If you take a look at the economic cycle on a graph, it looks similar to the wooden roller coaster at Playland! It's confusing at best but what it does show is that what goes up, must come down and vice versa. We have been spoiled with the fixed interest rates as the 5 year option hit rock bottom recently at 2.79%; it's something that we may not see again anytime soon.
We have seen a sharp rise in rates over a very short period of time and there are a few reasons as to why this has occurred.
- First off, the Canadian housing market is remarkably seen as overinflated by investors and the media. There has been an increase of transactions by 18% and volume is up 32% but we're about 12,000 units short of the 10 year average.
- Secondly, the US Government released some good news that their economy is picking up steam. The perception of this on a world scale is that investors typically invest in robust economies and therefore they have been pulling their investments from other places like the Canadian Bond and are placing them into the US markets. With our weakening Loonie, this in addition makes our bond less attractive to investors. The bond yield movements influence longer term interest rates such as the 5 and 10 year terms.
- Thirdly, while Syria is not a big producer of oil, their exports have been severely restricted by sanctions imposed by Western powers. It's located near important pipelines and sea routes and this crisis along with talk of US airstrikes have sharply affected oil prices. In times of crisis, investors pull their money out of other places and invest in perceived safer ones or in countries with a large military presence.
Even still with these latest rate hikes, we are well below the average and currently about 80 basis points above the record lows which were available until recently. Today's rates in the grand scheme of things are still amazing and 12 years ago these rates were not even fathomable.
There are many options when choosing the right mortgage product and deciding on the appropriate term is a pivotal part in this decision making process. Some strategies include taking a one year term as they are typically at least one percent lower than the 5 year fixed rate. This will require you to renew your mortgage each year; however, you could save quite a bit of interest depending on the rate spread. Others strictly choose a variable rate as traditionally variable has outperformed the fixed rates. If you don't have a strategy currently, contact me for a free consultation and I'd be happy to discuss a strategy that best suits your lifestyle.
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at facebook.com/jnmortgages and on twitter @jasonmortgages.
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email jason.n@mortgagegroup.com or visit his website at jasonnesseth.com