There's been a lot of media coverage over the last week or so regarding the recent turmoil in the stock markets. This is due to a number of reasons including the U.S. and European debt and deficit situations. It's never fun seeing your investments go down in value but there is a bright side to all of this.
All this turmoil is going to extend our low interest rate environment even further. The 5 year yield on Canadian government bonds tumbled by 27 basis points. This is a good thing if you are planning on taking out a fixed rate mortgage as the bond market directly correlates with what rates will be offered on fixed rate mortgages. When the bond yield drops it gets less expensive for the banks to raise money to lend out and in turn they can drop the fixed rates they are able to offer.
The Bank of Canada head, Mark Carney's, plan to raise interest rates is now, most likely on hold again. The prediction was rates would possibly go up in September but that prediction has now been pushed to the end of the year and even beyond. There are even Money market managers saying there's about a 60% chance that the Bank of Canada could actually drop the Prime rate somewhere between now and early next year.
My advice, discuss, in detail, all the options available to you. It's a tough decision for some people to decide on a variable or fixed rate mortgage and every situation is different. Sometimes taking a bit of both options, if possible, is a great way to hedge against the ups and downs of interest rates throughout the life of your mortgage.
-Tony Marchigiano, Mortgage Specialist – RBC Royal Bank