RBC 5-year Bond Rate Forecast

April 6, 2008


While Canadian Prime Rate is expected to be reduced this coming April 22, 2008 interest rate-setting meeting by Bank of Canada, RBC’s recent forecast on 5-year bond rates is projected to move up the next few quarters.

The 5-year quarterly rate at 2.89% may be the lowest rate Canadians experience in 2008. As seen from the chart above, the rate is projected to move up to around 4.0% by the end of 2009.

Mortgage Rates for Homeowners

For home owners who are on variable term mortgage, many may not stay on variable term for long. The fear for higher rates may prompt many homeowners to lock into a fixed term mortgage.

So, what is the best strategy for home owners? For most homeowners who are not long-term believers of variable term mortgage, they may consider staying on with a variable plan for a year, and then switching over to a fixed term mortgage. The important consideration when choosing a mortgage lender for their variable mortgage is to ensure that when converting to a fixed term mortgage plan, they are “assured they will get the best discount from the posted rates“. Another important consideration is whether their mortgage banks allow them to switch to “shorter 3-year closed term mortgage“. Most banks only allow for lock-in at 5-year fixed term and the discount they get is just 1% below the posted rate.

This could be very costly to the homeowners. The rate difference can be as much as 0.5% between the smaller mortgage banks and the large 5 Canadian Banks. On a $300,000 mortgage, if a home owner switches over after 1 year, he or she could be paying as much as $7,000 more on interest over the next 4 years.

Kindly contact me (Elsie Tse) at 604-716-3369 or Email Me 

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