We have been receiving a lot of questions lately on where interest rates are going and there is a lot of misinformation out there. Here is the latest information we have to help you make the best decision possible for your financial situation.
With regards to variable rates there was some speculation that the Bank of Canada was going to lower its’ key rate this week and that didn’t happen. If that did happen there may have been a drop in the prime rate. However, last year when the Bank of Canada lowered its’ rate by .5%, the banks only passed on .3% of this to consumers so the benefit to those in variable rate mortgages wasn’t fully realized.
Recently, the banks have chosen to lower the discounts they are offering on their variable rate mortgages making them even more expensive. For instance the average discount on a variable rate mortgage right now is .3% (Prime = 2.7% – .3%) which gives you a variable rate of 2.4%. Last year the discount was as low as .75%. So even if the prime rate drops the banks can effectively not lower rates by simply decreasing the discount they offer off of prime.
On the fixed rate side of things we have seen rates move in various directions. Most of the major banks have actually increased their 5 year fixed rates so they are in the range of 2.89% – 2.99%. On the other hand some of the “broker” lenders we have access to have actually dropped their rates. Their rates are in the range of 2.54% – 2.79%. We are definitely getting mixed signals in terms of where fixed rates are heading.
Some of the Big 5 banks have chosen to discount their 4 year rate to combat the fact that they aren’t competitive on the 5 year rate. They have chosen to do this to be able to offer a similar rate as some of the other lenders. However, the difference between a 4 or 5 year rate can be significant. What it means is if rates increase in 4 years from now you will need to renew at a higher rate and that higher rate could wipe out all of the savings you achieved by taking the 4 year over the 5 year rate in the first place.
Everyone’s situation is different. We are here to give you advice on interest rates based on your own unique needs and tailored to your own financial situation.
For more information on our mortgage products please visit our website at www.ymscanada.ca.