Rates Are Down

by Darrin DeRoches January 19 - 25, 2012

The bank rate has remained unchanged once again. It has stayed the same since mid–2010 and the outlook seems it will remain the same in the near future. A couple of weeks ago, I made my predictions that the rate will rise this year and I am sticking to it. Last week there was a big deal made about dropping mortgage rates. The Bank of Montreal lowered its five–year rate down to 2.99 percent with a 25 year amortization which similar banks have the rate at 3.29 percent for special deals. TD Canada Trust also dropped their five–year rate and everyone expects all the banks to follow now since the bank rate has stayed the same.     The real reason that BMO dropped their rate to 2.99 percent is to entice mortgage holders to come in the door and discuss their upcoming mortgages. It is kind of a “door crasher deal” in January since it is usually a slow month. The deal at 2.99 percent has a lot or restrictions about terms and payouts – but if you do sign the deal it is a great deal for five years at this low rate. Coincidentally, I received a “special offer” on one of my mortgages that isn’t due for six months and Scotiabank offered a 3.29 percent five–year mortgage but we have to sign before Jan 31st.     With all the turmoil in the world markets, investors are looking into the Canadian mortgage market as a safe place to invest. This will keep the rates low since an influx of money is coming in for now. Once the world markets start to climb they will take the money out, since they are getting low returns, and they will start to invest in other markets.     Five years ago when I signed the mortgage that is coming due it was for 5.1 percent and I was ecstatic to get a good rate. I can now sign for 2.99 percent for five years and save hundreds of dollars a month that will equate to thousands over the term. This cheap money is allowing for investments in real estate across the board, from commercial to residential. Investors are asking top dollar for their investment properties since the rates are so low you can easily service the loan with the income on a student house, duplex or triplex. Just be very careful when you buy at a high price today and have to renew in five years when the rent will cover today’s rates but will fall short in five years. Take the cheap money today but be very frugal when negotiating for a property that will take 25 years to pay off. If the rates go up to 5 percent in five years you will be paying hundreds of dollars more a month when you renew, just keep it in mind when you are negotiating for that investment property, do the math and make sure the property has positive cash flow today to cover tomorrows rates! 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.