Is It Our Last Chance To Avoid Getting Hit By High Interest Mortgage Rates?

High Interest Rates And How To Avoid Getting Hit By Them

First Published: April 15, 2010 ADawnJournal.com

The biggest concern for anyone currently looking for a mortgage to buy residential property is the volatility of the market. In the last couple of years, interest rates have fallen not just in Canada but all over the world as the financial situation leads to predictions of dire hardship. However, the measures in place to prevent a total and catastrophic meltdown (and however bad things are at the moment, the word “catastrophic” must be saved for situations that require a completely fresh start rather than a shifting of the boundaries) mean that, after a period of negative financial performance of the kind which we have seen recently, there will inevitably be a period of stabilization and then a recovery of sorts.

The outcome of this is that there is a narrow window, which is getting narrower as time passes, for anyone who has found themselves “recession-proof” to take advantage of the cuts in interest rates before the period of recovery kicks in and, inevitably, interest rates begin to rise again. The lessons of the past years have had the effect of encouraging us all to be a bit more careful, and any rise in rates will be gradual. But there seems to be very little doubt among market experts at the present time as to the feeling that rates will rise, and in five years’ time they will be higher than they currently are. Anyone hanging on to see how far the present rates drop may be disappointed.

High interest rates are used as an economic tool by governments and banks to control excessive market optimism. A few years ago the world in general was in a period of “boom” which was largely the mirror image of the “bust” in which it now finds itself. At that point, interest rates were rising and individuals hoping to get involved in real estate felt that they were being frozen out by “prohibitive” interest rates. Without the factual data, taken over a period of time, to prove a substantive change in the way the world sees economic issues, it is impossible to say how high interest rates may one day rise. If you are in a sound borrowing position, and if you are likely to be in a good situation to maintain your repayments going forward, now is the time to borrow for a house purchase. There may never be a better one.

Those who believe that there is scope for a further drop in interest rates would not currently be well served by waiting for it. It may come, it may not. More likely it will not, but if you like the odds it would at least be worth borrowing on a variable rate mortgage which will drop its rate as the banks drop theirs and rise when the banks do likewise. After five years, the terms of the mortgage can be renegotiated, and people with a good variable rate mortgage will be in the best position to do so.