It Pays to Pay Attention to Interest Rates

3 min read

In this age of low interest rates, it may be surprising to know that over the last 50 years, mortgage rates have generally hovered between 5% and 10%.1

Historical Posted 5-year Mortgage Rates
From 1973 - Today

Historical 5 year mortgage rates line chart from 1970 to 2020

1Source: Bank of Canada, which sources its data from posted bank rates. Chart adapted from https://www.ratehub.ca/5-year-fixed-mortgage-rate-history as of June 30, 2021.

 

It's perhaps even more shocking to see that in 1981, the interest rate for a 5-year fixed-rate mortgage was 21.75%.1 On a 25-year mortgage, the monthly payments2 are eye-popping, especially when compared to the latest posted rate of 4.79%1:

 

Mortgage
Amount

Mortgage
Rate

Monthly
Payment2

Additional
Monthly Cost3

Additional
Yearly Cost3

$100,000

4.79%

$569.71

—

—

 

21.75%

$1,745.45

$1,175.74

$14,108.88

$300,000

4.79%

$1,709.13

—

—

 

21.75%

$5,236.34

$3,527.21

$42,326.52

$500,000

4.79%

$2,848.54

—

—

 

21.75%

$8,727.23

$5,878.69

$70,544.28

 

Why were interest rates so high then? The Bank of Canada had raised interest rates to rein in inflation. So as frightening as these numbers are, we don't expect to reach those interest rate levels anytime soon. 

 

Small Increases Can Have a Big Impact

That said, even a small increase in the interest rate can have a significant impact on your monthly payment, having a ripple effect on your financial budget and goals. 

Use those same mortgage amounts, and again assuming a 25-year amortization period, let's look at a few examples using the latest posted rates:

  • 2.79% = 1-year fixed rate4
  • 3.49% = 3-year fixed rate4 
  • 4.79% = 5-year fixed rate4 

 

Mortgage
Amount

Mortgage
Rate

Monthly
Payment2

Additional
Monthly Cost5

Additional
Yearly Cost5

$100,000

2.79%

$462.54

—

—

 

3.49%

$498.74

$36.20

$434.40

 

4.79%

$569.71

$107.17

$1,286.04

$300,000

2.79%

$1,387.61

—

—

 

3.49%

$1,496.23

$108.62

$1,303.44

 

4.79%

$1,709.13

$321.52

$3,858.24

$500,000

2.79%

$2,312.68

—

—

 

3.49%

$2,493.71

$181.03

$2,172.36

 

4.79%

$2,848.54

$535.86

$6,430.32

What Can You Do?

Just like equity markets, real estate also has risks, such as the interest-rate risk discussed in this article. 

Your financial advisor - whose job includes risk management - can help determine where real estate fits in your overall portfolio – helping ensure that you’re not taking on too much debt, that your other goals aren’t impacted and that your portfolio is appropriately diversified.

 

1Source: Bank of Canada, which sources its data from posted bank rates. Chart adapted from https://www.ratehub.ca/5-year-fixed-mortgage-rate-history as of June 30, 2021.
2Source: Financial Consumer Agency of Canada. Mortgage Calculator - Canada.ca (fcac-acfc.gc.ca).
3 Compared to 4.79%.
4 Mortgage Rate History - Super Brokers.
5 Compared to 2.79%.
The commentaries contained herein are provided as a general source of information and should not be considered personal investment or tax advice. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained here.
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.
AGF Management Limited (“AGF”), a Canadian reporting issuer, is an independent firm composed of wholly owned globally diverse asset management firms. AGF’s investment management subsidiaries include AGF Investments Inc. (“AGFI”), AGF Investments America Inc. (“AGFA”), Highstreet Asset Management Inc. (“Highstreet”), AGF Investments LLC (formerly FFCM LLC) (“AGFUS”), AGF International Advisors Company Limited (“AGFIA”), Doherty & Associates Ltd. (“Doherty”) and Cypress Capital Management Ltd. (“CCM”). AGFI, Highstreet, Doherty and Cypress are registered as portfolio managers across various Canadian securities commissions, in addition to other Canadian registrations. AGFA and AGFUS are U.S. registered investment advisers. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF investment management subsidiaries manage a variety of mandates composed of equity, fixed income and balanced assets.
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