Everyone with a mortgage is always concerned thee days about what future interest rates. Will they remain at current levels or will they go up?
While we can’t predict what future interest rates will be, we thought we’d review how five-year mortgage rates have fluctuated dating back to 1980.
Thirty-five years ago, home construction was booming and inflation was at an all-time high. At the beginning of January 1980, the five-year rate was, on average, 13.25% with the highest rates reaching 16.75%.
At the beginning of 1981, inflation was still not under control and the interest rate in January of that year stood at 15.50%. The rate finally peaked in mid-summer at 21.75%. As a comparison, at that time if you purchased a Canada Savings bond the rate of return was 19.50%.
Canada’s economy was in trouble and the high interest rates brought the housing market to a standstill.
The Bank of Canada stepped in and actually subsidized those with mortgages to bring their mortgage rate down to an approximate 12% rate. Rates started to fall and a lot of people tried to get out of their high rate mortgages but the penalties were so stiff they couldn’t afford to.
In 1990, rates varied from 12% to a high of 14.25%. As peoples’ mortgages matured, the thought was that 12% was a great rate so people locked in to the five-year term, little knowing rates would come down further and had the mind sense they didn’t know if rates would go up again.
By December 1999, the highest interest rate was 8.25%.
At the beginning of 2000, a five-year rate was 8.55% and remained at around the average of about 6.5% until the great recession of 2008 became a reality.
When the recession hit in Canada, due to the meltdown of the US housing market, rates began to come down further. Rates considered their downward spiral in January 2009, with the five-year rate being 5.79%.
Again, the housing market was strained forcing the federal government to take measures to help stimulate its market. Today, a five-year mortgage rate runs in the range of 2.54% to 2.69% with amortizations as long as 30 years for a conventional mortgage.
The main difference between the 1980s and today is the average price of a home.
