Scotia has joined other lenders in presenting a special offer on 10-year fixed mortgages, widening the smiles on brokers now facing a surge in clients interested in longer terms as a hedge against the eventual spike in rates.
“All the historical date points to rates rising again,” says Nawar Naji, with Verico The Mortgage Wellness Group. “It won’t be next year or the year after that, but by 2017, 2018, 2019, rates will rise again.”
The credit crunch of 2007 has kept interest rates at an all-time low, and in the last five years Canadian lenders (and borrowers) have benefited from what Naji calls “the pain of other countries.”
But the party is coming to an end.
“Those who are borrowing are starting to realize they can’t focus on the front end,” Naji told MortgageBrokerNews.ca. “They need to look at the rates at the back end, beyond 2020.”
Scotiabank itself is betting its record-low 10-year fixed rate of 3.69 per cent will throw cold water on the idea that shorter terms and little to no chance of dramatic rate increases will keep clients away from 7- and 10-year commitments.
It's not alone.
“All other monolines are pushing the 10-year rates,” says Alice Chan, senior vice president at Mortgage Architects. “They are now even cheaper than a line of credit mortgage. It is an easy sell to the client.”
Current 10-year rates are dramatically below average, more than two points lower than before the recession of 2007.
Still, a 5-year fixed mortgage is 2.99 per cent or less, meaning that for a 10-year mortgage to be cost-effective requires a 1.7 percentage point rise in 5-year rates over the 60-month period.
“It is a positive move by Scotia, as mortgage trends are moving to the 10-year option,” says Chan. “The spring market is right around the corner, so it will be a strong push for more business.”
Scotia’s lower 10-year mortgage rate is an industry leader, and welcomed by many brokers, agrees Naji.
“It is definitely getting attention, and overall it is good,” he points out.