By Paul Meredith, mortgage agent with CityCan Financial
As predicted, the Bank of Canada has now lowered its prime lending to an all time low of 2.25. Chartered banks and other mortgage lenders across Canada have already started matching the cut by lowering their prime rates. This will be the final cut to the prime rate we will see during it’s current downward trend, however the Bank of Canada has also committed to keeping the rate where it is through to the middle of 2010, which is fantastic for anyone on a variable rate mortgage. This doesn't guarantee that they won't increase the rate before that time, but it does significantly reduce any chances of a rate increase.
Now that the prime rate has been lowered, it will be interesting to see what will happen with fixed mortgage rates, as fixed rates are more affected by bond yields then by the prime rate. We have already seen some small drops to fixed rates, and I predict that we will see them drop a little further over the next several weeks before they bottom out. So does this mean that you should wait for rates to fall further before you purchase a home? My answer to that is no, and here’s why. Most likely, any further rate drops can be expected within the next few weeks to couple of months and will most likely happen before your new home closes. A good mortgage broker will ensure that you get the lower rate if it does fall any further. This is something that you should discuss with him/her so he/she is aware of your expectations as not all mortgage lenders have an automatic rate drop policy. While the Bank of Canada has committed to maintaining the current prime rate through to the end of the second quarter in 2010, fixed rates can start rising at anytime during that period, which is why I would suggest going with a 5 year mortgage term, as opposed to a shorter term. Plus, any further drops to fixed rates will be minimal.
The home buying opportunity that is among us is enormous with 5 year fixed mortgage rates as low as 3.69%, compared with 5.79 just a year ago. For example, a $300,000 mortgage at 5.79% amortized over 25 years would have given you a monthly mortgage payment of $1,882. The same mortgage at today’s rate would only be $1,528 per month. That’s a savings of $354 per month, or $21,240 over the 5 year term! This is why so many homebuyers and real estate investors are so excited about the current market right now. The new unprecedented low rates create a rare opportunity to buy real estate without having to pay so much of your hard earned money to the bank in interest charges. By combining these record low mortgage rates with fallen real estate prices, you have one of the biggest home buying opportunities in history, so don’t let it pass you by!
Real estate prices in the Greater Toronto Area are not expected to drop much more (if at all) which really adds to the attractiveness of moving forward with your home buying decision. Even if real estate prices did drop another 2% (which I think is unlikely at this point), that is only $6,000 on a $300,000 home which is a small amount considering the money you are saving through low mortgage rates as indicated in the above example.
I am starting to hear more positive feedback from other industry professionals and the upcoming season is starting to look very promising for the real estate market. Today's record low interest rates are encouraging more and more people to move forward with their home purchase as they realize that NOW really is the best time to buy real estate!
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