Mortgage opportunities in a low rate market

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Although recent data outlining Canada’s economic growth has been less than favorable, an article from Canadian Mortgage Trends makes the case that this offers a silver lining for mortgage borrowers.

For the last few months, the trend in long-term rates has been modestly up,” writes Rob McLister for the news site. “There is, however, little chance of a meaningful jump in fixed mortgage rates until 5-year yields push above 1.55-1.60 percent – and stay there awhile. And even if yields do break above that level, few expect enough inflation risk to justify a substantial upward follow-through – at least not in the next quarter or two.”

Essentially, McLister is making the case that limited economic growth means a continuation of low mortgage rates. Recent data has caused many Canadian economists to push back their forecasts for interest rate increases to 2014.

“Half of Canada’s primary dealers have recently pushed back forecasts for the timing of the central bank’s next interest rate hike,” states an article from Reuters. “The median forecast in Friday’s Reuters poll of Canada’s 12 primary dealers, the institutions that deal directly with the Bank of Canada as it carries out monetary policy, showed their median forecast for the next rate hike is still the first quarter of 2014, unchanged from a poll on January 23.”

For homeowners and potential home buyers, this offers the opportunity to utilize low rates and save money.

Refinancing
Continued low mortgage rates make now the perfect time to refinance a mortgage. This will allow homeowners to lower their interest rates, resulting in significant savings over the lifespan of their loan.

However, refinancing simply because rates are low is an unwise financial decision. Homeowners should make sure refinancing is the right decision for their specific needs before getting the process started. In addition to reducing interest rates, refinancing gives borrowers the opportunity to extend the length of their loan, which would further lower monthly payments. Conversely, borrowers could also shorten their loan length, letting the savings provided by lower interest rates offset the cost of higher monthly payments. Also, refinancing allows borrowers to switch their mortgage to either a fixed-rate or adjustable-rate.

One thing borrowers should keep in mind is how long they plan on staying in their property. If they’re looking to move in the near future, refinancing their loan wouldn’t make much sense.

Adjustable-rate mortgages
Adjustable-rate mortgages offer lower interest rates than fixed-rate mortgages, making them popular with borrowers looking to save money while interest rates are low. Since adjustable-rate mortgages see their interest rates rise based on market conditions, continued low mortgage rates mean that borrowers have less risk of experiencing large rate increases.

However, it’s important to keep in mind that low rates will not last forever. Although the market may seem stable, there’s always the chance that rates could suddenly rise.

Fixed-rate mortgages
Fixed-rate mortgages offer borrowers the security of knowing the rate they choose will not rise in the future. When rates are low, this security can be all the sweeter. By locking in a low rate now, borrowers can ensure that they continue to have a low rate for the entirety of their loan length. While it may not offer the savings of initial adjustable mortgage rates, fixed-rate mortgages more than make up for it in stability.

 

 

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