Navigate through these uncharted waters in 2020

In 2009 and 2010, for the first time ever we saw mortgage rates under 2.00%.  That’s right, if you were in a variable rate mortgage, you had a rate under 2.00%. We were coming off the catastrophic US sub-prime mortgage crisis. The financial US scam that cost the world trillions of dollars in lost pensions and investments. Tens of thousands of people lost everything they had. It was horrible. While we, in Canada, were largely untouched. We weren’t smarter, we were just lucky not to be exposed to the subprime mortgages to the extent the rest of the world was. As they say, Canada is five years behind the US, and in this case, we got lucky.

That said, let’s get back to mortgage rates and fast forward to 2020.

If you are in a variable rate, you probably have a rate under 2.00%, but here’s something new. We are now seeing some lenders offer fixed mortgage rates under 2.00%. Yes, it’s true… fixed mortgage rates under 2.00%. I never thought I’d say that in my lifetime. There are certain qualifications you must meet and fit into and admittedly the box is small, but it’s there and this is another historic milestone for mortgage rates.

What should you do?   

If you are looking to buy a house, look now. Don’t wait. Your mortgage payments could be as low as $370/month for every $100,000 of mortgage.   Compare that with a 3.00% interest rate and a payment of $420/month. Or let’s increase that to a $400,000 mortgage…  today, you could pay $1480/month compared to $1680/month. That $200/mth difference works out to $12,000 in payment difference over the course of 5 years. PLUS your mortgage balance at the end of 5 years would be $348,748 vs $355,504. That’s an additional savings of $6756 or a total savings of $18,756.  

If you have a mortgage coming up for renewal in the next 4 months, get some rate holds now!  

If you have a mortgage rate of 2.79% or higher, consider breaking the mortgage, paying the penalty and renewing early. The savings are probably greater than the penalty… but that is not always the case so speak with an experienced mortgage broker to do the math.  

Could Fixed rates fall further? They could. What about Variable rates? Variable rate mortgage pricing is higher than normal (normal pricing is around Prime less 0.50% to less 1.00%). Today’s variable rate pricing is around prime less 0.30% to less 0.45% (2.45% – 0.30% or 0.45%  = 2.15% or 2.00%.).    

While I still prefer a variable rate today, fixed is also a good option. Your decision should be made based on your goals, objectives, risk tolerance and financial circumstances. We are all different and unique.  Again, I repeat, speak with an experienced mortgage broker to navigate through these uncharted waters in 2020. 

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Your best interest is my only interest.