Interest Rates – Trying To Make Sense Of It All
Hello Everyone,
Are you as confused as a mortgage consumer, by the 3.5% interest rate reference when actual interest rates today are much higher?
You’re NOT ALONE! With the recent JUMBO rate decrease by The Bank of Canada (BoC), and their rate of 3.75% published most frequently by the media (and banks/lenders) – it’s a tad confusing. Let us help to make it make sense!
THE NUMBERS YOU NEED TO KNOW (Oct 2024) – Interest Rates
– The 3.75% BoC rate is not a true mortgage lending rate. It’s their policy rate or overnight lending rate, NOT a mortgage rate!
-With the -0.50% BoC cut (from 4.25%) banks, credit unions, and other lenders with decrease their prime rates from current 6.45% to 5.95%.
-Most banks/lenders price their variable/adjustable mortgages with a discount off of prime (ie. Prime -0.80% is typical in Oct 2024 for a variable/adjustable mortgage) so 5.95% -0.80% = 5.15%
-Economists forecast another 1.50% in BoC rate cuts so, if forecasts become reality the 5.15% variable today could become 3.65% over the next 12-18 months
-FIXED RATE MORTGAGE PRICING DOES NOT FOLLOW The BoC RATE CUTS!
The banks/lenders price fixed rates according to the Government Bond Yields (which today and over the last 5 days are actually up). So, we don’t expect to see any immediate or drastic decreases to fixed rates right away. Economists forecast only another -0.25% to -0.40% in decreases from where fixed rates are at today (before they bottom out for this rate cutting cycle)
-FIXED RATES Today: For Conventional Mortgages (Not insured by CMHC/Sagen/Canada Guaranty) a typical rate would be 4.25%-4.5% depending on down payment, mortgage amount, credit, income, assets, debt to income ratio & qualification under the government stress test)
-Based on todays fixed rates of 4.25-4.5%, a -0.25% to -0.40% forecasted decrease = 3.90% over the next 12-18 months
-Qualifying Stress Test remains at contract rate +2.00% (so today for variable mortgages = approx 7.15% stress test and for fixed mortgages = approx 6.25% – 6.5%)
We hope that this helps shed some light on the current interest rate environment and we welcome any questions that you may have.
If you have any questions please contact us, Josh or Joe of Mortgage Connection:
Josh Higgelke
Broker of Record
Mortgage Connection
Josh@MortgageConnection.ca
403-461-5719
Joe Jacobs
Mortgage Broker
Mortgage Connection
Joe@MortgageConnection.ca
403-617-9123