Rock Bottom Rates and a Look Ahead!

How Low Can They Go?

Interest rates are low right now. Like really low. And that isn't likely to change in the short term according to Bank of Canada Governor, Tiff Macklem. In their most recent announcement on July 15th, the Bank of Canada offered up an unusual message for unusual times: 

​

​"...we are being unusually clear that interest rates are going to be low for a long time." ~BoC Governor Tiff Macklem

​

Just how long can we expect rates to stay low? Analysis from the Bank of Canada and independent economists suggest that we'll see a period of low rates extending well into 2023. Until growth and inflation pick up, money will be very cheap for borrowers to help fuel the economy's recovery.

The Federal Government and Bank of Canada have made a priority of pumping a lot of money into the financial system to minimize the risks to banks and the financial system as a whole. We saw rates rise in the early stages of the pandemic as fear and uncertainty took hold and credit spreads increased. But, as the stimulus made its way into the system, those same credit spreads have narrowed dramatically and interest rates have fallen to all time lows.

What Does This Mean for Mortgages?

As I type this newsletter, I have email updates from lenders coming in offering 5 year fixed and variable rates below 2%! And while those rate promotions may not apply to every type of transaction, I have watched rates drop steadily over the last couple of months and lenders get more creative with borrowing solutions.

The road through any economic recovery is seldom smooth. There will be bumps along the way as we deal with the short term impacts on our earning and spending habits and the long term, more permanent changes that COVID-19 will bring. And while there are many lessons to be learned from our current state, the on that speaks the loudest is: 'be prepared'. 

Low rates will certainly create opportunity for borrowers to lower their interest costs but also improve their cash flow. Paying out higher interest debt with lower interest debt can save thousands in the long run. It can also free up money to help out your budget in the case of lost income or give you a chance to add a buffer like a Line of Credit to weather any short term storms.

Numbers to Chew On

Here's an example of a $400,000 mortgage at 3.5% interest rate amortized over 30 years. The monthly payment on this mortgage would be $1,790 and if we assume there are 4 years left of the original 5 year term, your interest to maturity would be $52,288. The same mortgage at 2.5% has a monthly payment of $1,578 with an interest to maturity cost of $37,036.

With the lower mortgage rate, you'd save $212 a month in payments and $16,630 in total interest savings over the remaining term!

​

If there was ever a time to review your mortgage options, now is that time. If you currently have a mortgage rate near 3% or higher, your monthly mortgage payment is hundreds of dollars higher than it could be. We would be happy to review your mortgage and put some money back into your pockets!

As always, if you have any questions and want to take a look at your options, please don't hesitate to reach out. And if you know anyone that would find this helpful, please pass it on! We're always here to help!