Mortgage rates have recently seen significant changes, impacting both existing homeowners and new homebuyers. The Bank of Canada’s interest rate cut has led to reductions in both variable and fixed mortgage rates. This shift in the mortgage landscape offers potential savings and new opportunities for those seeking to manage their mortgage needs.

Recent Trends in Mortgage Rates

The recent interest rate cut by the Bank of Canada has triggered a notable drop in mortgage rates. Following this move, bond yields also fell, prompting many mortgage providers to lower their fixed mortgage rates. While these reductions have been seen across various terms, the most significant changes have been in 3- and 5-year terms.

Mortgage broker and rate analyst Ryan Sims explained that these changes are influenced not only by the Bank of Canada’s rate cut but also by rising mortgage default rates and weakening economic data, such as slower GDP growth and easing inflation. Despite these reductions, 5-year fixed rates remain higher than at the start of the year, and further rate movements will depend on future economic data and inflation trends.

Impact on Variable and Fixed Mortgage Rates

Variable-rate mortgage holders are seeing immediate benefits from the rate cut, with more of their monthly payments going towards the principal rather than interest. For those with fixed-rate mortgages, the impact will be felt more gradually as these rates are tied to bond market movements.

James Laird, co-CEO of Ratehub.ca, noted that the rate cut marks the beginning of a declining rate environment, a significant shift after years of rate increases. This change is expected to offer some relief to homeowners and potential buyers, though the immediate impact on affordability might be modest.

Fixed vs. Variable: Making the Right Choice

Choosing between fixed and variable mortgage rates can be challenging, especially in a fluctuating rate environment. While variable rates might become more attractive if the central bank continues to cut rates, fixed rates offer predictability and stability, which can be appealing to conservative borrowers.

While variable rates could be beneficial in the long term, the current spread between fixed and variable rates makes fixed terms more sensible for now. Consider a 3-year fixed mortgage, which currently offers competitive rates and less financial stress.

Psychological Impact on the Housing Market

The psychological effect of the rate cut cannot be underestimated. For many potential buyers, the shift to a declining rate environment provides a sense of confidence and clarity about future borrowing costs. This newfound certainty could encourage more buyers to enter the market, potentially driving up home prices due to increased competition.

Davelle Morrison, a real estate broker, believes that while the immediate impact of the rate cut might be limited, the promise of further reductions could spur more buyers into action. This sentiment is echoed by Laird, who sees the potential for a fear of missing out (FOMO) among buyers, leading to increased market activity.

How GLM Mortgage Group Can Help

Navigating the complexities of mortgage rates and choosing the right mortgage product can be daunting. This is where GLM Mortgage Group comes in. With a deep understanding of the market and access to a wide range of mortgage products, GLM Mortgage Group can provide personalized advice and solutions to meet your unique needs.

Whether you are a first-time homebuyer or looking to refinance your existing mortgage, GLM Mortgage Group can help you take advantage of the current rate environment. They offer expert guidance on whether a fixed or variable rate mortgage is best for you, considering your financial situation and future rate expectations.

In addition, GLM Mortgage Group stays updated on market trends and economic indicators, ensuring that their clients receive the most current and beneficial mortgage options. By working with a knowledgeable mortgage broker, you can make informed decisions that align with your financial goals and take advantage of potential savings in a changing rate landscape.

Conclusion

The recent interest rate cut by the Bank of Canada has opened up new possibilities for homeowners and buyers. While the market remains unpredictable, the right mortgage strategy can provide significant benefits. GLM Mortgage Group is dedicated to helping clients navigate these changes, offering tailored advice and mortgage solutions to help you achieve your homeownership dreams. Whether it’s locking in a competitive fixed rate or considering the potential of variable rates, GLM Mortgage Group is here to guide you every step of the way.

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Recently, experts are noticing that shorter-term, fixed-rate mortgages are becoming increasingly popular among Canadian homeowners and house hunters seeking the certainty of a steady rate but looking for more flexibility in their financing.

As the Bank of Canada gets seemingly closer to the peak of its interest rate tightening cycle, people may look to time the market and try to lock in a lower rate. Doing this would be tempting, but it is a risky endeavour. That aside, we at GLM Mortgage Group do not believe that trying to time the market is a good idea.

You should always enter the market when you are financially prepared. If you time the market, you may not actually be financially ready, or you could take in extra fees you were not expecting, or you could get generally frustrated because the vision you had of what was going to happen did not go according to plan.

The Canada Mortgage and Housing Corp. has recently noticed in their fall residential real estate report this past week that fixed-rate mortgage holders opting for terms shorter than the standard five years has been growing since 2022. In January of this year, only 11 percent of all fixed-rate mortgages initiated or refinanced in Canada were shorter than 4 years. Fast forward to July, that number has risen up to 28 percent.

Why is this happening?

With recent news headlines, it has become apparent that the peak of interest rates could be seen in the near future. Homeowners are hoping to catch an eventual drop in borrowing costs. If a homeowner locks in their price for 2 years, they are hoping that by the time they are ready to renew, the rates will be lower

Although lower rates are very possible by looking at past history when an economy has slowed, it is important to understand that trusting history is not always the best way to make a financial decision. The economy today is very different from the economy 100 years, 50 years, even 20 years ago.

5 year term?

History shows that generally shorter-term mortgages offer better rates than the traditional five-year model. That being said, with fears of a recession looming, rates with shorter-term products are either on par or even slightly above their give-year counterparts. That means you could be drawing yourself to a miscalculation by locking in your rate at a higher fixed rate and then end up renewing in an even higher-rate environment in one, two or three years.

For these reasons, 5-year terms have been so popular in the past because it comes with a lot of stability and less stress about what the near future holds. This will give you stability, and possibly peace of mind when you go to bed every night.

Do we recommend 5 year terms?

Although it is evident that history leans on the success of a 5-year term as better then the success of a shorter term, we also think it depends on the risk you are willing to take. A 5-year term comes with great stability, but shorter-term mortgages can share similar benefits and provide flexibility in the near future. That is an obvious pro if the near future brings lower prices.

For these reasons, we do not think it is necessarily about timing the market, but rather what position you are in financially and the goals you hope to accomplish.

We would love to set up a time to chat and talk about the options that are present. We can discuss all of the options to see which ones may be better for you.

Timing the market can only be as good as the advice you get from a professional. Don’t let the market fool you, let us do the heavy lifting.

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