Coming next… profit margin on Fixed rate mortgages

i.e. the difference between what the Banks charge customers and what it costs them…

Fixed Mortgage Rates – History since 1980s

Mainstream media & real-estate agents in Canada (& US alike) have been pushing the idea of all-time low mortgage rates to pump the real-estate market. Are mortgage rates really that low? The chart below does prove that the posted 5-Year Fixed Rate Mortgage (orange line) is indeed at historic lows since 1980s.

Source: Bank of Canada

Is 1980s considered historic lows? May be… the Bank of Canada Interest rate from 1955 to 1980 averaged about 7% and from 1935 to 1955 about 2% which is higher than the 2009 average of 0.75%… I know this rate is more applicable to variable rate mortgages but nevertheless it helps to analyze the possible situation back then.

A Fixed Rate mortgage is one where the interest rate does not change for the term (not amortization) of the mortgage i.e. the interest rate if fixed for the term.

On the other a variable rate mortgage is one where the interest rate on the mortgage or the mortgage rate changes whenever the reference or the benchmark rate changes. In Canada the reference rate is always the Prime Rate; in US it is either the Prime Rate or the LIBOR.