Will current low rates last?

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Will current low rates last?

TIME TO REFINANCE AHEAD OF MORTGAGE MATURITY DATE

The Bank of Canada 5-yr fixed benchmark mortgage rate is now 5.49% in reaction to the reduction in Chartered Bank Posted Rates last week. Discounted mortgage rates have also been dropping. Today (August 23, 2010), I can find 5-yr discounted fixed rate at 3.75% for a 90-day hold. 120-day hold rates are just below 4.0%. Quick-close programs (usually within 30 days) are even lower – possibly lower than 3.60% for qualified borrowers (meaning triple A credit, documented income, steady employment and no problems with the property in question). I can even get you a quick-close 3-yr rate at 2.90% (must qualify using the benchmark). These are semi-annual rate, and here is the standard disclaimer:

“The quoted interest rate is not the same as the disclosed APR rate under the requirements of provincial disclosure regulation. Other costs may cause the disclosed lending rate to be greater than presented on this page. Rates are subject to purchaser & property qualification and can change without notice. Clients may have to qualify at a higher rate. Subject to approved credit and income verification. The figures do not include any other debts that an applicant may have. O.A.C., E & O.E. Rates can change without notice.”

So why are fixed rates coming down while variable rates are inching up? Well, bond prices have been going up (actually since late April), thus forcing bond yields (bond interest rates) to do down. Today, it looks like Government of Canada 5-yr bond may be closing below 2.14% (source: Bloomberg). Why? No body seems to know for sure (read: The showdown between bonds and stocks).

Some commentators say investors are in a late summer flunk. I think that is probably correct because all indications are the economies in both Canada and the US are actually on trend to a recovery and more balance (source: If the economic road is so bumpy, why are all those trucks on the move?). So, I do not believe the current rate drops will last for long.

What it means is for those of you with 5-yr mortgages that you took out, say 3 years ago, with rates above 5%, you should seriously consider refinancing right now. Even by paying the prepayment penalty, you may still save a lot. Chances are, if you wait till your mortgage matures, the renewal rates offered to you may well be back at the 5% level.

These low rates will not last. Contact me today to work out the math!

Related article on interest rates: Low rates change investors’ fixed-income strategies

NB: – This blog is by Leo Lee AMP. He is a licensed independent mortgage broker in Victoria, British Columbia, Canada. Leo provides professional advice on real estate financing for residential, commercial and industrial properties. Leo works for you, not the lenders. He is also an approved mortgage agent for the Tax Deductible Mortgage Plan (TDMP. His blog and Web site are dedicated to providing the public useful and timely information on mortgages, interest rate, real estate, personal finance, money and the Canadian economy.

Tags: Bank of Canada, bond interest, bond yields, current rate, economy, mortgage broker in Victoria BC, mortgage rate, mortgage rates, variable rates

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