What this could mean for you – the homeowner or homebuyer
Canada’s prime rate of interest is currently 2.45%. This is the lowest rate we’ve seen since the impact of the global financial crisis of 2008. As a result we’re seeing some of the lowest mortgage interest rates for ten years.
Mortgage lenders, who set rates in response to prime interest rate moves, are now giving new borrowers variable interest rates as low as 1.49%.
Fixed mortgage interest rates are as low as 1.54%. Just two years ago, the average 5-year fixed mortgage rate was above 3%. Just twelve months ago this rate was around 2.49%.
Mortgage refinancing is saving homeowners $$$s each month
Many homeowners are finding they are paying fixed mortgage interest rates around 0.75% higher than the refinance mortgage rate they could be taking advantage of today. Refinance mortgage rates are marginally higher than the rates offered to those who purchase and are currently around 1.89%.
The average Canadian mortgage is $289,000. Refinancing a mortgage of this value, taken out in 2018 at a fixed rate of 3%, could save the borrower over $5,600 across the term of the mortgage at a new rate of 1.89%. Even refinancing from a 2019 rate of around 2.49% could save a homeowner as much as $4,000.*
Average home values in Canada have increased by 16% since October 2019. Many homeowners are refinancing to take advantage of greater equity in their home. By borrowing a little more at the low mortgage interest rates available today, homeowners are able to consolidate other high-interest rate debts, like vehicle loans, into their monthly mortgage payments and save even more on their total monthly outgoings. Refinancing to a lower mortgage interest rate often means a mortgage can be paid off faster too. Other homeowners are taking advantage of the equity in their properties to release funds to spend on home improvement projects or to purchase investment properties.
The new homebuyer advantage
Canadian homebuyers are able to take advantage of the very lowest interest rates available today. Buying a new property with a mortgage of $289,000 and a 1.74% interest rate gives a borrower a monthly mortgage payment of just under $1,200. In contrast, average property rent in Canada is just under $1,800 per month. In BC, average property rent is expected to reach $2,600 per month in 2020.
How long will these low mortgage interest rates last?
Economic uncertainty means the prime rate of interest in Canada is not expected to increase in 2021. However there has been some slight evidence coming out of November that lenders reached their lowest incentive rates for borrowers. Average fixed mortgage interest rates began to climb very slightly before falling back to current lows.
Adam Coultish, expert Mortgage Advisor at Dominion Lending Centres Northwest, BC, explains more:
“Very quickly we can show a homeowner that the cost of refinancing their mortgage is usually far outweighed by the thousands in savings a new current interest rate will provide them.
The low rates we have today will be around for likely one to two years because of the current economic condition and Covid-19. However, waiting to refinance simply means you could be wasting hundreds of dollars per month unnecessarily. It would be best for us to advise you if locking in a new rate now is the right thing to do.”
Should you be taking advantage of Canada’s lowest interest rates in over a decade?
Call Adam on 250-638-3302 for impartial, no-fee, advice based on your personal circumstances. Or, visit brokeradvice.ca to begin your new mortgage or mortgage refinance application. Let us obtain the lowest mortgage interest rate for you.
*Borrower savings of over $5,600 and $4,000 calculated based on remaining amortizations of 23 years and 24 years respectively.