The biggest failing of the summer blockbusters is the housing market.
When the Bank of Canada finally began its trend-setting cuts to overnight interest rates a few weeks ago, the expectation was that lower rates would trickle down to mortgages, improving the ability to repay mortgages.
Prices remain high and mortgage rates have only fallen slightly, so if you want or need to buy now, your ability to do so may depend on getting the best mortgage rate discount possible.
To get a sense of where mortgage rates are at, let's look back at the Bank of Canada's move to cut overnight interest rates by 0.25 percentage points on June 5. This rate cut was the first in four years and was immediately passed on to the cost of now-out-of-favor adjustable-rate mortgages.
While interest rates have barely budged since the Bank of Canada's recent interest rate announcement, mortgage buyers and renewers still prefer the certainty and immediate savings of a fixed-rate mortgage. Victor Tran, a mortgage agent with TMG The Mortgage Group, estimates the rate drop to be between 0.05 and 0.1 percentage points.
“I was expecting it to go down a bit more,” Tran said. “Both fixed and variable interest rates are still high. I think rates need to come down a bit more to really stimulate a lot of activity, hopefully to at least 4 percent.”
At TMG, the popular three-year fixed rate was listed online midweek at 5.09 percent, and the five-year fixed rate was listed at 4.64 percent. Special rates advertised by the bank online were as low as 5.39 percent for three years and 5.14 percent for five years. Rates as low as 4.84 percent for five years were available for borrowers who put down less than 20 percent and must pay mortgage default insurance.
Tran said the special interest rates advertised on the website are quite reasonable, but encouraged borrowers to negotiate for better terms.
“Some banks are very cautious about offering or announcing their lowest interest rates up front,” he said. “They're saying they're likely to be able to offer you the same rate as their competitors or even better rates than their competitors. We just need to see the deal.”
Tran said banks look at the following when considering whether to offer the highest discount:
Credit score: 700 or aboveMortgage size: The more you borrow, the more likely you are to receive the maximum discountClosing date: The earlier, the bigger the discountOpportunity to cross-sell other bank products: Offers may be available to those who have a current account with the bank and additional products such as credit cards.
Please note that banking law prohibits banks from engaging in coercive tying practices, which pressure customers to purchase one product or service as a condition for receiving another.
Tran said three-year fixed-rate mortgages are the most popular right now. Adjustable-rate mortgages have not sold in recent months. Five-year mortgages have low interest rates, but they mean you miss out on the opportunity to renew at a lower rate in the near future.
For lenders, a five-year fixed mortgage offers advantageous stability, which is why the few lenders that work through brokers offer these agents extra commission when selling a five-year fixed mortgage, Tran said.
Tran said mortgage brokers can take some of those extra fees and exchange them for better interest rate discounts for their clients, known as “buy-downs.”
The housing market will get interesting if sales continue to decline and the number of homes for sale continues to rise, potentially lowering prices and improving levels of home affordability that RBC Economics recently described as “near the worst on record nationwide.”
Lower mortgage rates should do more to improve home affordability than lower home prices, but that's been hard to achieve so far. Negotiating a solid mortgage discount is the next best thing.
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