Unusual Mortgage Market
Times are changing in our Mortgage Markets, but instead of dwelling on "then", home owners need to focus on and deal with "now".
In the past we saw discount off prime rate on new variable rate mortgages, but it will most likely take some time before we ever see a discount on a variable rate again. Also, given today's bond yields we would expect to see 5 year fixed rates around 4.00% instead of the approximate 5.50% we are currently looking at. Our rates may currently be taking some unusual turns, but moving forward rates are expected to stay somewhat stable through the last quarter. Analysts then agree that rates will most likely drop during the first part of 2009.
Why are rates expected to drop? According to TD economist Pascal Gauthier, it is because the U.S. economy may "record its worst performance in decades, retreating by around 3% in Q4, with the Canadian economy mirroring this performance with a 2.5-3.0% decline". Also, according to the consumer price index, Canada's inflation is no longer a present threat to our economy. It has been tamed.
So where do we go from here? For those who have existing variable rates - hold them. Prime has been and will continue to fall which will save you money! Looking to get into a new mortgage? Lenders are still offering great rates on fixed 5 year terms, but if you are not comfortable with a longer term and if you believe rates will come down as expected, there is always the option of short term financing at a 6 month or 1 year term after which you can re-new at current market rates.
Fixed Rate Mortgage: A mortgage in which the rate of interest has been fixed for a specific period of time. This specific period of time is generally known as the term.
Variable Rate Mortgage: A mortgage with fixed payments, but fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.
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