Investors Group has joined the mortgage rate-cutting fray, introducing a jaw-dropping 1.99% rate variable rate to the market. It’s one of the lowest variable rates ever seen in Canada (our site saw a dip as low 1.60% in May 2010), and sure to catch the interest of house hunters in what has already been a competitively-priced spring home-buying season.
This promotional three-year rate, which is priced 40 basis points below the next lowest 3-year variable offering, is available only for new Investors Group mortgage customers, and it’s not clear at this point how long the deal will be offered.
- It is available to high-ratio buyers (those paying less than 20% down on their home purchase).
- There are no minimum payment restrictions in order to qualify, and the mortgage is applicable to owner-occupied properties, rental properties, cottages, and condos.
- The rate is not available for renewals or refinances of any kind, and can only broken in the case of a home sale.
- The rate cannot be assumed by another buyer should the original owners sell, but it is portable; it can be applied to another property within the term, without penalty.
- Homeowners can make lump sum prepayments of 15% annually, and double their monthly mortgage payments
- Qualification is based on Investors Group's posted 5-year fixed rate, currently at 4.99%.
- Buyers also have the option to lock into Investor Group's equivalent fixed rate option should they choose to at any point during their mortgage term.
How Much Would You Save With This Rate?
There are significant savings to be had with a rate this low. Assuming that variable rates do not fluctuate over the next three years, homeowners could save $190 monthly on their mortgage payments, compared to the lowest bank-offered 3-year variable rate of 3%.
Let’s break down the numbers*:
- Mortgage value: $378,000 (The national average Canadian resale price - Canadian Mortgage and Housing Corporation).
- Interest rate: 1.99%
- Monthly payment: $1,599
- Compared to the $1,789 paid monthly with a 3% rate, that equals $2,280 saved annually, and $6,840 over the three-year mortgage term.
*Source: RATESDOTCA Mortgage Calculator
Will Variable Rates Stay Low?
Variable rate mortgages, also called floating rate mortgages, have been priced at record lows since 2010, as the Bank of Canada has kept the nation’s central rate and Prime rate at 1% and 3% respectively as a post-recession recovery tactic.
Economists and mortgage pundits have speculated that the BoC has nowhere to go but up with central interest rates, and feel a variable increase is (eventually) inevitable. However, while Canada weathered the recession better than most, key economic drivers like our exports industry and big business investment, just haven’t caught up to their pre-recession levels. Combined with steep discount retailer competition, this has spelled bad news for our limp inflation levels, which haven’t hit their growth benchmarks for several years in a row - one of the Bank’s requirements for a rate increase.
RATESDOTCAs own expert Mortgage Rate Outlook Panel confirmed their doubts of a rate increase in the short term, calling for unchanged rates as far into the future as 2016 - a stance also taken by the BoC governor himself, Stephen Poloz.
Is This Rate Too Good To Be True?
While it’s impossible to predict how interest rates will perform in the years to come, there is a good chance buyers will continue to enjoy low floating rates until Canada’s economic recovery sees real progress. Should the forecast of stability until 2016 prove accurate, buyers would have access to payments at 1.99% until at least the last year of their mortgage term.
At press time, it is unknown how long Investor Group will offer their newsmaking rate. Is it worth rushing into the market to secure such a bargain?
Consider the following:
- The rate is not available for pre-approvals: You must be willing to sign with Investors Group for your mortgage on the spot to access it. Those still house hunting, or looking to hold the rate while comparing their options need not apply.
- The rate is applicable to first purchases only; it cannot be renewed: While there’s potential for buyers to enjoy rock bottom payments for up to three years, they will be forced to sign with a higher rate come renewal time (unless variable rates have dipped even lower in the interim - a highly unlikely event). This means it's imperative that homeowners prepare to pay more for their mortgage, and have a financial plan in place.
- Buyers must qualify at IG’s five-year fixed posted rate of 4.99%. This is a safeguard to ensure interested parties can truly afford to be homeowners, and can withstand any Prime rate increases during their term. Keep in mind that qualifying at 4.99% yields a much smaller mortgage amount; buyers requiring more financing may have to counter this with a more aggressive down payment.
Not sure if your budget could hold up to higher mortgage payments? Check out our Mortgage Affordability Calculator.