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Big Banks Raise Interest Rates - Is This the End of Cheap Money?

Toronto Real Estate Update on Mortgage Rates.   We all knew it was coming, little hints that rates would not stay this low forever, but it still came as a surprise today when three big banks announced they would be hiking their mortgage rates overnight.

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Predictions were rates would stay unchanged until June with many economists saying rates would stay unchanged until  late fall of 2010.   So what happened!

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The Bank of Canada is expected to begin raising lending rates this summer as they try to fight the growing inflationary pressures in the economy.   And it doesn't take the banks much of an excuse to jump the gun.  Another lesson to never let your guard down, when there is a threat the rates will climb the banks will jump just before you actually expect it.

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So far RBC (Royal Bank), Laurentian Bank and TD Canada Trust changed their 3, 4 and 5 year rates.   But expect other banks to follow.

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The biggest increase announced Monday affects the five year mortgages.  All three banks are hiking their posted rate by six-tenths of a percentage point to 5.85 (up from 5.25%).

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What will this Rate Cost The Average Toronto Home Buyer?
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The average homeowner taking on a mortgage of $250,000 (with a 25 year amortization) would likely see an increase of $88.00 per month, from $1489 to $1577.00 per month.

But if you have great credit and employment, shop around and negotiate a better rate.  Check out the Sutton Member mortgage rates as a comparison before heading to the bank.  

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Pre-Approved Mortgages.   I have always been a firm believer buyers shopping for a home, should have a pre-approved mortgage in hand.    A preapproval with Scotia will hold your rate for up to 120 days.   Those lucky buyers with pre-approvals have a unique opportunity to jump into the marketplace and still take advantage of yesterdays low rate.

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Variable or Closed.    Historically staying short-term and flexible has been the best strategy, but banks usually advise that locking in at a still-attractive longer term rate of 5 years is always a good bet if you want to ease your risk.  

So, if you currently have a variable mortgage there is still time to call the bank and see what their best offer for a 5 year mortgage rate would be (many can still offer you the rate before the hike).  

If you are comfortable with the offer, now is the time to switch, but don't over react.   A variable rate is still much lower and there is no guarantee the variable will increase dramatically over the next year.  Talk to your branch manager for suggestions.

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Some homeowners will take the "possible risk" with the variable mortgage in hopes the rates will come down in 2011 as the economy slows and inflationary pressure subside.  This could just be a temporary blimp.  Keep in mind historically staying short term has been the best strategy.

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I love to compare mortgage rates, so on our website I added a link to compare rates from variable to 5 year mortgages by some of the largest lending institutions in Canada.   Just remember if you are an AAA client, don't take the first offer, negotiate an even lower rate than is posted.  

 

Sutton Group Real Estate Office Toronto 416-896-3333
Sutton Realty Mississauga 905-896-3333

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