October 30, 2014
With interest rates continuing at historic lows, there may be no better opportunity to get a mortgage — particularly one with a fixed rate — than now.
Of course, you’ll find there’s more to getting a mortgage than simply locking yourself in to the lowest fixed rate. Here are four trends that could impact your decision.
Interest rates have been expected to rise for several years. They continue, however, to defy expectations by staying low, hovering at or below 3 percent for both variable and fixed 5-year closed mortgage rates.
Compared to consumer credit rates, which hover at around 10 percent, a mortgage compares very favourably (making it also a good time to take advantage of a HELOC or other home equity loan).
Though this trend can’t last forever, conditions remain favourable for borrowers. Once rates go up, they may not come back down to this level for a very long time.
Because the only thing certain about today’s low interest rates is that they will someday have to go up again, a fixed rate mortgage may seem like the best option. That way, when rates do go up, you’ll be locked in to today’s lower rates.
Rates may go down even further, though, and a fixed rate would mean you’re paying more than the prevailing interest rates. In this case, it’s better to have a variable rate mortgage.
To get the best of both worlds, it’s becoming more common for people to consider a hybrid mortgage — one that offers a partially variable and partially fixed rate on the interest you would have to pay.
This can help you take better advantage of low interest rates, while protecting you against the risk that rates will suddenly rise.
Mortgage insurance offers you a way to protect yourself against the risks associated with mortgage debt. In many cases, such as when you purchase a property with less than a 20 percent down payment, it’s required by law.
Recent changes in regulations have increased the cost and restrictions on financing uninsured borrowers, a trend that began with the financial crisis of 2008.
It’s also getting harder to get mortgage insurance. As of May 30, 2014, the Canada Mortgage and Housing Corporation no longer offers insurance if you’re buying a second home.
The rules particularly affect those who want to purchase a new home with mortgage insurance while keeping their old home as a rental property. Parents who act as co-borrowers on their children’s mortgages face similar restrictions.
Though it’s unclear if stricter regulations are coming, it’s unlikely that the current rules will be loosened anytime soon.
While in the past you may have considered or even taken out a mortgage with one of the big six banks, credit unions are becoming a more viable option for many borrowers.
Because they are regulated by provincial governments, credit unions often enjoy a greater degree of flexibility than the big six. This has recently allowed them to challenge the larger banks on mortgage rates.
While credit unions are by no means cheaper across the board, they are becoming more competitive, and more consumers are choosing them for their perceived transparency.
?At the same time, borrowers who choose credit unions should be prepared to stay close by. The mortgage you get may not be portable across provincial lines, and it may come with a number of other restrictions that you won’t get from one of the larger banks.
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