They had been renting for four years and, like many young couples, they felt that it was time to buy their own home. “We decided to take advantage of low interest rates,” Calgary legal secretary Bonnie Thompson, 25, said last week as she and her husband, Dennis, 27, a laboratory technician, inspected their new purchase— a four-bedroom bungalow with a double garage for $63,500. With lenders slashing interest rates to their lowest
point in years, the couple, who are already planning to renovate, had plenty of options to choose from for their mortgage. After shopping around, the Thompsons settled last December on a one-year package at 9.25 per cent from Royal Trust Corp. But they could have done better if they had waited until last week, when Financial Trustco Capital Ltd. of Toronto undercut every other major lender in the country by offering a six-month mortgage at 7.5 per cent. “Stay tuned,” said Financial Trust vice-president Charles Gordon. “It’s hard to tell where mortgage rates are headed.”
Financial Trust’s announcement took the entire industry by surprise. The last time mortgage rates were at 7.5 per cent was in June, 1966. Many homeowners still wince when they remember August, 1981, when rates rocketed to 23.34 per cent. Rates have decreased dramatically since, with some lenders offering short-term
mortgages at less than 10 per cent at times during the past 18 months. But Financial Trust’s branch offices across the country were flooded with inquiries when it announced its exclusive 7.5-per-cent mortgage, a quarter of a per cent lower than the closest rival. And business remained brisk throughout the week as other institutional lenders refused to match the rate.
Throughout most of 1986, mortgage rates fluctuated between 9.75 per cent
for one-year mortages and 11.25 per cent for three years. But last May the six-month rate dipped to 9.5 per cent and stayed there until the end of the year. And with mortgage rates relatively low and stable compared to those in recent years, realtors had record sales of almost 261,000 homes across Canada last year, up 3.5 per cent from the 252,000 sold in 1985. The value of the homes sold rose 19 per cent to $24.4 billion last year from $20.5 billion in 1985.
Last month Toronto-based Royal Trust led a new round of interest cuts. On Jan. 10 the company lowered its six-month rate to 8.5 per cent, then last week the company cut it again to 7.75 per cent. Other trust companies and most of the major banks that offer similar mortgages quickly followed suit. Richard Vaillancourt, Royal Trust’s vice-president, treasury, said that the lower rates are one result of the growing strength of the Canadian
dollar on world money markets over the past six months. The Bank of Canada, freed from having to prop up the value of the currency through high interest rates, was able to reduce the cost of money it lends to the financial community. The lending institutions, in turn, passed on at least part of that saving to consumers in lower interest rates for all forms of loans, said Vaillancourt. In the ensuing competition to lend out cheaper money, mortgage rates went down.
The savings on a new, cut-rate mortgage can be dramatic. Thomas Easterman, Financial Trust’s resi-
dential mortgage manager for Ontario and Quebec, said that monthly payments on a six-month, $100,000 mortgage at 7.5 per cent, amortized over 25 years, would be $731.56. A homeowner who chooses to lock in the same mortgage for five years would pay 10.5 per cent, which would translate into monthly payments of $928.33. Still, most first-time home buyers have shied away from the sixmonth mortgage and the risk of getting caught in a new round of interest-rate increases. Instead, they are opting for the stability of terms ranging three to five
While the lenders battle for customers, homeowners consider their
options. Alan Golding, a 22-year-old parts manager with a Toronto computer maintenance firm, watched the housing market for more than a year while living at home and saving for a down payment. In mid-January, after researching the market for two months, he put in an offer on a twostorey three-bedroom town house in Ajax, 35 km east of Toronto. For his part, pilot John Henderson, 29, took out a six-month mortgage at 9.75 per cent in early January to buy a $330,000 three-storey Victorian-style house in central Toronto. But now he is renegotiating for an eight-per-cent rate, which would save him up to $300 per month. “I’m pretty interest-rate sensitive,” he said. “It makes a big difference to me.” In an age of volatile mortgage rates, that is a sentiment shared by homeowners across the country.
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