Are you planning to go house hunting this summer? Summer is traditionally a slow time for the real estate market, but that isn’t stopping lenders like HSBC from offering fantastic deals on mortgages. HSBC has been aggressively cutting down mortgage rates – great news for consumers…
A couple months ago, mortgage lenders made headlines for the great deals offered to borrowers. Usually, the 5-year fixed rate mortgage goes on sale during the spring housing market, but this year it was different. This time, the 5-year variable rate mortgage went on sale.
An all-out slugfest broke out between some of Canada’s biggest mortgage lenders. Bank of Montreal fired the first shot by offering a full 1% discount off its prime rate. Not to be outdone, TD matched this discount, followed by Scotiabank on a limited basis.
Then came HSBC, who blew everyone out of the water by offering the largest variable rate discount in history from a major bank. It offered a discount of 1.06% off its prime rate. To say that borrowers benefited from this mortgage rate war would be a huge understatement.
Mortgage rate wars have since slowed down, but there are still great deals to be found in Canada’s mortgage market. Despite lenders hiking their prime rate, in response to Bank of Canada raising the overnight lending rate, the variable rate is still an attractive option. Let’s take a closer look at HSBC and its mortgage offering…
HSBC Bank Canada – Basic info
HSBC may not be as well known as TD or Scotiabank, but it still does plenty of banking business in Canada. You may be surprised to learn that it’s Canada’s seventh-largest lender. Traditionally, most of its profits were gained from commercial banking business. However, during the last 18 months HSBC has been focusing on its retail banking business by offering super low rates to help win market share.
HSBC – variable rates
HSBC currently has an attractive variable rate offering. Its 5-year variable rate mortgage is just 2.49%. Not bad. Looking to pay off your mortgage sooner? It also comes with generous 20% monthly and 20% lump-sum prepayment privileges.
With the Bank of Canada recently upping interest rates, you may be wondering whether it still makes sense to go with a variable rate mortgage.
It all comes down to your comfort level and tolerance for risk. There’s currently a 70 point spread between HSBC’s 5-year fixed rate and variable rate offering (2.49% for variable rate and 3.19% for fixed rate).
This means that the Bank of Canada would have to raise interest rates three more times (assuming 25 basis point increases) for the variable rate to be slightly higher than the fixed rate (by 5 basis points).
If you’re planning to pay off your mortgage as quickly as possible and can handle an increase in mortgage rates during your term, a variable rate mortgage is certainly worth considering. Even if mortgage rates do rise in the next five years of your mortgage (and there’s no guarantee of that), you can save yourself plenty of interest in the here and now.
To prepare yourself for the possibility of higher mortgage rates, you can pay your mortgage as if rates are already higher. Set your mortgage payment to the higher level of the 5-year fixed rates, so if mortgage rates increase, you’ll have no trouble dealing with it.
HSBC – fixed rates
HSBC is also offering a fixed rate mortgage at an attractive rate. You can currently sign up for a 5-year fixed rate mortgage for only 3.19%. That’s nothing to sneeze at. It comes with 20% monthly prepayments and 5% lump-sum prepayments (this doesn’t beat its variable rate offering).
Fixed rate mortgages are ideal for risk adverse borrowers. If you’re someone who likes to “set it and forget it” and not worry about your payment amount changing during the life of your mortgage, fixed-rate mortgages make a lot of sense.
With a fixed rate mortgage, you’re guaranteed the same great rate and mortgage payment amount during your mortgage term. You can worry about other things like saving for retirement, starting a family and planning a family vacation. For a lot of people, paying a slightly higher mortgage rate is worth the peace of mind that comes with the fixed rate.
At the end of the day, you want to look at both variable and fixed rate and decide which makes the most sense for you and your family.