Canadian Banks Lowering Mortgage Rates
With Canada’s first economic decline since the 2009 recession, Canadian banks are lowering their mortgage rates. The domestic product fell .1% from April-June, for an annualized .4%. With this small decline investors got jittery, moving towards bonds and causing a drop in long term interest rates. Bonds are closely tied to long term interest rates, causing them to drop as investors lean towards bonds. For those who are looking to buy a home, this could be the right time to shop for a competitive interest rate.
Though most of the other banks rates have stayed the same, a few of the big banks have lowered their interest rates. TD Canada Trust was the first to announce and lower their rates. They lowered their five-year closed mortgage rate 15 one-hundredths to 5.24%. Royal Bank and Bank of Montreal lowered their five-year closed mortgage rates 20 one-hundredths to 5.19%. BMo also followed suit dropping their five-year closed mortgage rate 20 one-hundredth to 4.79%.
In February investors were more confident in investing in higher risk equity assets as the economy appeared stronger. After a declining second quarter and fears of a possible nuclear disaster in Japan affecting economic regrowth, the move to bonds seemed safer for them.
Even now, with the European financial crisis, rates are on the move. Variable rates are expected to be unchanged or even rise, whereas fixed rates are on the decline. With low bond yields, lenders have room for movement, allowing for great competitive discounts. This has sparked an increase in the housing market that will stay unchanged well into 2012.
Reported in August, there was a 6% increase in building permits. This was due to the easy access to credit. A slow down toward the end of the year is expected, depending on the economic strength. If no change happens, there may be a change resulting in tightening mortgage rules. This may include short amortization periods or an increase in the amount of mortgage insurance required. This would be a necessary step to slow the property purchase spike and keep those who are close to debt from furthering their financial troubles.
With the lower mortgage rates, many Canadian citizens are looking toward purchasing as an investment or personal housing. The increased credit the lower rates bring can be enough to sway those that are considering purchasing to act impulsively. With the unknown future of the local and global economy, those taking advantage of the lower rates may find themselves struggling in the future as the economy strengthens. The boom in mortgage purchases in the beginning of the year has even sparked foreign investors to purchase Canadian properties, looking toward them as a sound investment for the future.
While purchasing may be easier as of now, the bubble may soon burst. In the meantime, there may be changes on the horizon to avoid this. If the slowdown takes place, those who have already purchased property may benefit. However if the slowdown does not occur, changes in mortgage rules will affectively deter new buyers from taking that plunge. If you are thinking of purchasing while the rates are low, be sure to prepare for increased insurance, a bubble burst, and debt, which may occur as early as early 2012.