Another Sign That The Recession Is Coming To An End
Interest RatesFor some time now on this blog, I’ve been warning potential buyers to watch interest rates. While sale prices may fluctuate a few percentage points here and there, the interest rates dictate the actual bottom line of what will come out of your pocket each month. For example, a $200,000 mortgage, amortized over 25 years at 4% would cost $1052.00 per month versus $1163.00 at 5%. Over a fixed five year term, that’s $6,660.00. And that’s just 1%. If you wait for the price to come down another $5,000 on that house or condo you’ve been eyeing, is it worth it if rates go up?
We’ve come through a period now of historic low interest rates. Up until two weeks ago, you could get a five year, fixed rate of 3.79% on a residential mortgage. Then last week they crept up to over 4% and yesterday, TD Bank led the way with a fairly significant increase of another 40 basis points. We can assume other major banks will follow suit as banks face higher borrowing costs on the bond market and, further increases are predicted.
While it may feel like you missed the boat, rates are still excellent comparatively speaking.
My friend and mortgage broker, Michelle Reichart over at Invis sent me this chart the other day. It shows the average interest rate for the month of June each year since 1951. You may be surprised to realize that the average of all these rates is 9.08% up to 2008 (shown in last column) and 2009 is not included in the chart. So despite the recent rate increases, we’re still well below average levels.
Caveat: With these increases, even the banks are signalling a belief that the recession is coming to an end. Rates will go up. It’s almost a sure bet so think twice if you are still on the fence about buying.