UPDATE: As of Thursday, March 26, mortgage borrowers now have access to a 2.44% 5-year fixed in Ontario, Alberta and BC! Click here for details on this rate>
Great news for Canadian home buyers: you now have access to a 2.44 per cent mortgage rate, the lowest five-year fixed pricing in history. This rate is currently offered by Spin Mortgage in British Columbia, Alberta, and Ontario. Nation-wide, competition is down to a hair, with other small lenders and brokers offering between 2.48 - 2.50 per cent for the term.
2015 is shaping up to be one of the most competitive spring mortgage markets in memory; just last week, BMO and TD made headlines by setting a precedent among big bank lenders with a 2.79 per cent five-year fixed rate, available nationwide.
At press time, here’s where you can get a 2.50%-or-lower five-year fixed mortgage rate in Canada:
2.44% Term: 5-year fixed
Lender: Spin Mortgage
Availability: Ontario, Alberta, British Columbia
High Ratio-Eligible: Yes
Rate Hold: 30 Days. NOTE: This rate is not applicable for pre-approvals. Applicants must be ready to close their home purchase within 30 days to qualify.
Prepayment Privileges: Yes - up to 5 per cent monthly and annually
What Would I Save With A Rate This Low?
Let’s assume you are buying a home for $400,000 and plan to make a 5% ($20,000) down payment, leaving you with a $380,000 mortgage.
Because you are a high-ratio borrower, you will also legally require mortgage default insurance, offered either through the Canada Mortgage and Housing Corporation or a private insurer like Genworth or Canada Guaranty. According to the CMHC, your premiums on this mortgage would total $11,970.00, which is rolled into your mortgage loan.
This would leave you with a total mortgage cost of $391,970
At a rate of 2.44%, your monthly payment would be $1,744.
Now, let’s compare this to the next best rate offered by one of Canada’s federally-regulated big banks for this term - 2.79%, offered by TD and BMO. With this rate, you will pay $1,813 monthly.
What you’ll save monthly:
What you’ll save annually:
What you’ll save over a 25-year amortization:
Want to see how your monthly payments would change with a lower rate? Check out our Mortgage Payment Calculator>
Pay Attention to Prepayment Options
One caveat to note: while this historically low rate means cheaper borrowing costs throughout your mortgage term, this particular product offers less-than-competitive prepayment privileges at only 5% monthly and annually. While TD’s 2.79% offering means you’ll pay more monthly, it offers up to 15% lump sums to be made on an annual basis, along with the ability to double your monthly mortgage payments.
Lump sum payments are an option that allows you to put an extra payment toward your mortgage. The amount goes directly to the principal owed, which shortens your overall mortgage amortization and results in less interest paid over time.
Depending on how you intend to utilize such options, going with the slightly higher, more flexible rate could actually lead to greater savings down the road. For example, let’s assume you wish to make one annual lump sum payment during your mortgage, at the maximum percentage allowed.
With Spin Mortgage's 2.44%, you will be able to make a 5% payment of $19,598. Doing so will ultimately save you $16,447.70 in interest paid over the course of your 25-year amortization.
With TD’s rate, you can make a 15% payment of $58,795, leading to interest savings of $50,614.75 over 25 years. The potential total savings from going with MortgagePal (difference between the total amount you’ll pay over 25 years, plus the lump sum interest savings) only comes to $34,747.70. That means it’ll cost you $15,867.05 less over 25 years to go with TD’s rate, should you wish to max out your lump sum option on a one-time basis.