It’s been a while since I’ve spoken of how amazing today’s fixed mortgage interest rates are compared to where they’ve been in the past 40 years. Perhaps it’s because it seems everyone knows how low they are, but comparatively, do we?
According to historical data provided by Statistics Canada, the average interest rate for the past 20 years – previous to the 2009 recession – hovers close to the 6% mark for a discounted interest rate, and the 10-year average is 5.30% give or take a few points, if we were to look at 40 year average it’d be closer to 8-10%.
Discounted rates means basically the wholesale rate at which a lender is willing to lend its money for.
At most national banks you’ll see interest rates “posted” on a board, these are typically the lenders retail interest rates, which they discount from to get to the rates that you hopefully pay on your mortgage or other loans.
Interest rates are based on a number of economic factors, but mostly one can tell the health of the economy by looking at interest rates. Today’s best five-year fixed interest rates are between 2.99% – 3.29% or almost half of what they were only a few years ago.
Most first time buyers are so unaware of the factor that interest plays on their mortgage that a large part of my time is dedicated to educating them about where we’ve been, to where we are now and to preparing them for where their payments will be once they renew their mortgage after their first term is up.
In Central Alberta, in September our average home price was $328,000 and to use a first-time buyer as an example, they usually put 5% down. With today’s programs and rates, this person would have a payment of $1,533.98/month and would pay almost $46,000 in interest over a five-year term using 3.09%.
If we simply used an old historical rate of 6% to compare how great today’s rates are, you’d end up with a payment of $2,053.78, or $520 more per month for five years.
That isn’t even the scariest part, at 6.00%, one would pay $90,000 in interest to the lender, almost exactly double what you’d be paying today!
That being said, does that mean that it’s fair to say our housing market is on clearout?
Even if house prices have rebounded in Alberta, not quite to the highs of 2007, but actually only depending on the month one compares, just think, you could save $45,000 in interest costs and pay down your new home that much quicker with the programs that are available today? If there’s any reason to be excited about the housing industry, pretty sure that one would be top of the list!
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for additional information or appointments at 403-391-2552 or firstname.lastname@example.org.