By Lindsay Smith/Real Estate Columnist
When it comes to mortgage rates in Canada there are a few factors currently at play that might be seen as concerning. The bond rates are edging upward. Why is that important? Typically, in Canada, when the bond rates start to increase, the mortgage rates follow them and shift upwards. The forecasted average for Canada’s five year is 1.25 per cent by the end of 2021. For context, at the end of 2020, it was .39 per cent. The variable, and five year fixed mortgage rates tend to follow a “spread” as the bond rates rise and fall mirroring the bond rate.
Sound confusing? Add this, that the Bank of Canada has given an indication that they are holding their benchmark rate at the sale low rate until mid-2022.
Reading between the lines, the rates might go up, and they might stay the same. I don’t think anyone feels that the mortgage rates will drop over the next quarter or until early 2022.
To give some context to how a minor rate increase affects borrowing, if you take the average detached home in Oshawa, at 862,000 and assume a buyer has a 20 per cent down-payment, the difference between a 2 and 2.25 per cent mortgage is around $5,000 over a five year period. An increase, even a 1/4 per cent increase, had a dramatic impact on family funds.
I recently had Dawn McDermott a Mortgage Agent I have worked with, send some ideas that can help offset the risk of mortgage rates rising. Here are a few of her thoughts:
- If you are a buyer, and contemplating a purchase, get pre-approved. Pre-approvals cost nothing and the benefit to the buyer is that a lender guarantees a mortgage rate, typically for a period of 90 days. In the event the rates jump up, you capture the lower rate that has been guaranteed to you.
- If you are a homeowner, with a mortgage renewing in the next several months, contact your bank and look at renewing early, again taking advantage of today’s rates. This is not limited to your lender, if you shop around, you may be able to get a lower rate with a different bank or lender.
- Again, for homeowners, if you are looking to do an equity take out, by having your lender restructure and increase your mortgage, this will allow you to take out some equity, at today’s rates.
- If you are an investor with rental properties, it might be a good time to refinance one or more of your rentals, taking the equity borrowed at today’s rates and using this equity as a down-payment for another rental property.
Mortgages can be as dry as a dirty martini, however, by keeping up-to-date on the changes in the marketplace can save you tens of thousands of dollars over the life of a mortgage. The next few years may be somewhat tumultuous. With inflation set to increase, the possibility of rate increases, not only for mortgages, but also lines of credit and credit cards, a way of keeping more money in your pocket is to be aware of what rates you are paying for credit and moving lenders if you see an opportunity to get a better deal.