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Big banks lower five-year fixed mortgage rate

Mortgage calculator. House on buttons. Real estate concept. 3d
Mortgage calculator. House on buttons. Real estate concept. 3d

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Five-year fixed mortgage rates are heading down.

The move to 3.09 percent from 3.24 percent was started on January 29 by Royal Bank of Canada, the first time the bank has lowered its five-year fixed rate since August 2019.

“RBC is the largest mortgage lender in Canada, so whenever they move their mortgage rates we can expect that the other four banks will follow suit,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial.

As Laird predicted, TD Bank lowered its customer, or special rate, to 3.09 percent on February 4 (3.11 percent with annual carrying fees included).

Canada’s major banks have an official posted rate, but will offer lower rates either directly or through brokers and other channels that better reflect market conditions.

The posted rate is significant in that it is used for the federal mortgage stress test.

“We have expected this move from lenders since bond yields dropped minutes after the last Bank of Canada rate announcement on January 22,” says Laird. “The most recent Bank announcement was notably pessimistic, citing several areas of concern including weaker economic growth, falling exports, slowing business investments, slowing job creation and declining consumer confidence. The Bank’s language and tone signalled that a rate drop is now more likely in the near future.

“Canadians looking to purchase a home in the spring of 2020 should check back frequently with rate sites and mortgage providers. As the spring home-buying market approaches, many lenders will offer deep discounts and promotions in order to attract new customers. They should also get a pre-approval to understand how much they can qualify for and to hold today’s rates for up to 120 days.”

Laird provides these mortgage rate calculations and comparisons, according to Ratehub.ca’s mortgage payment calculator.

Scenario 1 – $400,000 mortgage

A homeowner with a $400,000 mortgage and five-year fixed rate of 3.24 percent will have monthly mortgage payments of $1,943.

Comparatively, a homeowner with a five-year fixed rate of 3.09 percent would have monthly mortgage payments of $1,912.

The 0.15 percent difference in their mortgage rate would lower mortgage payments by $31 per month or $372 per year and $1,860 over the five years.

Scenario 2 – $800,000 mortgage

A homeowner with an $800,000 mortgage and five-year fixed rate of 3.24 percent will have monthly mortgage payments of $3,885.

Comparatively, a homeowner with a five-year fixed rate of 3.09 percent would have monthly mortgage payments of $3,823.

The 0.15 percent difference in their mortgage rate would lower mortgage payments by $62 per month or $744 per year and $3,720 over the five-year term.

Copyright Postmedia Network Inc., 2020

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