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—The Mortgage Report: Aug. 27—
Closer to Free Money
- Never on record has a fixed-mortgage contract rate undershot 1.40% in Canada, until Thursday. This one-year fixed offer launched exclusively on RateSpy.com and it’s one more sign of the times. A sign that markets expect no significant boost in rates for as far as the eye can see.
- Just 18 months ago, one-year rates were twice as high at over 3%. By comparison, a 1.39% fixed rate saves $4,400 of interest over just 12 months on the average Canadian mortgage of $278,299.
- This offer is a full-featured one-year fixed applicable to borrowers with:
- default insurance, or
- 35%+ equity and an insurable mortgage.
- It’s not applicable to refinances unfortunately. Canada’s lowest advertised uninsured fixed rate remains at 1.94%. That’s for a 2-year term. But some banks are sneakily hawking even lower discretionary rates.
- This deal is also available to qualified borrowers who are switching from another lender, but the borrower is responsible for the legal and appraisal fee. That’s usually not economical unless you have at least an average-sized mortgage.
- In terms of appeal, most folks don’t want a 1-year fixed mortgage. That’s a fact. But it’s also a fact that the lowest variable rate is 14 basis points higher. And—in this rate cycle, at least—existing variable rates are unlikely to fall further (since prime rate is constrained by the 0.25% “effective lower bound” of Canada’s overnight rate).
- Two more “perks”:
- One-year terms afford borrowers more flexibility to renegotiate sooner. With many lenders offering 120-day rate holds, a 1-year lets you lock in a renewal rate in as few as eight months.
- Moreover, as much as rate timing is generally ill-advised, one-year terms appeal to those who want to game the market by locking in at the best available rates with no penalty (as opposed to locking in a variable and accepting whatever fixed rate their lender offers).
Historic Day for the Fed
- Persistently low inflation has led the U.S. Federal Reserve to significantly change how it manages price levels. No longer will it routinely and preemptively raise rates before core inflation hits 2%. It will now allow inflation to “moderately” exceed 2% (one Fed member suggested 2.25% to 2.50%) “for some time.” The goal being to ensure inflation averages 2% over longer time periods.
- It’s the Fed’s first major inflation target tweak in years. Many analysts think it’ll result in rates staying suppressed for longer, even if unemployment sinks well below its long-run average. Indeed, Fed chief Jerome Powell reinforced that “a robust job market can be sustained without causing an outbreak of inflation.”
- That said, playing loose with price level targets also has the potential to fuel higher inflation expectations more quickly. So the jury is out on how much this actually extends the near-zero-rate environment.
- Given the linkage between U.S. and Canadian rates, the Fed’s move could indirectly influence our own central bank.
26 Comments
My renewal is up Oct 1 and im looking for 5 year fixed….LTV is 35% and beacons are over 700 and balance is $280k not insured….which lender is offering best rate?
Hi Hector, Have you plugged that data in here? –> https://www.ratespy.com/best-mortgage-rates/5-year/fixed
Just got 1.83% confirmation from TD yesterday
I got 1.99% for refi , yah or nah ?
Hi Sam, 1.99% is reasonably close to market average for a discounted 5-year fixed rate. Once folks have a rate that competitive, it’s time to focus on the features and flexibility of the mortgage contract. The financial effect of terms and conditions can dwarf a small (5-10 basis point) rate difference, for example.
How you got the 1.83% fixed 5 years from TD?
Hello spy land. I was wondering which lenders pay your switch costs on a 1 year fixed? Thx
Hi Kev, Most major banks do and some smaller ones (like Manulife).
Most mortgage finance companies (e.g., First National, RMG, etc.) do not.
What is the best % rate on a ten year fix rate. I ‘m looking to refinance and my sister wants to buy half of my property.
I own two duplexes lots, one with a house.
Hi Fidelia, If it’s an owner occupied property and a well-qualified borrower, see here (be sure to enter accurate data in the rate filters on the left): https://www.ratespy.com/best-mortgage-rates/10-year/fixed
I got 1.84% yesterday on 5 years fixed, 5% down on $565k
1.79 five year fixed from TD.
I have been giving my clients 1.68% 5% down on a 3 year fixed or 1.74 on a 5 year fixed
Hi Scott going for renewal with TD for 5 year fixed they first offered 2.11% I asked for better then they came back with 2.01%. What’s the trick to get 1.83%? Did they just offer or did you suggest you may look elsewhere?
Hey Steve, I don’t see much detail on Scot’s mortgage parameters so his rate might not apply to you. TD offers better rates on default insured mortgages for example.
Either way, you should definitely be under 2% if you’re well qualified.
Hi
My renewal is coming up on Nov. 6.
Scotia Bank is offering me
5 year variable @1.85 % (Prime -0.60 %)
OR
5 year Fixed Rate @1.97 %
Which one do you suggest? I am inclined towards 5 Year fixed but need your suggestion.
Hi JB, Term selection necessitates weighing a bunch of factors. See: https://www.ratespy.com/fixed-or-variable-rate-the-decision-checklist-02223752
And check out some of our recent stories on fixed vs. variable here: https://www.ratespy.com/category/mortgage-rate-tips
Good luck.
P.S. Both of those are slightly better than average rates. Not bad. Not the best. But pretty close to the bottom — assuming it’s an uninsured mortgage.
Hi JB,
My two cents is take the variable.
1) you save 12 bps starting in November which adds up over time on a $300K mortgage you would save more than $1,500 over 5 years.
Larger savings if a larger mortgage, smaller savings if a smaller mortgage.
2) If you need to break your mortgage anytime in the next five years, odds are you will pay a smaller penalty with the variable.
It does not look like interest rates are on their way up for the foreseeable future.
3) Would a small rise in the variable rate cause you hardship in making your mortgage payment?
Finally, remember opinions are like pie-holes, everyone has one.
Good luck and try to make the choice that helps you sleep better at night.
Hi Refi-Guy,
The vast majority would agree with this of course (including us) –> “It does not look like interest rates are [materially] on their way up for the foreseeable future.”
The problem is, the vast majority can be wrong and timing matters. The risk mitigation of a 5yr fixed from a fair penalty lender is therefore the right fit for many — particularly with prime rate at/near the bottom. One can run scenarios to confirm that it wouldn’t take much BoC tightening in 2023 (for example) to help a fixed outperform. But there’s so many other factors to consider. Thanks in any case for sharing your thoughts with the community…
Folks, I m breaking my existing TD mortgage and trying to re-enlist with a new rate on the 5yr fix. Any contact info would be greatly appreciated.
Hi SS, Email [email protected] and we can share a contact.
Hi Rate Spy
I am closing on a house October 1st. The purchase price is $420,786 and I intend to put 5% down. I got an approval letter from Scotia on August 13th for a 2.04% 5 year fixed. My mortgage broker advised that she will ask Scotia to adjust to a lower rate before closing. This was all a verbal communication but nothing in writing. What are my options at this point? I am seeing HSBC 5 year fixed at 1.75% on your website. I have already signed the documents with the Mortgage Broker that show a rate of 2.04.
Hi Kdhiman, There are brokers selling 5yr insured Scotiabank mortgages under 2%. You should be able to stay with Scotia and get that rate down at least 10 basis points, I would imagine.
As for switching to HSBC or any other mortgage provider, you need to first assess if the product terms meet your needs.
Usually, signing approval documents provided by a broker does not bind you to that broker or lender. It is generally the act of signing the mortgage registration documents and contract with the lawyer or closing agent that solidifies the mortgage contract.
Hence, if you have no other obligation to the broker or lender (like an exclusivity or cancellation agreement) you can readily go elsewhere, so long as you can qualify elsewhere and there’s enough time to close.
Hi Spy,
Thank you for the info. I have not signed any exclusive agreement with the broker. In your experience do the lenders pass down the rate drop to the buyers between the approval and the closing date ?
My pleasure Kdhiman25,
If a lender’s published rates drop, most lenders are happy to reduce your contract rate accordingly.
Some have “no float down” restrictions.
Some require the broker or customer to request the float-down — i.e., it’s not automatic.
In your case, you’d probably need to ensure the broker confirmed the rate drop with the lender.
Looking to switch lenders to take advantage of current low rates.
Are they any lenders willing to cover penalties?