by Wayne Karl
September marked a significant milestone in the mortgage world: It’s now been four years since the Bank of Canada last adjusted its influential overnight target rate. Yes, four full years.
In its latest announcement on Sept. 3, the BoC again held firm at one per cent – where the rate has been since September 2010. And with rates expected to remain at these historical lows until mid-2015 at least, the window of opportunity for those looking for a home remains wide open.
If you could lock in at a low rate over 10 years, for example, that gives you the comfort of knowing what your mortgage payments will be over that period, while over that time you can also take advantage of any pre-payment and lump-sum payment options to pay down your mortgage.
Another appeal of this scenario is that, as we often point out, experts advise you to take a long-term view of your home purchase. For example, there has been some talk recently about cooling prices and softening sales. But even if that were to happen in your market and housing type, ask yourself: in 10 years, is a home you buy today likely to be worth more or less? If you need an answer to this question, just take a look back at prices 10 years ago. Of course, there are no guarantees, but if you’re in the home-buying mode anyway, today’s low rate environment makes a pretty compelling reason to act sooner than later to take advantage of these opportunities.
Low rates notwithstanding, the banks, financial firms, brokers and other experts still advise homebuyers to practice smart borrowing. Indeed, a recent study from CIBC shows the number of Canadians taking advantage of low rates to pay down their mortgages sooner declined this year, compared to 2013. Some homeowners, it seems, are being lulled into a false sense of security.
Experts stress that even as rates remain low, buyers should explore everything from putting down a larger down payment to taking advantage of pre-payment options to “stress-testing” your mortgage at a higher rate to ensure your finances can accommodate rate fluctuations or other unforeseen circumstances.
One day, perhaps next year, the mortgage landscape will change. And if you’re among those homeowners who have been somewhat spoiled by continuing low rates, you could be could be in for an unpleasant surprise.
Take advantage of today’s low rates while you can, but also spend the time necessary to find a broker or banker you trust, who knows their business, and who can help you explore what options might be best for you.
More so than in any other area of homebuying, you’re going to rely on this advice – now more than ever. It will prove to be time well spent.
Wayne Karl is an award-winning writer and editor of New Home Guide, published by Wall2Wall Media. Email Wayne at firstname.lastname@example.org or follow him on Twitter at Twitter.com/WayneKarl