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Carpe Diem or seize the day on interest rates

Carpe Diem or seize the day on interest rates

Time and Date January 21st, 2013 User by menno@menno.ca Comments 7 Comments

Right now, rates of about 3.00% for 5-year fixed money are available again; various financial institutions are battling each other for market share and the general public appears to be the great big winner in this fight.

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Carpe Diem or seize the day on interest rates

Carpe Diem or seize the day on interest rates

Time and Date January 21st, 2013 User by menno@menno.ca Comments 7 Comments

Right now, rates of about 3.00% for 5-year fixed money are available again; various financial institutions are battling each other for market share and the general public appears to be the great big winner in this fight.

Why dilly-dally. With mortgage rates at these lows, how could they ever get better? Historically speaking, our current 3% rates are a total bargain.

Why dilly-dally. With mortgage rates at these lows, how could they ever get better? Historically speaking, our current 3% rates are a total bargain.

Another period of competitive mortgage rate pricing is upon us.. The continuing low bond yields (which usually guide the fixed rates) are down to fresh record lows, inspiring some institutions to advertise 5-year rates at 2.94-2.99%.

In all of the emotion of plunging rates, however, it’s easy to forget that they can reverse to higher points just as fast as they drop. At issue is the volatility in the 5-year government bond yield that’s been going up and down a bit lately, inclusive of the biggest one-day increase in almost a year (last Friday). When that sort of thing happens near lows, after a long downtrend and a period calmer trading, it could mark a noteworthy change in market sentiment. Then again, it could not. Who really knows?

What we are certain of is what the rates are today and that will probably carry over to tomorrow, perhaps a little longer. To be sure that the currently advertised rates can be yours in a month or two, it’s necessary to “lock in” your rate. To do that, you contact a lender – a service they offer free of charge.

Why dilly-dally. With mortgage rates at these lows, how could they ever get better? Historically speaking, our current 3% rates are a total bargain.

Banks would love to give you money (if you qualify) - lots of money. However, the banks need to tap into the money markets to procure the money that's destined for you.

WHY WE LOOK AT THE BOND MARKET

If bond traders suddenly reverse their positions, it can halt the drop in yields (and fixed mortgage rates) for a few weeks and sometimes much longer. For that reason, those waiting for lower rates before applying for a mortgage may be taking a bit more risk than normal. It’s kind of like passing a gas station on empty to save a few more cents a litre. You may find another cheap station, but if you’re wrong, you could even run out of gas completely.

If yields bounce much higher (to the 1.40-1.50% range), deep-discount lenders will waste no time taking rates back up a few notches. In other words, if you need a 5-year fixed rate now, it’s as good a time as any to take the “gift” lenders are (temporarily) giving. If nothing else, you could choose to take a rate-hold now, one that may be good for 30 days or 60 days (90 days at some institutions).

Banks would love to give you money (if you qualify) - lots of money. However, the banks need to tap into the money markets to get the money they wish to give you.

What's going to happen with the interest rates next week, next month and next year? If you can get a guaranteed answer on that, you'd be well off.

DEVELOPMENTS NOW AND LATER

All this is certainly not to say that rates won’t go lower.  We know that global and domestic risks could keep yields depressed for a while longer. Just don’t be afraid that applying now will make you miss the boat on a better deal. When it comes to rates, it’s impossible to pick the bottom.

Another interesting development, right now, is the prime rate discount that’s very slowly being re-introduced on variable rate mortgages. For quite a few months, it was as good as impossible to get any kind of discount on a variable rate mortgage: the prime rate would be it. Remembering that discounts on prime were customarily given even just a year ago, it’s interesting to see that discounting is back, albeit at “only 0.35%” right now. We might stand by for further offerings in the variable rate department.

Another development is the introduction of a “super prime” mortgage available only to those that have substantially above-average credit scores. Up to now, “good” credit and “excellent” credit would receive the same rates. One bank has officially entered the arena with a product specifically targeting the market for those with the best credit scores. These lowest-risk clients would see a slight discount in their mortgage rates. If other banks pick up on this trend, it could be a significant development. More to follow on this, one may presume.

Banks would love to give you money (if you qualify) - lots of money. However, the banks need to tap into the money markets to get the money they wish to give you.

Even as we don't know for sure what's going to happen, we can still look at trends and patterns and make a somewhat plausible prediction.

MORE READING on mortgage issues is available through any of the following blog articles:

Are you pre-approved yet? http://www.mennorealty.ca/Blog.php/mortgage-pre-approvals

What’s free mortgage advice: http://www.mennorealty.ca/Blog.php/free-mortgage

Carpe Diem, look at the affordable Sunshine Coast: http://www.menno.ca/?p=19739

About a portable mortgage? http://www.mennorealty.ca/Blog.php/mortgage-portability

Talking about your credit score: http://www.menno.ca/?p=19847

Do all financial institutions lean on CHMC? http://www.mennorealty.ca/Blog.php/cmhc-can-help

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7 Responses to Carpe Diem or seize the day on interest rates

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