Mortgage Rates Still Low…But Rising!

We saw a sudden jump in fixed rates last week which means Canadians looking to break their existing mortgage and refinance at a lower rate may have missed the best rates in recent history. But that doesn't mean people can't still trim their payments.

TD was the first to raise their rates, raising its five-year closed mortgages by a whopping 0.4 percentage points to 5.85%. Three other big banks followed in TD's footsteps and raised their posted rates in the last twenty-four hours, and other lenders are expected to follow suit.
With interest rates floating near historical lows, Canadian home owners who locked in last week may have been fortunate enough to negotiate a fixed-rate five-year mortgage as low as 3.54%. Although no one knows where interest rates are headed, the consensus is that they are unlikely to be this low again for a long time.

Economists believe interest rates will rise, not now but in the very near future, three, four, five months from now they will be higher. Definitely a year from now they will be higher. And in two years, they could be notably higher.

The stunningly low interest rates have led many Canadians to break their existing mortgage and get in at a lower rate. The decision to break an existing mortgage depends on the penalty, as well as how many years are left on the existing mortgage. It might, for instance, make more sense to break a mortgage with a year left on it as opposed to one with four years left.

Penalties for breaking a mortgage loan can be either the greater of three months' interest or the difference between the interest the bank could make on your mortgage as originally arranged versus lending money out at current rates. Most recently the so-called interest rate differential, or IRD, is the larger penalty and the one many lenders use. All of this is specific to the lender and subject to negotiation. Contact a mortgage broker to help you determine if refinancing makes sense for you right now or if it is best to wait until the end of your term.

Given that the Bank of Canada has said interest rates are likely to remain unchanged until the second quarter of 2010, a variable rate can provide huge savings for home owners who can stomach a little risk. These rates are as low as 2.65% today!