As expected, the Bank of Canada maintained the overnight rate at 4.25% during their review on May 25.  Consequently, the prime rate remained unchanged at 4.25%.  Fixed rates continued to soften in May.  As of May 27, major lenders were quoting 4.7% for their five year fixed mortgage.  There is pressure for interest rates to drop even further due to lower bond yields.

Rates and Charts

Prime @ 4.25%

Term	Apr 15	Apr 22	Apr 29	May 6	May 13	May 20	May 27
3 year	4.50%	4.50%	4.50%	4.50%	4.50%	4.50%	4.45%
5 year	4.75%	4.75%	4.75%	4.75%	4.75%	4.70%	4.70%
10 year	5.35%	5.32%	5.32%	5.32%	5.32%	5.19%	5.19%

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%

Do you really want to pay off your mortgage?

"The best mortgage is to have no mortgage at all".  So goes ING Direct's latest advertisement campaign.  To them, the best mortgage strategy is to pay down your mortgage as quick as possible.  They'll tell you a few ways to do this - pay bi-weekly and put any extra money you have towards your mortgage.  But, is this really the best long-term mortgage strategy. 

An emerging school of thought suggests the opposite.   You should get the biggest mortgage possible and not pay it off.  Your home mortgage is the cheapest source of financing available.  If you have extra money, invest in your RRSPs / investments / real estate.  Paying off your mortgage is like putting money under your mattress.

Your strategy will depend on your financial goals and tolerance toward risk.  Make sure you bring this topic up when you talk to your financial planner and mortgage broker.

In the News (excerpts from recent press releases)

1) Home sales soar sky-high  (Vancouver Sun, Jun 3, 2005)  - Lower Mainland real estate sales reached new highs in May with the Real Estate Board of Greater Vancouver recording its highest volume of Multiple Listing Service sales of any month, and the Fraser Valley Real Estate Board experiencing its best May on record  Click here to read more.

2) No interest rate hikes expected before fall (CanWest News Service, May 26, 2005) - The Bank of Canada is keeping interest rates steady for now, however it warned Wednesday that rates will eventually have to rise "over time" .  Click here to read more.

3) Fewer people can afford to buy homes (Vancouver Sun, Jun 3, 2005)  - Housing affordability in British Columbia has reached its worst level since 1995 with no relief in sight, the Royal Bank says. Click here to read more.

4) CIBC World Market's Monthly Indicators (CIBC World Markets, Apr 5, 2005) - CIBC's monthly economic newsletter.   CIBC is still predicting the prime rate to stay at 4.25% until Dec 2006 ( see Interest and Foreign exchange rates table).  Click here to read more.

Please consider the information provided in this newsletter as general information.  Before you do anything consult a professional.

 

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