Mortgage interest rates are still incredibly low by all historical measures. Nevertheless, we have seen frequent rate changes and increases in the past few weeks. The two rates we tend to focus on are the five year variable rate mortgage (VRM) rate and the five year fixed rate mortgage rate.
it was less than two months ago we told you Meridian Credit Union proudly announced a VRM at Prime less 0.85%. That was an amazingly low 1.85%. Now, you will feel blessed to find one at 2.25%.
Similarly, with aggressive discounting, you could comfortably find a five year fixed rate mortgage at 2.49%, sometimes even lower. Now most lenders are somewhere in the range of 2.74% to 2.94%. Before we push any panic buttons and grab the phone to convert our variable rate mortgages to fixed rate solutions, here’s what’s happening:
Dr. Sherry Cooper, chief economist at DLC Mortgages recently spoke up to Mortgage Broker News and said:
“Better-than-expected job numbers both here and in the U.S. should mean a hike in interest rates by the Federal Reserve, which means the long love affair with low interest is coming to an end, and a positive sign that a potential housing crisis isn’t looming.”
Dr. Cooper expects the Fed will hike rates for the first time in a decade when they next meet on December 16. ” Interest rates in both Canada and the U.S. have already risen in anticipation and the U.S. dollar has strengthened, she says, taking the loonie down sharply.”
The folks at Rate Supermarket explain factors which affect these two types of mortgage interest rates:
“There are many factors that influence the health of the economy; unemployment, inflation, consumer confidence and the housing market, just to name a few. Let’s take a look at the factors that influence fixed and variable mortgage rates.
The main factor affecting fixed mortgage rates is Government of Canada bond yields. Fixed mortgage rates typically move in alignment with government bond yields of the same term.
The overnight rate changes the cost of lending/borrowing short-term funds and therefore influences the Prime Rate. Since variable mortgage rates are linked to prime rates, when prime rate goes up, so will your variable mortgage rate and monthly payments.”
Anyway, we have been spoiled in recent years by mortgage interest rates which seem to only go in one direction – downwards. It’s too early to say if recent weeks are foreshadowing the beginning of a new direction, or rather just a normal blip in something that should never really be expected to be constant.
If you don’t think you have the stomach for changing interest rates, then notwithstanding all the studies, you might be better off eschewing a variable rate mortgage.
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