As observed by Canadalend.com , many believe Canada’s robust housing market is being fuelled by short supply, strong demand, and low interest rates. In truth, with Canadian economic data being mostly solid, potential home buyers have been afraid the near-record low interest rates will start to climb higher.
In an effort to avoid a recession, like that faced in the U.S., the Bank of Canada lowered its overnight lending rate, which impacts short-term borrowing, to near-record lows. In fact, the Bank of Canada has kept the overnight rate at one percent since September 2010 and signalled it wouldn’t raise it until the Canadian economy showed more signs of sustained growth.
Some took that to mean that interest rates would rise later this year or in early 2015. However, there is some indication that Canadians may be able to take advantage of low borrowing costs for years to come.
The Bank of Canada said recently that the Canadian economy still has room to grow, and even when it does—likely in early 2016—interest rates are not expected to climb. Some economists think the bank’s overnight lending rate will settle in the 2.25% to 2.5% range; that’s more than a full point below pre-recession levels.
According to Canadalend.com, this is encouraging news for potential homeowners, as the Canadian spring housing market continues to heat up. For starters, there isn’t an urgency to jump onto the property ladder simply to take advantage of low interest rates.
At the same time, a number of lenders are hoping to attract first-time house hunters with low, low mortgage rates, some even below two percent. But, as Canadalend.com points out, things are not always what they seem. And when it comes to ultra-low mortgage rates , there are always conditions that are not apparent up-front.
That even goes for Canada’s big banks; just because they approve you for a mortgage doesn’t mean it’s the one best suited to your financial or lifestyle needs.
Canadalend.com explains that while interest rates are important, there are other factors to take into consideration when it comes to getting a mortgage, such as a variable or fixed mortgage, or even the duration of the amortization period. The standard amortization in Canada is 25 years, but some lenders will offer you 30 years if you have at least 20% home equity.
What’s the difference? If you get approved for a $200,000 mortgage at a three percent interest rate, after 10 years you’ll still owe roughly $137,000 if you go with a 25-year amortization. Choose a 35-year amortization period and you’ll owe roughly $162,000.
A longer amortization period means less money in your pocket and more money in the banks. It also means you have a bigger balance when it comes time to renew your mortgage.
Finding your dream home should be fun, but unfortunately, navigating the world of mortgages can be daunting. However, it doesn’t need to be. The independent, licensed agents at Canadalend.com can make getting a mortgage stress free. We will not only help you get qualified, but will also search out hundreds of banks and lenders to make sure you get the best mortgage possible.
“Bank of Canada’s Steven Poloz says Canada’s Interest Rates to Remain Low for Years to Come,” Financial Post, April 24, 2014; http://business.financialpost.com/2014/04/24/bank-of-canadas-stephen-poloz-says-interest-rates-to-remain-low-for-years-to-come/.