Hannah Betel June 30, 2020 No Comments

Tembo has never seen the big banks offer mortgage rates this low. Ever.

Well before the COVID-19 crisis, mortgage debt was at absolute rock bottom historic lows, now we are seeing those rates dip even further down. A quick glance at ratehub.ca
Ratehub.ca: Compare Mortgages and Personal Finance Products
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is telling:

Provider 5-YR Variable 10-YR Fixed
TD Bank 2.05% Prime – 0.40 3.25%
Scotiabank 2.05% Prime – 0.40 3.39%
Bank of Montreal 2.25% Prime – 0.20 4.09%
RBC Royal Bank 2.40% Prime – 0.05 5.95%

A five year fixed rate mortgage from TD at 2.37% is an extremely good deal, and would weather a buyer from half a decade of uncertainty – whether good or bad. In some ways, the COVID-19 has brought with it a few positives in that the further lowered rates now translate to lower monthly payments for people. If prices hold steady or rise modestly, this will be a net positive. If they decline modestly over the next two years, we will see homeownership switch over to more fiscally prudent buyers, or increase slightly overall.

With rates so low, the only way to make housing genuinely more affordable is to massively increase supply – but as we’ve pointed out many times, there are a huge bevy of factors which prevent this. Consider that compared to the United States, mortgage rates in Canada are still significantly higher. A fixed rate, 30 year mortgage with Wells Fargo can be had at a mortgage interest of 3%. In America, 15, 20, and 30 year stretched out fix rate mortgages are the norm. Rates are almost always lower in the U.S., and qualification is easier than in Canada. Housing prices in the U.S. are also markedly lower – a sidenote, but interesting comparison of debt affordability.

Considering a small, starter purchase in a small town well outside of Toronto at $500K, with a 20% down payment ($100K), a 5 year fixed rate mortgage at 2.37% would cost the homebuyer(s) just over $2K a month, not including any insurance, or property taxes. The best rate for a mortgage Tembo could find on ratehub was a 5 year fixed mortgage with CanWise Financial at 1.99%. A 5 year variable mortgage comes in at 1.75% at CanWise, less than inflation. Consider that if the Bank of Canada lowers rates further, we could see even more affordable mortgage costs.

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