Last week, I made a bold statement about interest rates. I said rates will remain low for some time. And they could even decline.
That forecast was met with a certain degree of criticism. Well, no surprise for CanadaMortgageNews.ca followers, the Bank of Canada cut the rate by 0.25% to 0.75%.
This means Variable Mortgage rates will fall by 0.25%. It also means we’ll probably see fixed rate mortgages also fall….. As I predicted.
Stay tuned for more details on this…
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In her first public speech as Senior Deputy Governor for the Bank of Canada, Carolyn Wilkins brought some good news to Canadians with mortgages. Interest rates should remain low for some time….. and we can expect lower rates to be the “new normal”.
Ms. Wilkins went on to say that “the recovery has had repeated false starts and still faces considerable headwinds.” This seems to be the new message coming from the Bank of Canada. And I must say, it’s a refreshing change from the previous high-profile Governor, Mark Carney.
Remember our previous Bank of Canada governor? Mr. Carney earned high praise for helping Canada avoid any U.S. style recession. But in the years leading up to his 2013 departure, his repeated warnings of pending interest rate hikes never materialized. In fact, we now know they were way off. Interest rates went down and have stayed down. Looking back, Carney’s rate hike warnings sounded more like ‘the boy who cried wolf’. Continue reading “Senior Deputy Governor says lower rates are the new normal.”
FIXED OR VARIABLE?
The debate over fixed vs variable never seems to end. For the past 5 years, the Federal govt and the BIG SIX BANKS have been doing everything in their power to force us into choosing a 5 year Fixed rate. The govt says it gives us security and protection against the anticipated interest rate hikes. BANKS jumped on this bandwagon because 5 yr fixed is the most profitable mortgage product.. and with fixed rates hovering at 3.00% for the last 3 years, it’s been an easy sell.
On the surface, it’s not bad advice. Fixed rates were supposed to go up. The spread between Fixed and Variable has been less than 1.00% over the last 3 years. My rule of thumb is that Variable rates should be 1.00% lower than 5 yr fixed in order to benefit from the possible rate fluctuations. So naturally, 5 yr fixed was a better choice.
DO YOU TRUST YOUR GOVT AND YOUR BANK? Continue reading “Variable or Fixed? an update on how to choose.”
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?
Continue reading “2.99% is back… does that mean we should take it?”
We all know that a lower interest means a lower monthly payment. But did you know that a lower interest rate means you will also owe less when your mortgage comes up for renewal? This has been overlooked by consumers and experts alike. I haven’t seen any articles covering this. And it should change how you choose your next mortgage product.
It all has to do with the effects of compounding interest. Let’s take a look at 2 borrowers, each with a $400k mortgage. Borrower 1 is Mary. Borrower 2 is Dave. Mary has today’s 5 yr fixed rate of 3.29%. Dave has the more normal rate of 5.50% (the rate most experts think we will see in the next 3 to 5 yrs). We’ll amortize both mortgage over a 25 yr term.
Dave’s mortgage has monthly payments of $2441 and a balance owing of $356,749 at the end of 5 years. Mary’s mortgage has monthly payments of $1953 and a balance owing of $343,728 at the end of the first 5 years. Notice the difference in the balance owing after 5 years. We are talking about a $13,021 difference. That’s the effects of compounding interest. Continue reading “Lower rate = Lower payment and a Lower balance in 5 years!”