You can still save THOUSAND even with rates going up!

Well, I will just start off by saying it has been a crazy last couple of weeks.  Two weeks ago, we had access to rates as low as 3.54% on a 5 year fixed.  Now, most bank rates are 4.46% and higher.  That is a huge jump in rates in a short period of time.  The only good news is that I can say I was right that rates were going to jump in large amounts, but I was definitely enjoying the historically low rates.  Sorry I have to add the bragging in there but my wife doesn’t allow me to be right too often! 

 

The real question is “what can we expect next for fixed and variable rates?”  Variable rates (Which follows the Overnight lending rate or the Bank of Canada Rate) will remain low for I’m expecting another 6 months, possibly a year and then Canadians should be expecting a huge jump in the Bank rate and of course their mortgage rates.  How much of an increase in Prime? No one knows exactly, but it will probably be 2 – 3%.  For anyone with fluctuating payments, you may want to prepare yourself for possibly doubling your interest rates! 

For Fixed rates (Which follow more closely the bond market) they are rising and will continue to rise until we get back to the “normal rates” of 5 – 6%.  Now when I use these rates, keep in mind they are on a 5 year fixed term as that is what the average Canadian wants.  For those that are waiting for their renewal and haven’t been pre-approved or renewed early should seriously consider doing it right away.  Benjamin Tal, Senior Economist with CIBC has suggested rates hitting 6-6.5% here in a short period of time.

Rates always fluctuate but let’s look at some current trends to show you what you can expect.  Fixed rates – In November of 2008 they were middle to the high 5% range and then at the beginning of 2009 we saw rates trending downwards until two weeks ago, where we had banks offering 3.5%.  These rates were kept artificially low because the Government was injecting money into our system so banks would keep lending money to us.  Now since the bottom of a couple weeks ago interest rates are trending up.  Last week we were up to around 3.89% and now just this week we have some banks and lenders that have jumped to 4% to now all the major banks are around 4.5% on the 5 year rates.  Within a couple of weeks to a month, it will be more common for the banks and lenders to be offering rates closer to 5%. 

Some of you may be wondering why the rates are going up when Canada and U.S are still in a Recession.  Although some may still be in rough shape, here in Canada the government is more worried about inflation then a recession.  Things are starting to bounce back and as consumer confidence strengthens people are and will increase their spending and that could put us into high inflation which generally means higher interest rates.  How high will they go?  No one knows for sure but most of the top economists are expecting atleast 5-7%.  I have heard talks of double digit interest rates but that seems to be more fears than information from a creditable source.  

The basic message I want to get across is that everyone will have their opinions about what rates will do, but the trend is heading up.  Top economists, like Benjamin Tal (CIBC) are suggesting that it will be back to “normal rates” for the fixed rates within a couple of months and for variable we’ll probably see an increase in about 6 months to a year from now.    

 

 

If anyone is looking at financing now or in the near future act now and you can save thousands with a lower interest rate.