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This month the US Fed announced they expect to reduce their key Interest rates in 2024. Then, our very own Bank of Canada Governor, Tiff Macklem, publicly stated last week that he sees the key interest rate in Canada beginning to come down in the second half of 2024.

 

If you have been following our newsletters that we send out each month, this falls in line with our expectations that we have been setting out for our clients.

   
   
   

We have been getting flooded with inquiries and questions about this topic, so we wanted to present what we believe could be an optimal strategy to save you and your family a significant amount of hard-earned money.

 

The debate is whether to take a longer term now, like a 5-year fixed rate, and protect yourself from interest rates possibly rising, OR if you think interest rates are going to come down over the next 1-2 years, maybe it makes sense to take a shorter term now, and then take advantage of possible lower rates in the future. The great news is that we have done the math on this, and we think you’ll be very interested to see the results:

 

Ok, so let's take a look at an example of a $500,000 mortgage being taken out today, on a 30-year amortization, and let’s see what their financial picture would look like 5-years later:

   
   
   

· Total mortgage payments over the next 5-years equals $178,269.40


· Principal mortgage balance owing at the end of the 5-years is $462,053.97

 

This would be an optimal strategy to take if we believed interest rates may continue to rise, and it protects you against increases in interest rates - as your rate would be locked in for the 5-year term.

   
   
     
   

But what if interest rates fall in 2024 and keep falling in 2025? What if the 5-year fixed rate being offered in late 2024 or some time in 2025 is as low as 3.99%? Maybe it would make sense to take a 1-year fixed rate today and then have a chance to take advantage of a lower 5-year fixed rate in the future… Lets see how this plays out:

   
   
   

· Total mortgage payments over the next 5-years equals $154,291.08

 

· Principal mortgage balance owing at the end of the 5-years is $455,313.85

   
   
     
   
   
   

The client who went with Option #2: Taking a 1-year fixed rate then renewing into a lower mortgage rate for a longer term, has saved the following:

 

· Total mortgage payments saved: $23,978.32

 

· Difference in mortgage balance owing: $6,740.12

 

· TOTAL SAVINGS over the 5-years = $30,678.44

 

As you can see, being able to stay patient and flexible, can prove to be very beneficial in the coming years and can ensure you are keeping your hard-earned money in your pocket, and not part of the banks’ profit reports.

 

If you have a mortgage that needs to be signed in the next 12-18 months… maybe you will be purchasing a property, maybe you have a mortgage renewal coming up, or maybe you need to refinance to pay off some debts or do some renovations - do not hesitate to reach out to us and let’s strategize! It is our belief that using optimal strategies to determine the right mortgage term, could have incredible results and savings for you.

   
   
   
     
   
   

Just a friendly reminder to come visit us on our socials, where we put out a ton of videos with tips and information to help you navigate the wild world of mortgages! Check out the links below and give us a follow!

   
   
   
     
   

As always, if you have any questions or want to do some mortgage planning, feel free to reach out to us at: