A great time to finance a home
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Updated: July 06, 2009 9:38 AM
For many, this is an excellent time to look at home finance.
Consider it one of the few positives floating in a sea of negatives during the current recession.
In a period beset by job losses, drops in home prices and lower consumer confidence, mortgage borrowing costs have dropped precipitously for buyers and owners.
This has fueled a modest uptick in homeownership demand from early year lows and provided opportunity for some current owners to refinance at lower rates.
Since the end of April, posted mortgage rates have settled at decades low levels – precluding any discounts often offered by lenders to clients with preferred credit histories.
Mortgage rates dropped well below four per cent. These rock-bottom mortgage rates should move up in the quarters ahead — particularly for longer fixed term mortgages.
Existing households and new buyers with variable rate mortgages should see their borrowing rate remain flat until the second quarter of 2010.
The BC Real Estate Association forecasts a 0.75 percentage point increase through 2010 as prime rates rise to meet changes in the Bank of Canada’s (BoC) target overnight rate.
The BoC kept its target for the overnight rate at 0.25 per cent on June 4 after lowering it by a cumulative 425 basis points (bps) since December 2007 in a bid to spur economic activity during a deepening recession.
BCREA forecasts a cumulative rate increase of 75 bps by the end of 2010 as economic prospects improve and global interest rates rise from record lows.
Fixed term mortgage rates, which move closely with bond yields and deposit rates of similar maturity are expected to edge up this year and next but remain near record lows by historical standards.
Longer term bond yields have risen quickly since the first quarter of 2009 despite low short-term rates, suggesting that the market expects higher inflation and interest rates in late 2010.
However, BCREA forecasts a more modest rise in fixed term mortgage rates over the next two years as higher inflation expectations are tempered by a slower than expected economic recovery, an elevated Canadian dollar and weaker labour market.
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