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, which is proving to be very beneficial for consumers.
A couple months ago mortgage lenders made headlines for the great deals offered to borrowers. Usually, it’s the 5-year fixed rate mortgage that goes on sale during the spring housing market, but this year it was different. It was the 5-year variable rate mortgage that 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 one percent discount off its prime rate. Not to be outdone, shortly after TD matched it, followed by Scotiabank on a limited basis. Then came HSBC who blew everyone out of the water by offering the biggest widely advertised variable rate discount in history from a large 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.
The mortgage rate wars have since slowed down, but that’s not to say there aren’t still great deals to be had in the mortgage market. Despite lenders hiking their prime rate in response to the 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 may not be as much of a household bank name as TD or Scotiabank, but it still does a lot of banking business in Canada. You may be surprised to learn that it’s Canada’s seventh-largest lender. Traditionally it has gained most of its profits from its commercial banking business. However, in the last 18 months it started to focus on its retail banking business by offering super low rates to help win market share.
HSBC currently has quite an attractive variable rate offering. You can get its 5-year variable rate mortgage for only 2.49 percent. Not bad. Looking to pay down your mortgage sooner? It also comes with a generous 20 percent monthly and 20 percent lumpsum 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 percent for variable rate and 3.19 percent for fixed rate). That 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 aggressively pay down your mortgage and you can handle an increase in mortgage rates during your term, a variable rate mortgage is worth serious consideration. 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 a lot of interest in the here and the 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 do indeed rise, you’ll have no trouble handling it.
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 percent. That’s nothing to sneeze at. It comes with 20 percent monthly prepayments and 5 percent lumpsum prepayments (not as generous as its variable rate offering though).
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 rate and fixed rate and decide which makes the most sense for your family and you.
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