It’s no secret the mortgage market is constantly fluctuating—rates go up and down and make it difficult to predict the best time to buy a house or secure the rate for your mortgage renewal or refinancing.
These past few weeks we have seen some lenders cut their fixed-term mortgage rates as the bond market declines, but they were not the big banks. Hopefully we will see some movement from them by the spring should rates keep declining.
The bond market has a direct effect on fixed-term mortgage rates in Canada along with a few other factors. When bond yields rise, it means investors are demanding a higher return on their investments, which in turn pushes up the cost of funds for lenders. As a result, lenders must increase their mortgage rates to cover the increased cost of borrowing. Similarly, when bond yields fall, the cost of funds for lenders declines, which allows them to offer lower mortgage rates to borrowers.
With the current market conditions, it is especially important to consider securing a mortgage rate hold when rates are declining, which they are doing right now.
A mortgage rate hold is essentially a guarantee from a lender that it will not raise the rate on your mortgage, regardless of what happens to interest rates in the market. That means even if interest rates go up, you can still get your mortgage at the same rate you were promised when you first applied. For those looking to buy a home, getting a mortgage rate hold during times of declining rates can be an extremely valuable tool. It can give you peace of mind, knowing you won’t be affected by any changes in the market with rising rates.
As mentioned in a previous column, many banks are contacting their mortgage clients well in advance of the renewal date to offer early renewals. No doubt you will be facing a much higher interest regardless, so an early renewal offer might be tempting to consider. You may no doubt have concerns that interest rates may be higher if you wait until your renewal date. However, renewing your mortgage early can actually be a costly decision.
Interest rates are constantly fluctuating, and if you renew your mortgage early and rates go down, you could end up paying more for your mortgage in the long run and lose the current lower rate you have on your mortgage immediately as the lender will not hold the new rate until your renewal date. As a mortgage broker, I can hold the new lower rate until your mortgage renewal date within a certain window.
If you are purchasing a new home or your mortgage is due for renewal between now and March next year, you should take advantage of today’s lower mortgage rates by securing a rate hold along with a mortgage “pre-approval.”
No one knows how long these lower rates will be available as, at some point, the bond market will settle back to its long-term average and rates will start to increase again. Right now there is a window of opportunity.
As a mortgage broker I can hold rates for up to 120 days and if rates go lower, we can adjust accordingly to ensure you receive the lowest rate available for your situation.
Please reach out if you would like to discuss your current mortgage renewal or if you are considering purchasing a home next year and need a pre-approval. You can also book a time for a chat here on my calendar.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.