Interest rates moving on up

Posted on 08. Apr, 2010 by in News

By MYKE THOMAS, SUNMEDIA

The honeymoon isn’t exactly over, but the partners — new home buyers and low mortgage rates — drifted apart a bit this week as seven major Canadian banks raised their posted rates.

The increases reflect a strong bond market, with the key five-year closed rate affected the most, rising 0.6% to 5.85%.

It means a home owner taking the new rate will see monthly payments on a $250,000 mortgage rise to $1,577, up from $1,489 — an increase of $88 per month.

The rate increases come three weeks before new federal government regulations on minimum mortgage qualification requirements come into effect April 19.

One requirement, which may have influenced the increases, is borrowers will have to meet the payment schedule for a five-year fixed rate, even if they go with a lower fixed or variable rate.

The new regulation is designed to ensure borrowers will be able to absorb the costs of future rate increases, which most experts believe will happen before the end of the year.

The Bank of Canada has kept its key overnight lending rate at a historic low of 0.25% for more than a year and was originally expected to raise it by July 1 this year.

There is speculation the Bank could move sooner, as inflation in the country grows, and although inflationary pressures are not the main influence on mortgage rates, any move by the central bank will open the door for private banks to make further rate increases.

Although those are expected to be moderate and gradual, pushing only a small segment of potential buyers to the sidelines, over a 25-year term, the additional costs can add up — an $88 per month increase results in more that $26,000 in additional costs.

If you are thinking of getting into homeownership, your first move to saving money is to get pre-qualified for a mortgage as soon as possible — with the activity at the banks this week and the new regulations kicking in on April 19, a backlog of prequalification applications is expected.

The rate you pre-qualify for is usually protected for 90 days, giving you time to find the home you’re looking for.

The next step is deciding what type of mortgage is right for your personal financial circumstances, your tolerance for risk and market expectations.

A fixed-term mortgage will lock in your rate for part of the mortgage’s term, providing a level of security, while a variable rate floats with the market, which could save you money or keep you awake at night.

The best way to find out which is best for you is to speak with a mortgage professional and/or tune into a free live webinar on April 13, presented by the Alberta Mortgage Brokers Association.

The webinar will offer impartial advice on choosing fixed or variable, what happens when mortgage rates rise, how the new government regulations may or may not affect you and more.

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