The constantly fluctuating world of interest rates

‘Wow’ is the one word that truly explains where rates are at today and where they are headed for the next foreseeable future, meaning three to five weeks.

With the markets around the globe, in what seems to be meltdown mode, nervous investors are fleeing to safe investments. One of those safe investments is Canada Government Bonds, and the bond market is where many banks and lenders obtain their funds for Canadians’ mortgages.

The bonds have been in a pretty stable state for the previous five weeks, but the past six days they’ve been on a downward spiral, and this is creating amazing opportunities if you are in the market to buy a home.

Canada is one of only 18 countries remaining with a AAA rating; this rating means that we are one of the safest economies in the world to lend to.

When nervousness hits the markets, investors switch over from the growth in the markets to the stability of government bonds. As per the rules of supply and demand, the more investors are looking to invest in Canada’s Government Bonds, the less the government has to pay in interest terms to obtain these investors.

As of Aug. 5th, bond rates tumbled below 2%, dropping over 43 basis points in a matter of a few days touching down to the 1.83% level, which was the largest drop since the height of the credit crisis in October 2008.

The last time I wrote about interest rates was in mid June, but it was a story opposing this one.

Rates were on a rebound, rising to over 2.30% in a matter of a couple of days as well. Lenders quickly reacted to that rate increase and promptly raised their rates by 15 basis points seemingly overnight.

Since then though, rates quietly trickled downwards without much fanfare, likely because of the summer vacation season.

When I left on vacation July 21st, the best available five-year fixed interest rate was 3.69%, when I returned on Aug. 2nd, it was 3.54%, by the end of last week it had dropped to 3.44%.

The lowest five-year fixed rate I’d ever seen was a 3.39% no-frills quick close and the 3.44% and the 3.49% rates out there as of Aug. 5th are your regular mortgages with all the options.

Now, there’s an adage in the banking world “Rates rise on an elevator and come down on an escalator.”

With bond market pricing at the 1.83% level, lenders will be keeping a close eye on the markets because if the markets sell off again, and the bond rate holds steady then we’ll likely see another discount of 10-20 basis points, putting the five-year fixed rate in the 3.25-3.39 level.

Alternatively if the market rebounds quickly, watch for the rates to rise with it, quicker than they dropped.

What does this all mean to you?

If you are currently in the market to buy a home in Alberta, these extremely deep interest rate discounts means you are buying a house cheaper than you could have any other time this year!

Most people get wrapped up negotiating over a few thousand dollars when buying a home, but it’s the interest rate that truly determines how much you save, and there’s no better time interest rate-wise to buy a home, especially in Alberta, unless people all of a sudden stop using oil.

Jean-Guy Turcotte is an Accredited Mortgage Professional at Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.

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