Jul 042018
 

Five years ago I acquired a variable rate mortgage from CIBC. It was the cheapest rate I could find at the time. I was quite pleased with the rate but that mortgage term expired a couple of months ago. So I shopped around to see if I can find another good deal.

I expected my mortgage to become more expensive. Surely rates would have climbed over the last 5 years right?

But no. To my surprise I found a lender that offered me an interest rate that’s lower than my previous mortgage by 43 basis points. ๐Ÿ˜€ CIBC was not able to match this offer so I switched. The new financial institution I am with is not one of the big 5 banks in Canada. It is a lesser known company called National Bank.

I wasย paying 3.05% with CIBC. This was a variable rate 5 year mortgage at prime minus 0.40%. This was the best CIBC could do.
But my new mortgage with National Bank is only 2.62%. This is also a variable rate 5 year mortgage term. Except the rate is Prime minus 0.83%

A 0.43% difference in interest rates doesn’t sound like a lot. But my mortgage balance is around $193,000. So I will be saving roughly $4,000 over the next 5 years because I switched to a cheaper mortgage provider.

However there are costs associated with changing lenders. Appraisal costs $600, and legal documents from a notary public was $800 in my case. Luckily National Bank has a $750 rebate program for transferring over an existing mortgage. ๐Ÿ™‚

In the end the cost of changing banks was worth the extra savings in my case.

Even though most Canadians are choosing fixed rate mortgage I still believe that variable rate is the way to go if you want to save money.ย The increase in fixed rate mortgages locked in by most home buyers this year is “seen as a response to rate hikes, and fear of higher rates in the future.” But critics have been calling for higher rates for over a decade. Yet rates haven’t actually gone up much. In fact, mortgage rates have dropped over the past 5 years as shown in my post today. That’s why we have to be informed of economic conditions so we can make our own financial decisions, instead of following others. ๐Ÿ™‚

I have been a homeowner for almost 10 years. During this time my mortgage interest rates fluctuated from 2.3% to 3.2%. It doesn’t look like rates will climb significantly any time soon. Until we see increasing mortgage rates, I would expect Canadian housing prices to climb even higher.

 

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Random Useless Fact:

30 years ago only 5% of the population admitted to being chronic procrastinators compared to 25% today. Some believe technological advances is the main cause of this change.

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S Arun
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Good job Liquid. $4000 (or $800 per year) saving is big.

My mortgage renewal is coming in 2019. I am planning to go with variable rate because as well.

Best Regards,

Paul
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Paul

Nice move on the var rate. But, you went from paying $800 to $876?.

Steveark
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I don’t understand Canadian mortgages. Here in the states just south of you we typically get a fixed rate 30 year or sometimes 15 year mortgage. Your house payments can never go up. There is no variable rate and it never expires until the end of the term when it has been paid in full, unless you chose to pay it off early. Why do Canadians take the risk that interest rates will go up instead of locking in a fixed rate for the life of the loan? Seems risky, if interest rates shoot up high then where are you in five years when your mortgage expires?

Phil
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Phil

A decent rate… last year we bought a recreational property in June. As much as your rate is good and variable as you note, the rate we managed was 2.49% with BMO for a 5 year closed… something we are very happy with. In the end, the perceived insignificant differences in rates and lenders are what make the difference, and doing some leg work and learning how to negotiate pays long term back to those who know their finances. – Cheers

Sarah Taylor
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Home mortgage rates have fallen to all time low recently while inflation has been relatively low as well, though low mortgage rates and low inflation do not always coincide.