The interest rate on a variable-rate mortgage changes to reflect the Bank of Canada’s overnight rate. Recently more and more mortgage owners have switched to variable-rate options in order to save money. In fact, according to Canada Mortgage and Housing Corporation, more insured borrowers swapped their mortgage for a variable-rate than ever.
Despite the fact that the Bank raised it’s overnight rate 5 times in the last 18 months, mortgage owners are confident interest rates are going to remain favourable. And nearly every professional, business leader, and economist agrees. Everybody suspects that rates will stay the same until next Spring at the soonest.
When our economy is doing well and growing, the Bank will increase interest rates in order to maintain that growth. But when the economy isn’t doing so well the Bank will drop interest rates or forestall new hikes, like they did in their most recent announcement on December 5th. Growth stalled last quarter and the Bank took notice.
There’s a lot of uncertainty on the horizon. The stock market fell along with the Canadian dollar. Household savings reached a near all-time low at a mere 0.8%. Consumer spending dropped all around. In reaction to global trade war threats, business investment was less than expected in the last quarter. The oil sector is still taking one hit after another and creeping closer to crisis mode. And the housing market has grown increasingly sluggish as we move into Winter and borrowers continue to struggle with new borrowing rules.
When so much of the economy is in flux it is hard for the Bank to project what will happen next. They have insisted that they will continue to push toward a “neutral range” rate of 2.5%-3.5%. But they won’t start to make that push until they can say with some degree of certainty that it will make a positive impact.
There’s also the bond market to consider. Canada’s five-year bond yield, which is now down to it’s one-year midpoint, directly impacts the five-year fixed mortgage rates. But fixed-rate mortgages haven’t changed, likely because the banks are hoping to keep their profit margins. However, the mortgage market has gotten smaller as a result of new regulations and pricing. That means competition for business is up and lenders are becoming more and more willing to take smaller profits in order to make a sale. That’s good news for potential mortgage buyers!
A variable-rate mortgage is your cheapest option. Your Trusted Mortgage Broker’s best rates for well-qualified borrowers are presently 3.35% to refinance, 3.0% for a conventional purchase or renewal, and 2.75% for a default insured mortgage. Even if global trade issues were settled and oil prices got better and the Bank were to raise rates three more times by 0.25% you’d still be better off than if you chose a fixed-rate mortgage.
To get started with a variable-rate mortgage contact us today!