Mortgage Tools
Mortgage Rates Inch Up But Are Still Affordable
With news of a strong Canadian housing market and the risk of a bubble, economists have begun discussing the need for an interest rate increase. While the Bank of Canada has yet to act, the big banks in this country have pushed up the rates on five-year fixed mortgages.
Australia, whose hot housing market resembles Canada's, increased interest rates recently, so the jumps in Canada's mortgage rates were not entirely unexpected.
But are these increases a bad thing? It depends who you ask. Some people fear that even small increases in borrowing rates could push many potential homeowners out of the market. Others fear a housing bubble and believe that a cooling of the real estate market is a good thing. Still others believe that we are not seeing the start of a bubble, but merely a return to a normal sales cycle. As the Montreal Gazette reported on October 8, 2009: "What's providing the "illusion" of a boom is the return to the normal sales cycle, which was disrupted by the recession, and a tight supply of homes for sale."
For homeowners and prospective owners, there is a lot of confusion. Some are wondering whether to invest in a new home. Others are facing difficult choices between the security of a fixed mortgage rate or a lower but potentially volatile variable rate. They are left with two pressing questions: Where are mortgage rates headed, and is it a good time to buy?
The answer to the first question - where are mortgage rates headed - is anyone's guess. Most experts agree that rates are headed up, but no one is sure how rapid the increases will be. Prime rate - which is the basis for variable mortgage rates - is still at an all-time low, and Bank of Canada Governor Mark Carney wants to keep it that way until at least the middle of 2010. And the banks' move to increase rates has taken the pressure off the Bank of Canada to raise rates and slow the Canadian real estate market.
Which brings us to question two: Is now a good time to buy a house? A recent Globe & Mail article noted that the prospect of higher rates could push fence-sitters into the market with hopes that they can still lock in at a decent rate. The article also notes that even with the most recent increases in mortgage rates, rates are still relatively low.
The big banks that announced increases in their 5-year-rates after Thanksgiving are still offering rates of around 5.8%, a far cry from the 7.25% that we saw in 2000. And those are just the big banks. There are plenty of other lenders out there who are offering even better rates. And for homeowners who want to take a chance on variable rates, there are plenty of options that enable them to try a variable-rate product and then lock in when the prime rate starts to go up.
So, the short answer to both of our questions is that mortgage rates are a moving target but the conditions are still excellent for those wanting to enter the housing market. If you are ready, talk to a mortgage professional to ensure you are getting the best mortgage for your needs.
