The Interest Rate Game

Mortgage interest rate seems to be a hot topic in the news.

The truth – mortgages and interest rates are not very exciting to anyone except for us! The reality is that our news cycles are short and they often feed on negative stories. News about interest rates has been increasingly negative and focused on fear. Headlines about debt, credit scores, data breaches, and high interest rates are common and very misleading.

The reality, interest rates are holding steady. The Prime Rate, which guides variable rate mortgages, held steady on the last Bank of Canada announcement on January 9, 2019 and on the previous announcement date of December 5, 2018. Based on recent national economic data it’s possible the Prime rate and variable rates will hold steady this year. Fixed rates across all lenders and across the terms of two, three, five, seven, and tens years have been relatively steady for the last six months. There has been some movement up and then down again but overall fairly stable.

*Insider tip – we focus on the unique financial and life situations of each of our client’s. We work together to decide on a mortgage strategy and the right interest rate option for now and for the future. And we always focus on the positives – saving every client money, future planning, and making sure that their mortgage matches their needs.

The truth is rates are constantly changing. There are small movements UP and DOWN.

Lenders offer rate specials and promotions on a daily basis. It’s why we watch our emails closely every morning – for the best rate offers.

Variable rate and fixed rates movements are based on two very different systems.

Variable rates are impacted by the Bank of Canada’s prime interest rate. Fixed rates are impacted by the Canadian bond market. These two systems move up and down independently of each other – so you don’t assume fixed rates and variable rates move up or down together. One may go up while the other is going down and vice versa. And sometimes they move together… it’s complicated and in truth out of our control. What we can control really matters. Our insider tip below tells you a little secret.

*Insider tip – did you know that mortgage brokers are offered the best interest rates and specials based on their overall annual mortgage volume and the quality of the work they submit to each lender? Successful, efficient mortgage offices get the best rate offers… we know… because we are one!

Lenders, in particular banks, spend a lot of marketing dollars urging home owners to “lock-in” to fixed rates.

Why? The reality is banks often make more profit on fixed rates! Second, the breakage fees are as much as five times higher than variable rate breakage fees.. So the profit is higher when the mortgage holder locks into the fixed rate and if they must break the mortgage – the profit on the breakage fee is higher! 60% of fixed rate mortgage holders do not get to year five of their mortgage term. It’s much more common to break the mortgage term early than to get all the way through a five year. So high breakage fees are a real issue for many mortgage holders.

*Insider tip – did you know that many national mortgage lenders and credit unions (any lender that is not a bank) has fixed rate breakage penalties as that are 1/4 the cost of big bank breakage penalties. Now is the time to go beyond the branch to find the best mortgage options!

We can work together to decide on a fixed rate at a bank, a fixed rate at a national mortgage lender, or a variable rate at either a bank or a national mortgage lender.