If you’ve purchased a home in the past few years, or are thinking of becoming a homeowner soon, chances are you’re keeping a close eye on interest rates.
We’ve been mired in a low interest rate environment since the global economic crash of 2008-2009, with seemingly no end in sight.
The Bank of Canada has held its overnight rate at 1 per cent since September 2010. All we’ve heard from media, economists and Bank of Canada Governor Mark Carney over the last three years is that rates will return to historical levels….eventually.
Now, in the wake of Carney leaving his post early to become head of the Bank of England, the best estimate for the next rate hike is sometime in late-2014.
So what does this mean for Canadian homeowners and prospective home buyers?
First of all, it means interest rates on 5-and-10-year fixed rate mortgages are at record lows. You can get a 5-year fixed rate mortgage for less than 3 per cent, and you can lock-in for 10 years for less than 4 per cent.
It may pay to break your current mortgage and refinance at a lower rate.
Check out your banks’ online calculator to see what penalties, if any, you’d face if you break your mortgage early.
You’ll pay a prepayment charge of 3 months interest or the Interest Rate Differential, whichever is greater.
Variable rate mortgages, which are tied to the banks’ prime lending rate and have typically led to more savings for homeowners, are less attractive today.
Just a few years ago, banks were offering 5-year variable rate mortgages for as low as prime minus 95 basis points, or 2.05 per cent using the current prime rate of 3 per cent. Continue Reading →