Metro Vancouver Real Estate Market Update April 2012
Greater Vancouver Real Estate Market Update April 2012
There has been a lot of mortgage news recently as the Big Banks fight for market share with record-low mortgage rates. In February, we covered how BMO Bank of Montreal started the mortgage wars by offering a 2.99% 5-year fixed rate mortgage. Other lenders followed suit, matching the 2.99% rate, but generally offering only a 4-year option. On March 29th, RBC Royal Bank signalled the end of this war by raising its rates by 50 basis points to 3.49%. It is expected that other lenders will follow RBC’s lead in order to shore up their profit margins.
As a consumer, given the current fixed and variable rates available, what should you do?
Since 1975 variable rate mortgages have proven to be more financially beneficial 82% of the time. That said, some experts are now saying that, given historically low rates, we may now be in that 18% period where it makes more financial sense to lock into a fixed rate mortgage. Remember, even with the higher 3.49% mortgage, the current rate is far below the historical average, which, since the 1950s, has generally remained north of 6%.
Some things you should consider when choosing between a fixed- and variable-rate mortgage:
Choose a variable-rate mortgage if:
- You think interest rates will remain at the same level or lower during the term of the mortgage
- You think there’s a possibility that you may sell prior to the end of the term and wish to avoid excessive pre-payment penalties (there is, typically, a 3 month interest penalty on VRMs)
- You can afford a possible rise in rates
Choose a fixed-rate mortgage if:
- You think interest rates will rise more than the difference between your current fixed and variable rate mortgage options
- You have no plans on selling your home during the mortgage term
- You want to know what your payments will be and have peace of mind that they will not change
- Something else to consider is that some lenders will allow you to first enter a variable-rate mortgage and then switch or ‘lock-in’ to a fixed rate mortgage if rates begin to rise
In the end, your personal situation is unique and you should speak to a professional mortgage specialist or broker to determine what the best option is for you; I would be happy to recommend one if you don’t already have someone in mind.
If you have any real estate questions or if you are thinking of buying or selling your home, please contact James Louie Chung, Metro Vancouver REALTOR® – Real Estate Agent at [email protected] or call / text ( 6 0 4 ) 7 1 9 — 6 3 2 8 today!