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It’s Paying to Lock In

by | Dec 20, 2011

To quote today’s Financial Post, “the days of getting any sort of discount on a variable rate mortgage are over — again.”
Prime has stood at 3% at most major financial institutions, therefore the discount has meant a rate as low as 2.1% this year.
This discount has been shrinking for sometime however, and as of the past 10 days has disappeared altogether at the major banks.
The discount has not disappeared like this since the credit crisis of 2008. Consumers at the time were paying 100 basis point premium above prime for a floating rate.
With the disappearance of the discount on variable rate mortgages, we will see a new trend emerge on the horizon. Consumers will be less likely to gamble on mortgage rates and more likely to lock in.
The Canadian Association of Accredited Mortgage Professionals says 37% of consumers opted for variable rate mortgages over the last year, bringing the total percentage of those with a floating rate to 31%.
By locking in, consumers can qualify for a larger loan. Consumers can use the rate on their contract to qualify for a mortgage as opposed to the current five-year posted rate of 5.39%.
To quote again, “Farhaneh Haque, director of mortgage advice and real estate secured lending with TD Canada, says she’s already seeing the effects as people shy away from variable.” TD Canada is not currently offering any discount on prime.
“The stability it offers with a low rate makes it more affordable.”
To read further into this, see the article on the Financial Post.

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