15-month period, if you had a $300,000 mortgage, your payments would have increased from $1,420 to $1,618, or $198 more per month! And, yet, the “experts” were calling for rates to rise by another 1-2% over the next year. Madness! I don’t care what the BoC wants to do, if they stayed the course on this path of rate hikes, there would be skyrocketing loan defaults, bankruptcies, a real estate crash and a recession, or perhaps even a depression.

If rates went up another 1% for that Canadian with a $300,000 mortgage, the payments would have gone from $1,420 to $1,787, or $367 more per month. And if they went up by another 1% (total of 3.25% since mid-2017), that would have pushed the payment to $1,964 or an increase of $544 a month. That’s on a $300,000 mortgage. If you had a $600,000 mortgage, your payments would be increasing by more than $1,000 a month!

Who could afford that? And, yet, this is the info that has been circulating throughout all the financial circles. The experts were warning us it would happen. It was ridiculous. We saw this sort of premature accelerated rate hikes before in 2007, 1996, etc. What followed were rate drops.

DON’T FORGET ABOUT STRESS TESTS!

We must also consider the Trudeau government’s introduction of the “stress test” last year. Lenders are now required to add another 2% on top of your rate for qualifying purposes. All these things resulted in the toughest qualifying tests that I have seen in my 30-year history in Financial Services. How could rates continue to rise?

WHAT SHOULD YOU DO WITH YOUR MORTGAGE?

If you have a mortgage coming due in the next few months, or if you have a home closing in the next few months, you may want to consider going with a shorter term mortgage or some sort of open mortgage option that will allow you to lock into a lower fixed rate product a little later on. BE CAREFUL… I’m seeing so many borrowers getting misled and then burned by products that DON’T offer any guaranteed discount upon lock in. This is great for the BANKS, but not good for you. Speak to a Mortgage Broker to get straight facts.

WHEN YOUR BANK CALLS AND OFFERS A SPECIAL RATE, BE VERY SKEPTICAL…

It never fails. Your bank or mortgage lender will call offering a special early renewal rate to lock in at… sounds great, right?! Guess again. History has proven that when your bank calls to offer a “special rate”, it usually means there’s a better offer available elsewhere or rates are coming down.

I’ve seen this trend many times before. The best example was just after the 2008 US sub-prime mortgage crisis. Rates were dropping like a rock. Panic was an understatement. Stock markets had collapsed. Reports of a recession and depression were everywhere. But what happens with interest rates during bad economic times? Do they go up or down? The answer is DOWN. I remember getting calls from my clients asking if they should renew early… their bank or lender was offering what appeared to be a good rate. Fortunately, most of my clients called me for advice. But some didn’t and just took the bank’s offer. Those who called were extremely glad they did. I told them to hold off and NOT take any early offer. Those who didn’t got locked into a terrible rate.

I sent out a private client advisory on October 13th, 2008 – just after the October 2008 US sub-prime crash – advising against jumping to lock in early to some “special rate”. We’re experiencing similar times today. Don’t be quick to react. Consult an unbiased expert. Call an experienced Mortgage Broker. And then make an informed decision.

SOME QUICK RATES TO QUOTE…

I normally don’t like to quote general rates because qualification is so complex and varies so greatly that it’s almost impossible to give an accurate rate quote to someone without exchanging info and going through a review of a specific financial profile. Don’t get me wrong, it doesn’t take me hours to do this, but it has taken me 30 years to learn it well.

Today, we’re seeing three-year fixed rates as low as 3.14% 2.99%**updated April 5th, 2019 and five-year fixed as low as 3.34%  3.19% **updated April 5th, 2019. We’re also seeing variable rates at prime minus 1.05%. (Yes, I’m aware of advertised lower rates, where I advise you proceed with caution. I’m quoting products I will stand by backed by satisfied clients over the past 30 years.)

Remember… the rates I’ve quoted above are available to qualified applicants. I’d be happy to discuss these with you further to understand your unique financial position and needs.

I strongly recommend seeking professional advice when it comes to the largest investment of your lifetime. We’re very fortunate in Canada to have Mortgage Brokers who are compensated by lenders for qualified borrowers. Our services are FREE to the borrower because we’re paid by the lender only after your mortgage successfully funds. That means it’s in our best interest to ensure you’re placed with a mortgage that best matches your needs.

Lower rates put more money in your pocket when you choose wisely!

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@canadamortgagenews.ca