Super low rates are back again

Jean Guy Turcotte

The leaves have changed color, the air is amazingly crisp in the morning and frost is almost inevitable in the mornings these days.

Autumn is here in full force and that usually means that the mortgage lenders, banks and credit unions roll down their sleeves to call it a season and get ready for the following spring for the next herd of buyers. But wait, there’s a five-year fixed rate out there for 3.39%! Huh?? What?!?!?

Most Canadians have already celebrated Thanksgiving but the banks seem to have forgotten that and are giving money away for nearly free, again!

The beginning of April last year I wrote a column, Death of the sub 4% five-year fixed interest rate.

It was more of an obituary, and no one in the mortgage and banking industries ever thought that it’d be back. Yet it is and it’s been here for about six weeks already!

Those that have taken notice have jumped at the opportunity and my desk is full of pre-approved clients that are out shopping right now.

This is the third time Canadians have seen fixed interest rate tumble below 4% (ever), but we’ve never ever seen it in autumn and we’ve never seen it fall below 3.50%!

Yes the 3.39% rate is a no frills quick close, meaning that it has to be funded in a short period of time and doesn’t come with many prepayment privileges but it’s still 3.39%!

Yes I’m aware this is a program not suited for everyone, but the average rate out there is 3.59% with all the larger lenders.

In September, according to the MLS, there was an average discount of $10,307 off of the listed price in Red Deer, and if one combines this with a super low interest rate of 3.59% then you’d be saving $37,754 off the average listed home with 5% down based on a 25-year amortization compared to the average 10-year rate of 5.35%.

This year started off with a bang economically. Employment was finding its footing and growth was returning to the markets. Then just as quickly as it appeared, it was gone. Economists call it a “false start”; which is related to the economic recovery. There was still way too much hiding beneath the surfaces of recovery.

These surprises have thrown some interesting curves into the system, such as providing the lowest bond rates we’ve seen in our lifetimes. The government bond rate is essentially what fuels the trending of the fixed interest rate markets whether it’s up or down.

The low bond rate is the reason that the mortgage lenders can provide these low rates as they generally charge a premium of between 1.35-1.60% over the bond rate. While bond rates are below or around 2% the lenders can provide rates in the mid 3% level.

We’ve seen these rates come and go, and the basement floor is exactly where we are at right now with regards to interest rates. This is the third time they’ve come around. But just like winter it is right around the corner, and so interest rates are in the 4.50%-5% level.

Jean-Guy Turcotte is an accredited mortgage professional with his partners at Regional Mortgage Corporation and can be reached for appointments at 403-343-1125, text to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.

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