Major Bank Cuts Fixed Mortgage Rates to Spur Home Sales
There was an article today from the Financial Post about one of the major banks decreasing their interest rates. It is great free advertising for them, and I can only wish that a national newspaper would give me free press every time I had a mortgage lender that lowered interest rates, as all of my mortgage lenders have also done.
All pointed comments aside though, I would agree with the sentiment of the article that this is a great time to buy a home with a quiet and flattened housing market and historically low interest rates. What BMO did was nothing unique in the mortgage scene lately, with all lenders having decreased interest rates significantly, with bond yields being low.
It would be tempting with such low rates to go for a fixed rate mortgage, however I think that this would be a bit of an illusion. Variable rate mortgages are still far lower than the fixed rate mortgages are and it is my belief that they will continue to be for quite a while as I have written about many times.
To address a couple other points in the article, it raises a concern about debt to income levels being too high in Canada, and being at a point similar to where the US was when their housing market tanked. The Canadian government did tighten lending guidelines again in response partially to this concern, but at the same time I think it is worthy to note that most mortgage loans in Canada are prime rates, unlike the states where they were subprime and irrational financing like teaser rates and NINJA (no income, no job, no asset) mortgages.
On the other hand, I think that while protecting home values and the economy, lending right now is so restrictive that it could be easily viewed as a drag upon the economy. For example, someone who would like to invest in their business using the equity from their home may not be able to due to not being able to get an approval, and so they cannot expand and grow their business. This is quite a good example when considering that business for self borrowers are one of the areas that it is hardest to obtain financing for.
However, this is not going to change for a while. When people do have money (ie lenders are lending money easier than before), the market will heat up again far more than it has been and prices will reflect the demand.
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