Barb Eglauer 780-720-5185

October 17, 2019

1 Year Closed : 2.79 %
3 Year Closed : 2.64 %
5 Year Closed : 2.69 %
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Is it Time to Lock In?


Today is a great time to be a borrower, and it's hell being a lender. The banks have to calculate where interest rates will be years from now in order to know what level to lend at, and not start losing money. Meanwhile all the big lenders are desperate to make mortgage loans even at the break-even point, because a home loan is a "relationship product." That means the bank you borrow the mortgage from is the one you will tend to have a chequing account, RRSP, car loan,and a line of credit.

Last week proved a great case in point of why these are heavenly days for borrowers. The Canadian dollar shot higher and the latest inflation number fell sharply. That suggested the Bank of Canada is nowhere close to raising rates, and even hinted the cost of money might be lower later in the year. That had an immediate impact in the bond market, where banks fund their mortgages, and rates started crumbling.

All the major lenders dropped the cost of mortgages last week. This means, in reality, a five-year mortgage is yours for the asking at around 4.75% just about anywhere. In historic terms, that is close to being free. Remember - the latest inflation number is 3% - which means the real rate of interest on a five-year loan is just 2%. This is the core reason why we are still in the middle of a real estate boom three long years after it started.

So, does long-term money at this level mean it is time to start locking in? For the last couple of years the smart borrowers went for short-term, variable-rate loans. But today, the scales might just be starting to tip. Five-year money at 4.75% or less, is truly seductive. After all, the world is still a scary place, as events of the last few weeks - war in Iraq, terrorism, market volatility, SARS, West Nile and Mad Cow Disease - will attest. Who knows what crap could happen in the next five years? My point is that if you can stabilize the cost of your biggest debt in a volatile period of time at a rate barely over the annual cost of living index, and at a generational low point thanks - in part - to the banks beating each other up, then why wouldn't you? Today's money has made real estate affordable to tens of thousands of couples who otherwise would be condemned to renting. It has allowed other buyers to move up into homes they thought were a decade away. It's resulted in bidding wars, new record prices and, yes, in some people borrowing way more than they ever should have. But it's hard to resist, right? So, I think this is it: LOCK IT IN!!!

Garth Turner, May 24, 2003 - Financial Post
Saturday, January 10, 2004

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