Decline in 5-Year Fixed Mortgage Rate a Big Plus for Prospective Buyers

Published July 29, 2019 by Real Estate Leads

As a realtor, one of the things you’ll encounter often is people who are adamant that variable-rate mortgages are always preferable when financing a home. There’s a lot to be said for them, no doubt, and it’s one of the many things a client may ask their realtor long before they talk to a mortgage broker for the first time. As we keep harping at here, an informed and knowledgeable realtor is one who tends to be well regarded – and referred – by his or her clients.

Which leads us to also say again that there’s so much to be said for making a strong first impression when meeting with would-be clients. Here at Real Estate Leads, our online real estate lead generation system is a proven-effective way of not only creating more of these opportunities, but creating more genuine ones – meaning with people who are genuinely considering buying or selling homes in the near future.

So, in the interest of building on your knowledge base, let’s discuss the ramifications of this reduced 5-year fixed mortgage rate in greater detail.

Dipping to 5.19%

There it is – the interest rate used for mortgage qualification has fallen to 5.19% from its previous spot at 5.34%. it’s especially noteworthy because it marks the first decline since September 2016. Back then the benchmark qualifying rate fell to 4.64% from 4.74%. It’s been rising ever since, and that’s based on the same reflection of what the BoC (Bank of Canada) sees as the economic outlook of the country.

This past week’s drop has much to do with global central banks deciding to loosen lending policies, but we should keep in mind that Canada’s five-year bond yield – which impacts five-year fixed mortgages – has been going down from January 1st onwards.

More Purchasing Power

The consensus seems to be that the interest rate decline will allow a homebuyer earning $50,000 a year to afford a home that’s some $4,000 more expensive than would have previously been the case. For someone earning $100,000 a year, they can be looking at something $8,300 or so more expensive.

How this will be beneficial for homebuyers – and investors – doesn’t need much explanation. In tandem with the Bank of Canada’s decision to hold the interest rate two weeks ago, we’re currently seeing the most auspicious period for prospective buyers in 19 months. Further, economists believe we’re unlikely to see the interest rate move on the variable side over the next few months.

Additional Considerations

It should be mentioned as well that there has been considerable speculation that the Bank of Canada will cut rates before the end of the year. While this would be even more beneficial considering a mortgage, those same economists say we shouldn’t hold our breath in that one. The belief is that unless we see those risks affect the domestic economy, it is unlikely rates will decline this year. In contrast to the US, real policy rate in Canada is still 1.75% and inflation was 2%. Long story short, the real interest rate here in Canada will be lower.

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