Mortgage brokers are speculating that more borrowers will be locking in below 4 per cent toward the end of the year, if economic conditions continue to evolve as expected.Boy Wirat/iStockPhoto / Getty Images
Fixed mortgage rates under the 4-per-cent mark are like an endangered species coming back from the brink of extinction in Canada’s current real estate market.
Already, there are sporadic sightings of new five-year loans with rates locked in at a coveted 3.99 per cent. And mortgage brokers expect below-4-per-cent loans to become increasingly common in coming months with borrowing costs likely to continue to decline and lenders competing fiercely for clients.
While lower rates can help boost affordability for homebuyers, the bigger impact for now seems to be on borrowers with upcoming mortgage renewals, according to industry experts. That’s because the gap is shrinking between the low rates many homeowners secured right before or in the earlier stages of the pandemic and the new, higher rates they will have to sign up for when their loans roll over into a new mortgage term.
In the Greater Toronto Area, Tuli Parubets, a mortgage agent with Mortgage Scout, said she recently helped a borrower renew with a 3.99-per-cent rate on a five-year fixed uninsured mortgage at one of the big banks. The lender had initially offered a rate of 5.09 per cent on a five-year fixed rate, she said.
Frances Hinojosa, a mortgage broker and chief executive of Tribe Financial Group, said more borrowers will likely be locking in below 4 per cent toward the end of the year, if economic conditions continue to evolve as expected.
The Bank of Canada lowered its trend-setting interest rate for a third consecutive time this week as concerns about the health of the economy overshadow lingering worries about inflation. Economists expect several more rate cuts this year and next year.
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Movements in the central bank’s benchmark rate usually have a direct impact on variable-rate mortgages but also affect fixed rates on new mortgages. Yields on five-year bonds, which influence fixed rates more directly, have declined to levels last seen in 2022.
And fixed rates, which see borrowers commit to a steady cost of borrowing even if interest rates fall, are where lenders are willing to offer the steepest rate discounts right now, Ms. Hinojosa said.
But competition among lenders and customers’ savvy are also putting downward pressure on rates, especially for mortgage renewals.
Borrowing costs that are still relatively high compared to recent historical lows have put a damper on home purchases and mortgage refinances, which has made it more important for lenders to retain borrowers at renewal, Ms. Hinojosa said.
At the same time, homeowners who are worried about their mortgage payments ballooning as they renew at higher rates are unusually motivated to shop around and negotiate lower rates, Ms. Parubets said.
And borrowers are often finding that lenders are willing to make big concessions, she said, adding that even the big banks are vying for clients with unusual determination.
Typically, Canada’s largest banks simply send customers automatic renewal letters that offer relatively uncompetitive rates, Ms. Parubets said. Now, many are following up with phone calls and offers of much lower rates, she added.
The major banks seem particularly open to negotiating with loyal customers who have financial products besides their mortgage at the bank, Ms. Hinojosa said. Retaining business from those clients is important when large financial institutions face pressure on loan profit margins owing to interest-rate changes and intense competition.
In Cambridge, Ont., Max Shiffman, a lawyer who focuses on real estate transactions, estate planning and business law, said he recently received a letter from his mortgage lender, Toronto-Dominion Bank, offering a 5.04-per-cent rate on a five-year fixed mortgage ahead of his Sept. 1 renewal.
But after consulting a mortgage broker, his local bank branch and a TD mortgage specialist in Vancouver, Mr. Shiffman said he was able to lock in at 4.49 per cent on a three-year mortgage.
While he might have been able to secure a lower rate with a five-year term, he said he’d rather have the flexibility to renegotiate his mortgage sooner.
“People should be aware that you can do that,” he said. “You can push back with the major banks.”
Still, borrowers renewing with fixed rates should also keep in mind that penalties for breaking their mortgage will become larger as interest rates fall and that the major banks are among the lenders that charge particularly steep penalties, Ms. Hinojosa said.
“It’s great that the banks are being ultracompetitive,” she said. “But, as a consumer, do not chase the rate. Chase a solution, chase a strategy on the mortgage because that ultimately is what’s going to save you the most amount of money.”
