More Canadians Adopt a Low Rate Mindset

Low-mortgage-ratesFewer people are buying into the premise that mortgage rates could rise this year.

Almost half (46%) of Canadians believe that today’s record-low rates will stick around for at least one more year. That’s almost double the 24% who, in 2011, said the same thing. (This data comes from a new CIBC survey released today.)

These findings raise some interesting questions, not the least of which being: are Canadians’ rate expectations even relevant to the mortgage selection process?

In other words, if an individual now expects extended low rates, should that be a factor when he/she chooses a term?

Colette-Delaney-CIBC“The short answer is no,” says Colette Delaney, Executive Vice President of Mortgage, Lending, Insurance and Deposit Products, CIBC.

“Rate is certainly a factor in the decision, but trying to predict rates as part of a decision to choose the best mortgage for you is not advisable,” she adds.

Rates have a long track record of defying expectations. Delaney says it’s more important to pick a term that matches your financial circumstances and plans.

One’s choice of term should thus be geared to things like:

  • Your ability to absorb higher rates (and payments)
  • The time you expect to hold your mortgage
  • Job stability
  • Ability to prove income (an issue for some self-employed borrowers with mortgages that are coming due in a tighter lending environment)
  • And so on…

CIBC recommends that borrowers consider setting their mortgage payment “at the amount it would be if rates were 1-2% higher.”

For example, on a standard $200,000 mortgage, a payment set at 4.99% instead of 2.99% would cost $217 more per month but save almost $1,000 of interest over five years. (Note: This 4.99% rate is solely used to calculate the payment. The actual interest is charged at 2.99%. The advisability of this tactic depends on whether you have a better use for your monthly cash flow.)

“Not only does this (strategy) help to reduce the principal amount owing,” says CIBC, “but it also prepares Canadians for future rate increases.”

Fixed-Variable-MortgagesHere are a few other tidbits from the survey:

  • If people “had to decide” on a rate today:
    • 45% would choose a fixed rate
      (versus 50% in 2012)
    • 26% would choose a variable rate
      (versus 32% in 2012)
    • The rest are primarily “uncertain,” a group that grew nine percentage points over last year (perhaps reflecting a lack of confidence in rate direction and/or in the historical research that supports variable and short-term rates)

Poll Details: These data were gathered by Harris/Decima in a sample of 1,006 Canadians between January 24-28, 2013. A sample of this size has a National margin of error of +/-3.1%, 19 times out of 20.

Rob McLister, CMT

  1. May I ask where you saw have seen or received 2.59% fixed for 5 years? That seems almost too good to be true.

  2. When in doubt, why not go half and half? Put half of your mortgage in a 5 year fixed at 2.89% and half in a variable at prime – .5%. Then you can never be totally wrong about rates.

  3. if you take 5 years fixed part at 2.7% and the variable at P-0.65% you can’t be too much wrong, yeah

  4. I love how people just throw out random rates with no discussion of where to get them or the mortgage’s pros and cons.
    Where on God’s earth do you get prime-.65%? That is a totally made up rate.

  5. all that discussion should happen with your broker. About where do you take Prime -.65 from … I said “if”
    about 2.59% for 5 years fixed, it’s pretty real and actual offer I got from a broker.
    read all before commenting, sometimes there’s meaning in small words

  6. Its not all about rate, mortgage terms matter. Trying to inform and convince clients of this is key. Most clients just ask “give me your lowest rate” ….so I quote them the 1year and then I wonder why they get surprised? ;-)

  7. I cannot believe 2.59% five-year fixed is out there, Canadian. Wow! I’m just blown away. What does that same broker offer for three-year fixed?

  8. Well start by looking at this discussion on RFD. There are also many brokers there that can PM you their best offers.

  9. 2.59%, 5 year fixed is real and live but is by far the worst product offering I have ever seen. The restrictions, penalties and condition traps are ridiculous! Caveat Emptor.

  10. Today’s best rate on a 5yr GIC is 2.5%. 100% guaranteed safe!
    The 2.59% offer is real but what should “matter to you” is asking yourself why a lender would offer a mortgage product 9 pts. above what they could get guaranteed?

  11. banker in an ivory tower
    You make me wonder. Why should that 9 pts. matter?
    What difference does it make to me the borrower?

  12. I am a licensed mortgage broker in the industry for 15 years. 2.59% does not exist for a 5 year. It’s available for a 3 year term. The people on here stating that a mortgage broker is offering it are quoting nonsense. If you want to prove your point name the actual financial institution the broker is sourcing the mortgage funds from and then we can all contact that FI and confirm it (and I’m sure the broker isn’t lending his/her own personal/company $ out at that rate since privately lent funds are set aside for high risk mortgages at much higher rates – to offset the risk)

  13. Agreed. Even with buying down the rate I can’t imagine any FI letting someone get 2.59% for a 5 year. Not going to happen. I would have to see the commitment to prove otherwise, which isn’t possible since it doesn’t exist.

  14. Your imagination is a bit short if you can’t imagine it :)
    It does exist and doesn’t need imagination :)

  15. Canadian why are you teasing everyone, why not just state the darn lender and get it over with. Or private message it to Rob so he can confirm, and he would not post the lender’s name, he could just confirm that it’s legit.

  16. I have been in the industry for about 15 years as well, and can assure you it does exist, and has been offered and accepted more than a few times. It is available from an institution, on a buy down situation, 30 day quick close. I am not at liberty to disclose the lender here in this public forum.

  17. Dan, if everyone knows all details, it wouldn’t be so special anymore.
    I said I got it from a broker. That’s enough.
    Whoever cares, will find where it is.

  18. Hi Rob,
    I remember when Rob Carrick from the Globe and Mail Said in 2007 to lock into five-year term.
    Last year he said look at ten-year terms.
    Could this be a reason why people don’t trust the media?

  19. It’s not just the media.
    “Caveat Emptor” when blindly trusting advice from ANYONE and especially when it involves your money. Even the best Journalists, Economists, Bankers, Mortgage Advisors, Investment planners and CFP’s get it wrong all the time.

  20. Hi Brian,
    Term selection entails risk-reward analyses. Sometimes those can be mistaken for market predictions, which rarely add much value.
    Moreover, there are often stories that opine on the merits of a particular term. (We write them all the time.) But that doesn’t mean everyone should choose that term.
    That said, people who tell “everyone” to lock in (or float or go short-term)–without caveats–should lose their “writing license.” Rob Carrick is an experienced personal finance writer who’s well aware that mortgage choice is client-specific. So I’d have to see the story you’re citing to comment further.

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