Current Home Mortgage Rates – Serious Food for Thought
In comparison to current home mortgage rates, over the past seven years, Canadians enjoyed relatively low interest rates. While experts repeatedly warned that borrowing costs would eventually have to rise, it didn’t seem to stop people from borrowing and increasing their debt load.
Then as predicted, the Bank of Canada hiked rates in July and again in September. Now current home mortgage rates are twice what they were just a few months ago. Both times the Bank of Canada (BOC) raised the key lending rate, Canada’s Big Five banks – the Bank of Montreal, CIBC, Royal Bank of Canada, TD Bank and Scotiabank – all raised their prime lending rate to coincide.
What are mortgage interest rates today? As of right now, these are the mortgage rates the Big Five were offering for a 5-year fixed mortgage:
- TD Bank – 3.24
- Bank of Montreal – 3.24
- RBC – 4.81
- Scotiabank – 4.84
- CIBC – 4.89
As you can see, there’s quite a difference between TD and CIBC – a split of more than 1.5%. It seems amazing that three of the Big Five are offering a rate of almost 5% on a 5-year fixed term after so many years of low interest. 5% is twice the average from before the rates went up. This means a new 25-year mortgage, with a 5-year fixed-term rate, would result in huge increases to monthly mortgage payments, not to mention the increased payments on any other debt – credit or otherwise – that you may be carrying.
For comparison, let’s look at what a homeowner buying a $250,000 home, with a 10% down payment, could expect to pay on a 5-year variable-rate mortgage. For interest’s sake, we’ve compared what they would have paid before BOC raised the rates, and what they can expect to pay now.
In any scenario, if you bought a $250,000 house and paid a 10% deposit, the mortgage you would need would be $231,975 (if you purchased a home for $250,000 and paid a 10% deposit, the deposit would be $25,000 and you would start with a mortgage of approximately $231,975 once the CMHC premium is added. If CMHC is not insuring the deal you would have a mortgage of $225,000). When Canadians were still living large with low interest, the average mortgage rate for a 5-year fixed rate and 25-year amortization was 2.3%. That works out to $1,016 a month in mortgage payments and at the end of five years, the remaining principal would be $195,542.
However, this is no longer the reality. Let’s look at what all those figures would be if the mortgage rate was 5%. The monthly mortgage payment would be $1,349 a month. That’s a huge increase in monthly payments — more than 30%. After five years, the balance would be $205,315. Meaning, with the rise in rates, almost $10,000 over the next five years will go to interest versus principal compared to the 2.3% rate scenario.
When you add in other expenses and debt repayment, averaging another $300 to $400 per month can be insurmountable to some families, especially if you are also trying to pay down other debt. If these numbers worry you, you may want to look at options to help you manage.
You could go straight to your bank and ask about the products they have on offer. But will the bank offer you products that are in your best interest? What about your credit history and current debt load? Will these stand up to the bank’s stringent lending guidelines? It may be time to consider talking to an independent financial professional who can show you a few different options. Perhaps tackling your debt, especially if it has itself become unmanageable, is the best first step.
Current home mortgage rates may continue to go up – economists predict a rise of 1.5 or even 2% by 2018. If you have concerns about your finances and how interest rates could impact your ability to purchase a home or pay down existing debt, call DebtCare right away to learn how we can help you choose the option that’s best for you.
We’re always here to help: 1 (888) 890-0888.