Interest Rates Are Going Up – Should You be Considering an Early Mortgage Renewal?
Variable rate spreads are decreasing. What does this mean exactly?
It doesn’t have to do with the Bank of Canada lending rate going up or down (the BoC Rate), and it doesn’t really have to do with fixed rates either.
When variable spreads decrease, it indicates that banks are decreasing their lending discount on variable rate mortgages. This is a move the banks make in order to increase profit margins in a housing market that might be slowing down. Also, by decreasing the lending discount, it incents clientele to lean towards the fixed rate, when deciding between fixed and variable.
When you have a variable rate mortgage, your rate fluctuates when the BoC raises or lowers their rate. Neither you, nor the bank, have control over the BoC rate. What is within the bank’s control, and partially your control too, is the discount spread against the bank of Canada prime rate.
About a half year ago, banks were offering variable rates as low as Prime – 1.15%. The -1.15% is the spread discount against bank prime. Now, most banks are offering their variable rate mortgages in the range of -0.5% to -0.35%, or thereabouts. Quite the decrease in spreads.
So, if you have a mortgage coming up for renewal, or are purchasing a home and need a new mortgage, you might be disappointed reading this article. You might think about taking a fixed rate. Let’s unload that thought first.