Well, that didn’t take long. We
reported on Jan. 9 that mortgage interest rates might actually take a dip in the coming weeks.“The (Bank of Canada’s) moderated outlook in the last two announcements has caused
bond yields in Canada to drop lower than any point in 2018,” James Laird, co-founder of
Ratehub Inc. and President of
CanWise Financial mortgage brokerage, told
HOMES Publishing. “However, we are yet to see a corresponding decrease in mortgage rates. We would advise consumers to keep a close eye on mortgage rates in coming weeks.”
RBC first to lower rates
And sure enough, a week or so later, RBC has done just that – lowering its posted five-year fixed rate to 3.74 per cent from 3.89 per cent. It was the first time RBC has lowered this rate since October 2017."RBC is the largest mortgage lender in Canada, so whenever they move their mortgage rates, we can expect that the other four banks will follow suit. We anticipate that the other big banks will soon have a publicly posted rate of 3.74 per cent as well.”Experts have expected this move from lenders since bond yields dropped in December 2018, Laird says, after the BoC announcement stating that future rate hikes would be slower and less frequent. The most recent Bank on Jan. 9 announcement highlighted policymakers’ concerns with Canada’s energy and housing markets, which suggested that rates will be stable for a longer period of time than had previously been anticipated.
Deep discounts
The
Bank of Canada held its target for the overnight rate at 1.75 per cent on Jan. 9, where it has been since October 2018, and is lowering its growth forecast this year for Canada and around the world.Canadians who need a mortgage this year should frequently check rates and mortgage providers. As the spring homebuying market approaches, says Laird, many lenders will offer deep discounts and promotions in order to attract new customers.“Anyone looking for a variable rate should act quickly, because the current stable interest rate environment is causing lenders to reduce the discounts being offered on variable rate mortgages,” he says.Let’s explore a couple different scenarios.
Scenario 1: $400,000 mortgage
According to Ratehub.ca's
mortgage payment calculator, a homeowner with a $400,000 mortgage and five-year fixed rate of 3.89 per cent will have monthly mortgage payments of $2,080.Comparatively, a homeowner with a five-year fixed rate of 3.74 per cent would have monthly mortgage payments of $2,048.A 0.15-per-cent difference in their mortgage rate would lower mortgage payments by $32 per month, or $384 per year.
Scenario 2: $800,000 mortgage
A homeowner with an $800,000 mortgage and five-year fixed rate of 3.89 per cent will have monthly mortgage payments of $4,161.Comparatively, a homeowner with a five-year fixed rate of 3.74 per cent would have monthly mortgage payments of $4,096.A 0.15-per-cent difference in their mortgage rate would lower mortgage payments by $65 per month, or $780 per year.
Hikes likely to come
Personal finance guru and Homes Publishing columnist
Rubina Ahmed-Haq says the Bank remains optimistic about Canada’s economy, noting it has performing well overall. In its statement, the Bank says, “Growth has been running close to potential, employment growth has been strong and unemployment is at a 40-year low.” But still not enough to raise rates at this time.Still, consumers can expect rates to begin to inch higher in the coming months, she says. Forecasters are predicting two hikes this year, down from earlier predictions of as many as three increases in 2019.
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