Mortgage rates have become a prime concern for homeowners as affordability decreases from high interest rates.
From a low of 2.99 per cent just a few months ago, Canadian rates have climbed to more than six per cent.
Following is a personal mortgage history which hopefully will help readers figure out the best route to take when renewing mortgages or obtaining new mortgages.
In 1978, my partner and I bought our home with a mortgage rate of 9.25 per cent and a five year term to renewal.
The five-year term was chosen instead of variable rates or shorter terms because it offered stable, fixed monthly payments. We slept better knowing the rate was fixed for the next five years.
I envy the United States mortgage system which allows 20 year fixed interest rates.
To us, variable interest rates are too risky. Although I have a degree in economics I cannot predict the future direction of interest rates or the impact factors like war, inflation, recession, have on interest rate changes.
We watched with horror as the 1980s came and interest rates almost doubled.
Our mortgage term renewal was in 1983, two years after mortgage rates peaked at 19.5 per cent. Our new rate was around 11 per cent, and monthly payments increased by $60.
Thanks to the Grant Devine mortgage subsidy the increase was much lower. The subsidy started Saskatchewan on a debt spiral from $1 billion to the current $30 billion debt, but saved a lot of homeowners from losing their houses.
The ensuing period of high interest rates did not allow us to pay off much of the $25,000 mortgage.
By 1998 we had paid less than one-quarter of the principal.
After reading and talking to the bank, we opted for a method that cut the payback period by six years.
We had the cash flow to make mortgage payments every week instead of once a month. The monthly amount stayed the same but the time to a zero mortgage was reduced.
As far as I know, that weekly or bi-weekly payment option is still available.
Analysts and borrowers alike are suggesting the Bank of Canada will drop interest rates sharply in the next year or so when the two per cent inflation rate is achieved.
Don’t count on steep reductions in interest rates.
More years than most out of the last 70 have seen interest rates in the five per cent range, either as prime rate, savings rate or as the legal rate ordered by the courts.
A five per cent interest rate seems to be the norm and is when the economy hums along nicely.
Get used to the current rates and plan finances around them.
Ron Walter can be reached at firstname.lastname@example.org
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.