Canada Mortgage and Housing Corporation regularly publishes statistics relevant to borrowing behaviours. We had the highest percentage of insured borrowers switching to variable-rate mortgages last quarter. What’s going on?
It’s simply more cost-effective, and will continue to be so.
Since July 2017 the Central Bank has hiked its overnight rate 5 times. According to most professionals in the financial industry we can expect the benchmark rate to stay put until at least next Spring. Why is that?
When the Bank increases it’s rates it means they are confident about the economy’s ability to sustain increased growth. Economic growth in Canada stalled in the last quarter, which is why the Bank’s announcement on December 5th did not include a rate hike. So what’s going on in the economy?
A lot. The oil sector has been floating close to crisis mode as it continues to take a pummeling. As potential home buyers continue to grapple with tighter borrowing rules, and as we move into the Winter season the housing sector continues to slow. Last quarter, business investments fell as trade war threats continue to stir up uncertainty. The stock market is on a downward trend and the Canadian dollar also moved in a negative direction. Consumer spending in nearly every sector is decreasing. And at a mere 0.8% household savings is close to an all-time low.
With so much uncertainty on the horizon it is not likely that the Bank will increase rates again in the near future. Despite their insistence that they are pushing toward a “neutral range” of 2.5-3.5%, such a move would be foolish to make.
In addition, there is evidence from the bond market that rates aren’t likely to go up. Five-year fixed mortgage rates are guided by Canada’s five-year bond yield, which has just dropped down to it’s one-year midpoint. Yet for some reason, fixed rates have remained unchanged. Why? Banks are trying to make a profit for as long as they can.
The mortgage market has downsized because of recent changes regulations and pricing, which has lead to higher competition for business and lenders who are more willing to accept smaller profits. How does this benefit you, the mortgage owner?
You can get access to fantastic rates! Your Trusted Mortgage Broker’s best rates for well-qualified borrowers looking at variable-rate mortgages are currently as low as 3.0% for a conventional purchase or renewal, 2.75% for a default insured mortgage, and 3.35% to refinance. Even if we were to see three more rate hikes of 0.25% (unlikely until we see better oil prices and solutions in global and domestic trade) you would still be better off than mortgage owners trapped in fixed-rate mortgages.
To get started with a variable-rate mortgage contact us today!