Continuing shifts in mortgage interest rates

Well interest rates have been the hot story once again in the market.

I’ve spoken in the past about how why rates are up, this week I’m going to explain where they are, where’ve recently been, and where we are going in the next 12-18 months and beyond.

It’s no secret that the global economy has a stronger footing on stabilization than that of the previous five years, and that’s been mainly due by government intervention to decrease interest rates to the point of emergency stimulus structures. Well those days are coming to a head, and June has shown us exactly what can happen and how quickly.

At the beginning of June, five-year fixed wholesale interest rates (as lenders price their models according to this program the most) could be had as low as 2.79-2.99%, depending on the lender and what they included in their mortgage.

By the end of the first week, rates were up an average of 20 basis points from the lows. While many still had some specials at the 2.99% level, those quickly left the week following as rates went up another 10 basis points to an average of 3.19%.

The story didn’t end there! The next two consecutive weeks fixed rates would shoot up another 20-30 basis points as lenders’ new cost structure from the bond market revealed itself.

Since the beginning of June, rates went up three to five times (depending on the lender) and are now at an average of 3.44-3.69%.

As lenders review their rates and cost structures along with seeing where their competition is at, we may see some further adjusting from here.

If there’s two generations reading this, the more mature of the generation’s eyes pop out of their heads not believing what they are reading as they’ve never seen these rates before, and the under 30 crowd that is buying their first home is bellyaching that they didn’t get an interest rate below the 3% level.

The difference between a 2.89% five-year fixed and a 3.54% five-year fixed on a $300,000 mortgage with a 25-year amortization is $102/month, in the 60-month period, it will cost you just over $6,000 more than had you gotten your rate held at the end of May.

That being said, did you know that prior to these super low emergency interest rate levels, that the average five-year fixed wholesale rate was 5.35% for the 10 years prior to 2009, and 5.85% for the 25-year average.

To compare the same $300,000 mortgage your payments at 5.35% would be $1,805/month and $1,892/month for the 5.85% rate.

And guess what? Rates are headed back to those levels!

This isn’t a scare tactic, this is reality.

Mortgage professionals around Canada have been waiting for the interest rates to turn their ugly head upwards for four years, and we’ve been fortunate that they lasted this long, and realistically are still here for a little while longer.

So while it may seem you lost out at the 3% level of interest rates, wait until they hit 4%…or worse 5%.

Then the level we are at today, is an amazing deal.

Sure it may seem like a kick in the pants that you lost out on one the lowest rates ever, but, getting in at this level was unheard of… for, well…EVER!

So there’s still ample room to take advantage of the rates available in this market.

And if you are whining about how you lost out on half an interest point, go talk to your parents or grandparents and whine to them, see if they feel any sympathy for you.

jturcotte@regionalmortgage.ca or find me on facebook.

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