Year-end mortgage rate drops could prove helpful

Most years, we see fixed mortgage rates start to drop towards the end of the calendar year as lenders try to boost their business to end the year strong. This year has been no exception.

Over the last few weeks, I’ve seen fixed rates drop from close to six per cent about six weeks ago to 4.79 per cent and better as of this week. These rates vary depending on whether your mortgage is insured or not, but in relative terms we have seen close to a one per cent drop in many cases.

What does this mean in practical terms?

For one client I’m working with who is a single mom searching for a home to call her own, this increase in affordability has increased her purchase price by almost $20,000, which in her community puts her into a house rather than a condo.

For people who have upcoming renewals it may be time to connect and explore your options. If you are coming out of a fixed-rate mortgage in the 2% range, it is likely you will be looking at a three month interest penalty to switch out of your current mortgage, if you choose to do so before your actual renewal date.

I don’t advocate jumping ship really early in every case. Paying a prepayment penalty and a higher interest rate isn’t always a great plan, but each situation is unique.

The next year is looking to be a bit bumpy with interest rates, and from what I’m hearing, rates will start trending down again towards the end of next year.

However, if you have a renewal coming up in the next four months I encourage you to reach out to explore your options now. With no historical research to support this, what I have seen for many years is interest rates pop up again as the new year starts.

I sat in on a call recently with the president of one of my favourite lenders. He had some interesting thoughts on the variable versus fixed rate conversation.

His firm has been watching delinquency rates carefully, and I was quite surprised to learn the numbers of variable rate clients in arrears was actually far lower than the number of fixed rate clients in arrears.

I’m not sure whether that has to do with the proportionate split as to how many clients choose fixed over variable, or if there is something else that really affects these stats. I do know I am concerned for some of my variable rate clients as I know I am feeling the pinch with my own monthly mortgage payment increasing substantially.

I was also surprised to hear that most of the lender’s variable clients were choosing to stay the course rather than lock into fixed rate terms.

If you are exploring whether locking in at this point makes sense for you, I encourage you to do your homework. Reach out to your mortgage person to run the numbers and see if this makes sense for you. With fixed rates now less than variable it may make sense, particularly if you are losing sleep at night.

However, if you are planning to make any changes over the next few years and are variable it most likely makes sense to stay the course.

Grateful to all who have reached out after reading my column to share their thoughts and feedback.

Wishing you and yours a wonderful holiday season filled with love and laughter.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.