Today was the last of eight regularly scheduled meetings by the Bank of Canada (BOC). The BOC didn’t raise their Target rate.. no surprise here. With uncertain economic data in the U.S., Ireland and even a little shaky news in Canada, there was no chance of a rate hike.
It’s widely believed that Governor Mark Carney will not raise the rate until March 2011 at the earliest, or maybe even May 2011… possibly later… read more here.
One thing is for certain, the longer things remain uncertain, the longer we will be enjoying these record low rates… Variable rate mortgages can be had at 2.25% and a 5 year fixed is around 3.69%. Borrow wisely…
Here are some interesting stats…
-A Variable rate mortgage outperforms a fixed rate mortgage in over 88% of the time… According the Milevsky study done earlier this decade and updated in 2008….
-Variable rate mortgages have been at least 1.00% lower than the 5 year fixed rate mortgage over the past 25 years….and on occasion, better by as much as 2.00%.
-Canadians move every 3 years on average…meaning they must either refinance their mortgage or pay it out.
-a Variable rate mortgage has a fixed penalty of 3 months interest.
-a 5 year fixed rate mortgage has a penalty that is at least 3 months interest but has no limit…. and in the past 18 months, we have seen penalties of 6, 10 and even 14 months worth of interest.
-yet, 66% of Canadians have a 5 year fixed rate mortgage…
Is the 5 year fixed rate mortgage really the right product for 66% of Canadians? Can the 5 year fixed rate mortgage be the right product for everyone? Which mortgage product do you think your bank wants you to choose?
By the way, can you guess which mortgage product is the most profitable?…. you guessed it.. the 5 year fixed rate.
Make sure your Mortgage Broker does a needs analysis before they recommend a mortgage product for you…. There is no ‘one size fits all’ when it comes to mortgages…. Ask yourself, ‘who is this mortgage best for’…. my bank or me?
As reported earlier today, TD was the first to raise fixed rates… they are up by 0.25%.. The TD Canada Trust Broker rate is 3.94% and can be held for 120 days… TD has been out of the game with their 5 year fixed rate for some time… Most Lenders are offering 3.49%….. But this will most definitely go up as the Bond yields are over 2.30%…click here for the chart.
There is another option that is less talked about. A major Bank is offering a 180 day rate hold on a 5 year fixed rate for 3.73%… this may not be for everyone, but it’s an option for anyone looking to buy but hasn’t found a house… or for those with a long closing…
Interesting, CMHC released their 4th quarter forecast and were calling for moderate activity in 2011… but they also said low mortgage rates will help to drive the housing market….This latest increase shouldn’t cause panic…these are still record low interest rates… But we’ll have to follow the trend and see if CMHC makes any adjustment in their forecast…
Some things never change…..On Oct 19th, 2010, the 5 year Canadian Bond yield was 1.85%… It fluctuated up and down but staying below 2.00% until Nov 5th when it closed at 2.053%… We were expecting the Banks to adjust their Fixed rates downward but it didn’t happen..
Since then, it has kept above 2.00% and is currently at 2.27%…. This increase in the Bond yield usually means Fixed Mortgage Rates will go up.. See the chart here.
But earlier this week, the Big Six Banks lowered their posted 5 year mortgage rate to 5.19% from 5.29%… This is just a delayed reaction the low bond yields.. but it just goes to show that the Banks continue their pattern of reacting slowing to lowering rates but move like Formula 1 race car to raise rates..
Of course, Posted Mortgage Rates really don’t mean much as the Wholesale Market or Broker Market deals with the true rates.. And Fixed rates dropped late last week to their lowest levels ever. … 5 year fixed rates are now at around 3.49%… with some Lenders even offering 3.39%… WOW!
Watch for Fixed rates to move upward slightly as the Bond yield is now high enough to warrant an increase…
I’ve had some inquiries about taking a 1 year and 3 year fixed rate…and for good reason. A 1 year fixed rate can be had for about 2.50% and a 3 year fixed rate is 2.90%. This does make going with a shorter fixed term an attractive option if Bank Prime rate continues to increase.
Best Variable rate is around Prime less 0.65% or 0.70% for qualified applicants with some conditions…. that puts the Variable rate at 2.30% or 2.35%…
I like Variable rate mortgages for many reasons but these shorter, fixed terms can be a good alternative.. Make sure you understand all the terms and conditions… speak with a qualified Mortgage Broker.