Interesting Times for Canadian Mortgage Borrowers
Those of us who have been working in the mortgage industry for more than just a few years will agree that these are most interesting times. Borrowers who took advantage of variable rate mortgage offerings a few years back are now confronted with the hard question, “Do I look at locking into a fixed longer term mortgage or do I continue to “float” at a deeply discounted interest rate?” The one thing that I have learned about this business is that there is nothing more constant than change. Rates go up and rates go down. Rate volatility can happen for many reasons and some times not for the reasons a borrower expects, like a tight supply of mortgage funds or a Financial Institution’s Fund Matching requirements.
I agree that there are many economic reasons not to expect large increases in Canadian Mortgage Interest rates in the near future. However, based on the Bank of Canada’s position calling for an increase to the prime rate starting this summer, current mortgage underwriting guidelines that get less flexible every day, plus a recent trend that shows an increase in the 5 to 10 year Canadian Government Bond Rates, it may now be time to take a hard, honest look at the affordability issue of mortgage payments.
If interest rate were to jump 1%, 2% or 3%, would you still be comfortable with your shelter costs? Always remember that we are dealing with historically low mortgage interest rates. Some lenders offer the option of a split mortgage term. This permits a mortgagor to leave a portion of their mortgage floating while at the same time locking in a portion at a fixed longer term. This may well be a product that borrowers will start to embrace as a prudent option over the coming months.
Paul Croy
