Broken Record

by Darrin DeRoches March 22 - 28, 2012

I do not want to sound like a broken record but the discussion on mortgages are far from over and the biggest talking point is on whether it is smart to lock into a 10–year mortgage. If you are looking for a longer amortization on your mortgage you will save more with a 10–year fixed rate mortgage. Your savings will be greater down the road when interest rates are more likely to be higher than they are now. This means a long term 10–year rate could make a lot of sense. As a general rule the longer the amortization on a mortgage the greater the benefit (in today’s interest rate environment) in going with a 10–year fixed rate mortgage.     Right now the decision to take a longer term is cheaper than usual, as the difference between five– and 10–year mortgage rates are nearing all–time lows. So it may not be a bad idea to pay 0.9 per cent for an additional five years of security. After all there is little doubt that rates will be higher in five years. Mortgage rates will go up in the next two months. The bond market and the signs of strength in the global equity markets Canadian Bonds will continue to increase in yield. When Canadian Bond yields go up, so to do mortgage rates. It is as simple as that, many banks would have you believe that it is not so simple but this is just so that they can over charge unsuspecting customers. Banks are trying to “buy” mortgage shares in the market right now. They did a promotion in January and realized 2.99 per cent drove a lot of customers in their doors. The reason the 10–year fixed rate is so low today is that the experts who trade in these products are also concerned with how long bond yields will continue to increase.     If you took a 5–year term today at 3.09 per cent and rates increase so upon renewal (five years from today) rates are at 4.5 per cent or more you would lose money and would have been better off taking todays 10–year fixed rate at 3.99 per cent. What we do know is that interest rates are at all–time lows and no one can argue with a decision to lock into a 10–year fixed rate mortgage. These rates will be gone within weeks so you can lock into them for at least 120 days, think about it but do not wait! V Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.