BC Business
After three years of little to no movement, the prime lending rate has finally dropped making it easier than ever to borrow money—and to buy the home of your dreams. We asked mortgage broker Geoffrey Lee to share his expert opinion on the new, loan-friendly market. How does the Canada prime lending rate affect mortgages? The drop caught most people off guard. The variable rate is dictated by how the Canadian economy is doing: if it’s weakening, they want to drop the primary rate because it increases spending. When the fixed rates were going below three per cent, everybody was going there. This drop has reignited people going back to variable. And once one lender drops to meet the demand, everybody else follows.
How does the recent drop in the prime rate work in favour of the buyer? It would lower their monthly mortgage payments if they qualify. And a lot of people like variable rates because if you break the mortgage, then its only a three-month interest penalty. In fact, now that the variable is lower than the fixed rate, depending on your property, the penalty to break can actually work in their favour. What real estate trends should buyers be keeping an eye on this year? Things are selling within 10 days of being put on the market and the reason is because of these rates; and people are ignited to buy because borrowing money is cheap right now. What you have to be cautious of is buying high: you just have to try to look into that crystal ball and try to understand what the market might look like in five years so you don’t get stuck in a situation like the overdevelopment of condos in some areas. What other changes would signal that now is a good time to buy? We’re in a seller’s market, so more and more homes are coming on the market every day. Borrowing rates are at an all-time low, but rates don’t stay this low forever—they’re dictated by the Canadian economy. No matter how bad it gets, it always comes back and strengthens. It’s an eight-year cycle. Take advantage of it, but also consider what will it look like when you renew at a higher rate: are you going to get yourself under water? What should buyers keep in mind when they’re renewing their mortgage? Always prepare for the future and utilize prepayment privileges, so when the market corrects itself down the road you won’t suffer shell shock. Everybody is always asking, “What’s the best rate?” What they don’t ask is, “What’s the personality of the mortgage?” You have to understand the prepayment privileges and how the penalty is calculated if you break it. Once you get yourself into a mortgage, make sure you understand it well, because once you get in, it’ll be very difficult to get out.