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17 Dec


Posted by: Mark Alltree

Pre-holiday rate alert on the day of the U.S. Fed announcement. Watch to see how very quietly discounted mortgage rates have been creeping upward with absolutely no media attention. Get your mortgage rate stress tested!

Welcome back it’s Mark Alltree, franchise owner of Dominion Lending Centres Innovation Group with a pre-holiday rate alert. 

“…not a creature was stirring, not even a mouse”, as the poem goes, well the same can’t be said for the Federal Reserve in the US today which ended 7 years of “zero” by moving up ¼%.  A stark contrast to the Bank of Canada where they recently suggested they are taking a look at the negative rate policies of other central banks.  Even prior to this announcement, there has been a shift in the financial markets that has definitely squeezed the profitability of the Canadian banks, and a reason to keep monitoring your risk to any climb in rates.

Discounted mortgage rates have been creeping upward the last several weeks, but unless a rate change is announced by the Bank of Canada, there’s a hike in the prime lending rate by the big banks or better still, a hike in their “posted”, not “discounted” mortgage rates, not a media creature has been a stirring, not even a TV studio mouse!

Well there continues to be some very attractive discounted rates through mortgage brokers, particularly insured mortgage rates, I’ll point out two rising chartered bank rates to make my point.

The 5-year posted fixed rate remains unchanged at 4.49% for most of the big banks.  But the corresponding discounted rates have risen from as low of 2.59%, back in August to as high as 2.99% today.  The cost of money reached a 10-year low on August 24, 2015 and has nearly doubled since then putting pressure on the banks to increase their discounted rates.

My second point is the 5-year below prime variable rate mortgage.  Well the bank’s prime rate remains unchanged at 2.7%, their below prime discounts too have crept up.  Rats as low as prime minus 75% offering an attractive variable rate of 1.95% are now a mere prime minus 20 or 2.5% for a variable rate with the big banks today.

Now how is this relevance to you?  For every $100,000 in mortgage principal amortized over 25 years, a 5-year fixed rate would cost you $2,571 more, and a variable $1,884 move over the corresponding term.  For example, a $300,000 5-year fixed rate, now costs $5,651 more in interest cost than back in August.   If you take that increased interest cost and simply divide by 5 year, that certainly cuts into the holiday spending budget by $1,130 a year.

So now you ask, where’s the media studio mouse now?  The answer, right here in my office navigating client mortgage stress reports.

To be sure the mouse in your house knows exactly how high mortgage rates would have to rise before you become so stressed you forget to leave it cheese, get your mortgage stress tested now, after all, you don’t want to starve your mouse of any cheese just before the holidays!