Mortgage rates at an all time low.
Mortgage rates hit an all time low with BMO offering a five year fixed rate of 2.99% the lowest rate in modern Canadian history. TD and RBC followed suit by cutting their 4 year rates to 2.99%.
Now here is where a good thing can go south quickly. These look like good deals however there are somethings to check out. Payment flexibility: are you still able to make extra payments? if you have to / want to sell your home what is the payout penalty? If the rates go up during the amortization period of the mortgage are you going to be able to afford the new payments, bearing in mind that just a week ago the advertised 5 year fixed rate at BMO, RBC and TD where all 5.29%? That would be a full 2.3% increase in your mortgage rate.
On a $300,000 mortgage at 2.99% with a 25 year amortization (a requirement by some banks for this rate) your payments would be about $1,418. In 5 years at the end of your term, if we use the 5.29% from a week ago, that same $300,000 mortgage will cost you $1,722, even extending your mortgage out to 30 years at the end of the 5 year term will cost you about $1,410 a month.
If you manage to negotiate this rate (2.99%) with a 30 year amortization period, after 5 years you may have the option to extend back out to 30 years, using the 5.29% the payments would be about $200 more a month.
Now we have seen the figures how does this help? Well if you are willing to accept that at the end of your 5 year term, the rates may go up and to stay on track to pay off your home within your original amortization period you will have to substantially increase your mortgage payment, or increase the time it takes to pay off your home, then it will help you.
The other group that this will help is those who already have a mortgage at a higher rate. I would encourage you to talk to either your bank or a mortgage broker about refinancing at the lower rate. Most times there are penalties involved in paying out your mortgage early, however if we use the same $300,000 mortgage and 25 year amortization, the savings in interest during the 5 year term would be in the order of $6,400. If you where to re invest that back into a payment on the principal it would pay large dividends, by lowering your principal therefore total interest paid over the amortization period and shorten the time to pay off your home and become mortgage free!
In summary this something that should be looked at, and taken advantage of when you fully understand the possible risks and drawbacks.
Please do not hesitate to contact me. I would be happy to give you the name of an independent mortgage broker that can give you more information.
Making your Real Estate needs my priority!
Dave Dry
Realtor, Re/Max Real Estate
Website: www.davedry.com
Blog: blog.davedry.com
Office: (780) 457 3777
Direct: (780) 446 3727
Fax: (780) 478 7017