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Up, Down & Unpredictable: Where Are Mortgage Rates Heading

Up, Down & Unpredictable: Where Are Mortgage Rates Heading

Whether it be first time buyers or those looking to refinance, one of the most common questions I get asked is, “what is “typically” a good mortgage rate?”. Especially for first time home buyers, evaluating the mortgage rates over the past few years can give you an idea of where the trend in pricing is currently, and where it’s heading. While real estate market prices are constantly changing, and as unpredictable as the weather, keeping track of mortgage rate trends can help you to get an idea of whether or not your current rate is up to snuff. Let’s take a look at how the market has evolved and where it’s predicted to head.

Exterior of large two-storey home with cedar siding and wrap around porch

Generally, your potential mortgage rates are categorized into several groups and term lengths. Most commonly, mortgage rates are offered at 1, 3 and 5 year fixed rates. However, you can opt for a variable rate mortgage, in which the interest can change as the term progresses according to the changes we see each year in the prime rate. You might find this type of mortgage attractive if its rate is lower than the fixed rate offered, however, it can be a risky gamble. Nonetheless, let’s focus on the trend of rates. The general trend in fixed-term mortgages in Canada has actually been on the decline over the last few years, believe it or not. Over the last 5 years, both fixed rate and variable rate mortgages have dropped annually. If you were to compare the current average rate of 2.34% for a 5 year fixed term to the lowest average rate of 4.64% in 2009, you’d be more inclined to jump aboard while the rates are low. Many Canadians are striking while the iron is hot, so to speak, and climbing aboard the homeowner train before the mortgage market spikes.

However, financial experts are estimating that Canadian mortgage rates aren’t necessarily on the rise. With the way our banking system works currently, a bank is now willing to lend you more money than you may be able to afford. Generally, it’s suggested you take a mortgage that eats up no more than 30% of your income. However, banks are dishing out loans to families that consume over 45% of their income, allowing you to go heavily into debt and fall into financial turmoil when it comes to hefty mortgage payments. This over-lending is giving Canadians a scare that too many families will face financial hardship over owning a home if the rates jump up a few points.  In 2007, Canadians saw a massive hike in rates, going up to 7.54% for a 5-year fixed term, but the likeliness of you seeing those numbers again is fairly low, leaving Canadian homeowners in a safer financial place, despite excessive borrowing.

A 5 year fixed term mortgage is the most common mortgage in Canada, however, the interesting part about the fear of a rise in fixed rates, is that many financial experts are encouraging you to sign on for only a 1 year fixed term. Seems odd, doesn’t it? At first glance, it would seem that signing 5 years with a low rate would be more beneficial. The trick is, while the rise of rates is a threat, it’s not a guarantee. The majority of financial experts are on the other side of the fence, convinced that changes in Brexit will change what our banks can offer us, and thus, are encouraging those buying a home to grab the current low rate, but keep it on a 1-year fixed term, in order to reap the benefits of the impending drop.

While the real estate market is ever changing, and our financial economy can be fickle, understanding the trends in mortgage rates can ensure you are getting the best possible rate, and terms you can keep up with. If you have any questions about your current mortgage rate or are interested in finding a term that works better for you, give me a call at 705-315-0516. I am always happy to help you better understand and plan for your financial future.

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