2. Mark Carney and his low rate drama
Within the first three weeks of the year, the Bank of Canada lowered the overnight target rate to one per cent. Three months later, it dropped again to a record-low 0.25 per cent and marked the beginning of a period of rock-bottom variable-rate mortgages, particularly for homebuyers who signed onto variables when rates were in the "prime minus" zone in mid-2008.
Fixed rates, although unaffected by key interest rate cuts, also became a bargain when they dipped under the four per cent mark. Cheaper mortgages allowed those who couldn't previously afford to get into the housing market a chance to get their feet wet, but as effective as low interest rates were in spurring mortgage business, they also presented a set of challenges.
"The movement of rates up and down this year actually caused a lot more work for brokers in the sense you've got files that are complete and in the eleventh hour you're fighting to keep the client when you have newer, lower rates coming in," says Jim Tourloukis, broker/owner of Verico Advent Mortgage Services in Markham, Ont. "I found that it's created a lot more work for the brokerage community relative to the past."
Along with purchases, low interest rates - and the urgency of consumers who wanted to take advantage of them - sparked a flurry of renegotiation inquiries and confusion around the IRD (interest rate differential) penalty that comes with breaking a mortgage. In the summer, the Financial Consumer Agency of Canada told the Montreal Gazette it received 80 mortgage penalty related complaints since January, largely because of the consumer assumption that they would only be penalized three months of interest for breaking their mortgage.
"The penalty situation with respect to those plummeting interest rates was a huge problem," says Paula Scott, broker/owner of Best Rate Financial (Axiom) in Ancaster, Ont. "When penalties went from your traditional $2,000 to $3,000 up to $12,000 to $15,000 that was a big shock for a lot of clients that were looking to do something with their mortgages, be it get a better rate or refinance."
As Bank of Canada governor Mark Carney has stated numerous times, he intends to keep the key interest rate at 0.25 per cent until June unless inflation poses a threat (so far, this hasn't proved too much of a concern). The Bank's position has caused a flurry of speculation, particularly after countries like Australia and Norway raised rates due to active housing markets. But whatever happens, it's clear that both mortgage industry players and consumers are going to be keeping a close watch on what Mark Carney does next.
Next up: The roller-coaster real estate market
Go to page: 1 2 3 4 5
