For the first time since spring, five-year insured fixed interest rates have slipped below 5% at a number of lenders in Ontario.
After many months of sky-high interest rates, institutions like Equitable Bank, THINK Financial, and MCAP are offering five-year insured fixed-rate mortgages at slightly more appealing rates, says Victor Tran, RATESDOTCA mortgage and real estate expert.
Equitable Bank, for example, is offering rates as low as 4.94% to Ontario buyers.
This recent shift towards lower rates, Tran says, is due to the bond yield market cooling over the past month. As borrowers know all too well, variable-rate mortgages fluctuate depending on the Bank of Canada's overnight rate. Fixed rates, on the other hand, typically go off of the bond market.
In October, the five-year Government of Canada bond yield hit a 16-year high of 4.42%. But by the end of November, it had fallen to 3.64%.
"We have been on a downward trend in terms of fixed rates," Tran tells STOREYS. "We haven't seen the five-year government bond in this range since Victoria Day weekend, so we should be able to see some further rate discounts going forward."
Notably, these lower offerings are, so far, only on insured mortgages, which are mortgages where the downpayment is below 20%. In Canada, a downpayment that low requires the borrower to pay an insurance premium so that the loan is backed by a default mortgage insurer — typically the Canada Housing Mortgage Corporation.
Although none of the big banks are advertising that they're on board with sub-5% interest rates, it's not out of the question. Tran notes that TD is typically flexible with their rates, reviewing mortgage files on a case-by-case basis, analyzing everything from the closing date to the mortgage size to customer's profile.
"A lot of times they will discount their rates a lot further than what they posted, but it's really just based on discretion," he said.
In general, Tran adds, it's typically the monoline lenders — companies that solely deal with mortgages — that drop their rates before the big banks do.
Affordability Is Still Aloof
As rates have slipped, many would-be buyers still have their feet firmly planted on the sidelines, waiting for a more affordable opportunity to come up. Tran says that although ongoing discussions of potential Bank of Canada rate cuts coming in 2024 are likely to instil more buyer confidence, home prices and interest rates are still prohibitively high.
"Even if they dropped a rate by another 1%, which is unlikely to happen, it's still very unaffordable for most people," he said.
As for how low rates could go in the near future, it's hard to say, but one thing is for sure: they won't be anywhere near pre-pandemic or pandemic rates.
"We're definitely not going to see the 2-3% rates anymore," Tran said. "Four percent is unlikely anytime soon. We might see it next summer maybe if we see the Bank of Canada dropping rates... If the overnight lending rate drops by half a percent or more, then that means there's a chance that the bond yields will take a dive and we may see that low 4% fixed rate again."
For borrowers who are looking to lock in a rate right now, Tran advises taking a few hours to shop around, looking into both using a mortgage broker and approaching the banks directly.
"I find that there can be a bit of a difference of at least like half a percent and that can equal to quite a bit of money at the end of the day," Tran said. "It's important for homeowners to really take the time to shop around because that can equal a few hundred dollars a month in savings."