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December 2005

Market commentary & Interest rate trends

As expected, the Bank of Canada (BOC) increased the overnight rate by 1/4% today.  Many economists are predicting another round of increases by 1/2 % in 2006.  Holders of variable rate mortgages should consider locking in the interest rate.  

Fixed rates have also increased.  The 5-year fixed rate is now at 4.95% (from 4.5% a month ago).  There is more pressure to increase.  Prospective home buyers should take advantage of their pre-approvals before the expiry dates. 

Rates and Charts

Prime @ 4.75%

Term	Oct 14	Oct 21	Oct 28	Nov 4	Nov 11	Nov 18	Nov 25
3 year	4.25%	4.25%	4.25%	4.55%	4.55%	4.75%	4.75%
5 year	4.50%	4.50%	4.50%	4.80%	4.90%	4.95%	4.95%
10 year	5.05%	5.10%	5.19%	5.19%	5.34%	5.34%	5.34%

Table shows the discounted residential mortgage rates for 3, 5 and 10 yr closed fixed rate mortgages

For a longer term view, click here to see the 3, 5 & 10 year best residential rate since September 2003 (updated monthly)

Click to view other relevant graphs

 

1) Graph of 5 year residential mortgage rate and prime rate since 1951

2) Graph of 5 year posted rate since January 2000

3) Graph comparing the 5 year mortgage rate versus variable at prime - 0.80%

Pre-approvals - What does it mean? 

A pre-approval is a letter from a lender stating the amount you are qualified to purchase.  The pre-approval also holds the interest rate for you for a specified term, typically between 60-120 days, depending on the lending institution.  A pre-approval approves you, the borrower, and not the property.  Once you've made an offer on the property, you'll need to submit property information to the lender so they can approve the property as well. 

It is easy to get a pre-approval.  You can even apply over the telephone or online.  Ideally, you would have your employment letter at this time so when your mortgage broker inquires about your salary, you have an accurate number to provide him/her.  Oftentimes, your employment letter is not available.   In this case, the mortgage broker will rely on the information you provided.  The pre-approved amount could be lower if the salary you stated is less than what is reflected in the employment letter.

Although it is possible to apply over the telephone or online, I recommend that you take the time to meet with your broker.  There is more to obtaining a pre-approval than just submitting an application.  A personal meeting will allow the mortgage broker to personally understand your needs and to tailor fit the mortgage to your requirements.   He will also have the chance to explain the mortgage process, options and costs.

In addition, a good mortgage broker will monitor the rates for you.  When the rate drops, the broker will lock in the rate with the lending institution so that you get the lowest possible rate upon closing.  If the rate rises and the pre-approval is getting close to the expiry date, he will lock in the rate and extend the term before the rate increases.