Jasmine Foreman and fiance Chris McCreath in front of their house that has a mortgage rate of only 3.25 per cent. CREDIT: Steve Bosch, Vancouver Sun

Five-year mortgage rates have hit a new low of 4.30 per cent for buyers who use a mortgage broker or can negotiate the best possible deal with their bank or credit union.

Only buyers with good credit and good financial prospects are likely to qualify for the fixed-term 4.30-per-cent rate, now on offer from Vancouver-based HSBC Bank Canada.

Those of modest means can do even better, however, if they are prepared to take a variable rate mortgage with a view to locking in when interest rates start to nudge upwards.

Either way, home buyers can cut mortgage payments by hundreds of dollars if they push for a better deal than Thursday’s typical five-year posted rate of 5.70 per cent.

For example, a $200,000 mortgage at 5.70 per cent would require monthly payments of $1,244. At 4.30 per cent, a borrower would pay $1,084 — for a monthly saving of $160.

With a variable rate mortgage at 3.75 per cent, they would pay $974 — a saving of $270, monthly, on the five-year posted rate.

“Unfortunately, some buyers are still paying the posted rate,” says Kris Budisa, a mortgage broker with The Mortgage Group in Vancouver. “They are passing up substantial savings.”

Budisa says HSBC’s 4.30-per-cent rate is the lowest five-year rate in living memory. Even today’s average five-year posted rate of 5.70 per cent hasn’t been seen since the spring of 1952, according to records kept by Canada Housing and Mortgage Corp.

Proud home buyers Chris McCreath and Jasmine Foreman are paying just 3.25 per cent — the best-available variable rate — for the mortgage on their $293,000 home in North Surrey. Interest charges on variable rate mortgages go up and down in line with bank prime, which is currently 4.0 per cent.

McCreath and Foreman closed their deal with Scotiabank through The Mortgage Group on Wednesday and even collected a $200 bonus from Budisa on a promotional coupon he gave out at a wedding show. The couple take possession in May and are due to wed in September.

“I am comfortable with the mortgage we got because the rate only adjusts every six months, regardless of what happens to the prime rate,” said McCreath, a 26-year-old civil engineering technologist with Richmond‘s A&B Rail Services.

“There are no sudden surprises and another attractive thing is that we can convert to a fixed term at any time without penalties.”

The couple made a down payment of about eight per cent of their purchase price by borrowing from their registered retirement savings plans under the RRSP Home Buyers Plan.

Although they face monthly payments of $1,365, up from their current rent of $860, McCreath says the amount they were contributing to their RRSPs for the past three years will almost make up the difference.

First-time buyers can each borrow up to $20,000 from their RRSPs without tax consequences, provided the money is repaid to the plans over a 15-year period.

McCreath does not anticipate any problem with the RRSP repayments. Foreman, 26, is a child and youth care counsellor for the Richmond School Board.

With mortgage rates at historic lows, he says he may well switch to fixed-term rate if they fall again.

“I can’t see rates going much lower.”

HSBC was tight-lipped Thursday about the terms of its 4.3-per-cent five-year mortgage, which is being promoted by mortgage brokers. That’s because the bank doesn’t want to offend customers who may be charged more at its branches.

“HSBC’s posted rate for a five-year closed mortgage is 5.70 per cent,” the bank’s Sharon Wilks said Thursday. “Branch staff have discretion to offer a lower rate.

“As at most financial institutions in Canada, the depth of a client’s relationship with the bank is taken into consideration, along with a number of other factors when determining the rate.”

Budisa said HSBC “has nothing set in stone, but they are looking for strong clients — professionals with good credit and good future business potential.”

Most buyers can get better than posted rates. They can use a broker or challenge their financial institution to beat the no-dicker rates offering by the electronic banks. Those rates are typically better than one per cent below the posted rates of the big banks.

On Thursday, ING Direct announced the lowest mortgage rates in its history, ranging from 3.10 per cent for a one-year fixed term to 4.39 per cent for a five-year fixed mortgage, and 5.24 per cent for a 10-year term.

“Customers are talking to their banks and then coming to us because they are not getting the kind of rates offered by ING Direct,” president and CEO Johanne Brossard said in a release.

Historically, most buyers have chased the lowest long-term rate available, but increasingly they are opting for shorter term rates and variable products, said Craig Morrison, Scotiabank’s director of mortgage sales for B.C.

“As consumers are educating themselves, they are taking advantage of today’s greater choice and selection.”

He added that borrowers need to assess their long-term goals and objectives and recognize that the best rate isn’t everything. The mortgage has to be suitable to their ultimate goals and needs.

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BUILDING A DREAM

Amount borrowed

Best variable rate; 3.25 per cent

Best five-year rate; 4.30 per cent

Bank posted rate; 5.70 per cent

$100,000 $487 $542 $622

$150,000 $730 $813 $933

$200,000 $974 $1,084 $1,244

Based on monthly mortgage payments

© The Vancouver Sun 2004