|Why could I get Prime - 0.90% last week and today it is Prime - 0.25%?
A great question, says the Mortgage Broker Association of BC (MBABC), especially when fixed interest rates are remaining the same. The quick answer? As with many things, it all boils down to money.
Over the last couple of months, banks and other lenders have been offering historically low variable rates to qualified homebuyers in an effort to attract new clients and mortgage business. In the short term, lenders have been prepared to accept these low profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages - a similar 'loss leader' tactic used by retailers to get consumers into their door.
"However", says Geoff Parkin, MBABC's president, "the recent announcement by Bank of Canada governor, Mark Carney has changed the mortgage lending landscape." Carney stated that, because of poor performing global markets and continuing economic uncertainty, the benchmark interest rate would remain unchanged. The long-term outlook indicated continuing low fixed interest rates with no significant increases to the Prime rate. "In a nutshell", says Parkin, "the bank's theory of anticipating rising profits on variable rates was proven wrong. They've had to quickly respond to this situation by reducing the variable rate discount in order to gain back profit."
What does this mean for consumers who have variable rate mortgages? Much of the same, says Parkin. "We continue to see low fixed rates and the variable rate is under 3.0%. There may still be value in going variable over fixed, but because consumers all have different financial situations and mortgage needs, we recommend they obtain expert financial advice from their MBABC mortgage broker."
An Interest-Saving Meal Plan
47% of Canadians say eating out less would help them save more.
Sounds logical. Frequent diners can drop $100+ a pop at a decent restaurant. But what if that same $100 was redeployed, once a month, as a mortgage prepayment?
The result is appetizing in its own right. A standard $200,000 mortgage is paid down 13% quicker - in just 21.75 years instead of 25 years.
Of course, once you pay off the mortgage you can take your payments savings and eat out 10 times a month if you really want to...or not.
Source: ING Direct Poll