Take advantage of low interest rates while you can

The Bank of Canada made a surprise move this week by cutting its influential overnight rate by one-quarter of one percentage point to 0.75 per cent. The rate had been at one per cent since September 2010. Even if the banks don't respond by lowering their own interest rates, the BoC's action supports the continuation of ultra-low mortgage interest rates, when many experts expected rates to inch up.

With interest rates expected to remain at these historical lows until mid-2015 at least, then, the window of opportunity for those looking for a home remains wide open. If you could lock in at a low rate over 10 years, for example, that gives you the comfort of knowing what your mortgage payments will be over that period, while over that time you can also take advantage of any pre-payment and lump-sum payment options to pay down your mortgage.

Another appeal of this scenario is that, as we often point out, experts advise you take a long-term view of your home purchase. For example, there has been some talk recently about cooling prices and softening sales. But even if that were to happen in your market and housing type, ask yourself: in 10 years, is a home you buy today likely to be worth more or less? If you need an answer to this question, just take a look back at prices 10 years ago. Of course, there are no guarantees, but if you’re in the homebuying mode anyway, today’s low rate environment makes a pretty compelling reason to act sooner than later to take advantage of these opportunities.

Low interest rates notwithstanding, the banks, financial firms, brokers and other experts still advise homebuyers to practice smart borrowing. Indeed, a recent study from CIBC shows the number of Canadians taking advantage of low rates to pay down their mortgages sooner declined last year, compared to 2013. Some homeowners, it seems, are being lulled into a false sense of security.

Experts stress that even as interest rates remain low, buyers should explore everything from putting down a larger down payment to taking advantage of pre-payment options to “stress-testing” your mortgage at a higher rate to ensure your finances can accommodate rate fluctuations or other unforeseen circumstances.

One day, perhaps later this year, the mortgage landscape will change. And if you’re among those homeowners who have been somewhat spoiled by continuing low interest rates, you could be could be in for an unpleasant surprise.

Take advantage of today’s low interest rates while you can, but also spend the time necessary to find a broker or banker you trust, who knows their business, and who can help you explore what options might be best for you.More so than in any other area of homebuying, you’re going to rely on this advice – now more than ever. It will prove to be time well spent.

Related reading:

What the Bank of Canada's rate cut means for homebuyersHousing outlook for Toronto and Canada overall: full steam aheadInterest rate hike unlikely in 2015: BMO