The decline of interest and prime lending rates have provided investors and other buyers with unique investment opportunities but with uncertainty still ahead, the question remains: Variable or fixed for your investor clients?
Given the state of the economy, it’s more appealing to secure a variable rate mortgage, says one mortgage broker, but the fixed-rate mortgages have also become more attractive over recent months.
“It’s a win-win situation that is based on an individual client’s risk tolerance and personality as well as their personal and financial situation,” said Rob Jennings, a mortgage broker with Verico
East Coast Mortgage Brokers.
“It’s important for broker to discuss the prime rate and its history as well as recent forecasts, the economy and economic factors like the oil plunge, the different penalties of fixed and variable, the flexibility of each product, and of course, the difference in the payments.”
“That said, a lot of my clients go for fixed because there is more security in the marketplace.”
All of these factors are playing big in the minds of investors who are capitalizing off historically low rates across the country as several are lining up in the commercial space as well as the typical residential properties.
For example in places like Vancouver, mortgages for commercial property is at an all-time low and the industry is thriving amid changes to the mortgage rates.
Some economists are already predicting that the Bank of Canada could drop the interest rate further, some as low as 0.5 per cent, as Alberta continues to deal with the short-term effects of oil.
What’s more, Canadian bonds are also at record lows which also has a direct impact on long-term mortgage rates, something economists say could drop down to as low as 2.6 per cent.
Multi-family properties are selling like hot cakes out west and given the cap rates, which are anything from 3.5 to four per cent, investors are cleaning up. What’s more, multi-family mortgage loans are among the lowest in commercial rates because landlords can apply for insurance with the CMHC.
Shaadi Faris, VP of Intergulf Development Group in B.C., said that he’s seeing opportunities pick up with a lower dollar and interest rates, which is spurring investors to get involved.
“There’s a call in the Province to advance spending and really invest infrastructure, which could provide opportunities. The money’s cheap right now but on the other side of things land prices and sites are really hard to find, especially in Vancouver.
Medical marijuana facilities are among the property-type investors are capitalizing on, as well other properties but finding the right mortgage in an uncertain market will be a challenge to mortgage brokers make sure their clients are informed and making smart, calculated decisions.