We have been seeing a big change for mortgage lending over the last month. If you are thinking of breaking a mortgage, trying to renew or get a new mortgage , I strongly encourage you to speak with your lender asap! They will have some great insight in what trends they are seeing, in particular how the rates are impacting the stress test and your ability to qualify.
Here is some information from out local mortgage broker – JIll Holland
There may be some rate relief in sight. The last few weeks we started seeing fixed rates creep down. This is the first time we’ve seen a decrease in the 5 year fixed rates since fall 2021. The 5 year bond yields have fallen from their June high and bond yields directly affect fixed mortgage rates. For example, the interest rate for an insured 5 year fixed mortgage in June were averaging around 5.14% and today I’m seeing insured 5 year fixed rates around 4.59%.
( Insured mortgages are when you have less than 20% down payment and you have to pay mortgage insurance (CMHC). Insured mortgages are less risky to lenders because you pay to insure your own mortgage. Less risk means that insured mortgages almost always have the lowest interest rate. )
July inflation numbers just came in with inflation cooling to 7.6%. The Bank of Canada meets again for an Interest Rate Announcement on September 7. Although inflation dipped, it is still high and we should expect another increase in Prime in September. The expectation is 0.5% increase. Some economists are predicting that this could be the last increase for a while. These Bank of Canada decisions are inflation driven and only time will tell.
Lenders continue to offer some deep discounts off Prime. For example for an Insured mortgage, an average discount off Prime would be Prime -.90%, Today, mortgage prime is 4.70% so: 4.70% – .90% = 3.8%
In 2020 & 2021, it was a really comfortable decision to lock into a 5 year fixed mortgage product. In today’s economy, you should be having much more strategic conversations with your mortgage professional about prepayment penalties, the length of your mortgage term, and fixed vs variable/ adjustable rate products. With 5 year fixed rates being in the high 4% range, the prepayment penalty, if you have to break your fixed mortgage before the term is up, could be hefty. This is a big consideration when choosing your mortgage product and term.