Borrowers catch a break with 2.90% fixed rate

Borrowers catch a break with 2.90% fixed rate

Borrowers catch a break with 2.90% fixed rate

With very little yield in the bond market, mortgage rates are dropping with one online lender offering a 2.90% closed mortgage.

Late last week, Motusbank came out with what it’s calling one of Canada's lowest rates on a one- to five-year fixed mortgage.

“Motusbank believes all Canadians deserve to take a shot at homeownership,” said Dave Baldarelli, Motusbank’s COO. “We’re doing what we can to make that goal more attainable for first-time homebuyers and letting existing homeowners catch a break if they want to take advantage of better rates to save money.”

The rate is available on mortgages with no more than 25-year amortizations, but doesn’t apply to rental properties. There’s also a 20% annual prepayment privilege.

This month, the yield on a five-year Government of Canada bond fell below 1.3%, and since fixed rate mortgages are influenced by the bond market, lenders just need to double that rate to make satisfactory profits.

At the same time, variable rate mortgages—which are tied to Bank of Canada benchmark rates—are on the decline. The best available rate on the market is 2.65%, but why risk a hike if a fixed rate mortgage can be locked in for half a decade at a similar number?

Expect to find more sub-2% rates. Also last week, DUCA Credit Union began offering a 1.99% two-year fixed mortgage and a 2.89% five-year fixed product. The credit union is, of course, competing with rival Meridian Credit Union, which started offering a 1.98% two-year fixed mortgage earlier this quarter.

 “We’re seeing a lot of movement on the fixed side with a lot of downward pressure,” said Daniel Johanis, a Rock Capital Investments broker. “There’s a lot of competition and that isn’t a bad thing when it comes to the consumer’s payment.”

Johanis also thinks the Bank of Canada to follow the Federal Reserve’s expected rate drop before the year’s over—yet more good news for borrowers. However, he’s wary about taking clients to a Big Six.

“The penalties have to be considered,” he said. “I break out the difference between the big bank and the monoline and how the fixed penalty is calculated. If they’re leaning towards a fix, I strongly suggest a monoline lender because if they trigger a penalty for breaking the mortgage, it will be considerably less.”