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SHOULD YOU TAKE A SHORT-TERM RATE?


Recently we have seen movement down in the bond markets, and therefore this could lower mortgage interest rates. This is due to economic data that has come out showing core inflation is subsiding. This is very early information but it appears that the Bank of Canada’s interest rate increases that have been happening over the past few months are beginning to work and tame inflation. Therefore, at some point, we may see the other side of the interest rate cycle where rates are beginning to drop. We don’t know when this will happen, but could we be at the peak of the cycle? Dave Saran from Browne Mortgages is keen to answer that question.


“Historically we can see that even though rates might rise quickly, they only stay that high for a short period of time and then come down just as fast, if not faster,” Dave says. “Right now, we are hopefully nearing the peak of this increase. We can see in the bond market that inflation is starting to come down. Inflation will only tell you what happened in the past and cannot predict the future, but, if you look at the past couple of recessions, inflation peaked six months after the recession began.”


As you can see from historical data and as indicated in 2008, rates will typically peak quickly, stay steady for a year or two and then start to decline depending on prevailing economic market conditions.


“Economists are predicting that we will be coming out of this recession and seeing full recovery within two to three years if not sooner.” Dave says, “Right now we are recommending that our strong qualified clients take a two-year term or even variable rate term, over the traditional five-year fixed term, so that when and if the mortgage market rates come back down you can take advantage of the potentially lowering rates in the future. By doing this you will be saving thousands of dollars in interest over the term of your mortgage and as another bonus, your penalty will be less if we do decide to make changes even sooner.”


Despite the higher interest rates, it is still a great time to buy. Since the beginning of the year house prices have dropped by 20-30%, making purchasing property much more affordable. We have been seeing a lot of people taking advantage of this and buying investment properties, first homes or legacy properties. It is also a good time for first-time buyers to get onto the property ladder as they can take advantage of lower monthly payments and mortgage totals.


To see how we can help you, give us a call today. We are always happy to run through scenarios and see what would work best for your situation.


Dave Saran is a Senior Mortgage Broker at Browne Mortgages.



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