The news comes on the heels of news reports over the last couple of weeks that consumer spending is viewed by many economists as being too high, and that the housing market is slowing down.
Being that the mortgage market is a good portion of bank earnings, and is a highly competitive market, this latest move appears to be showing us that all the major banks are prepared to fight hard to maintain their market share and potentially grow it in the “A” business space by taking it away from smaller competitors that are not pricing as aggressively, at least not yet.
Even though BMO is offering an additional year on their 2.99% rate, there are differences in their total offering from what the other majors are offering over their 4 year programs.
So as always, when looking at the best mortgage option in the market place, you should be considering both rate and terms for any specific program and from there make an informed decision as to which one provides the best fit for your requirements.
Its hard to know how long these rates will last or what’s coming next in both the commercial mortgage and residential mortgage markets, especially with the continued pressure and uncertainty in the global financial markets.
But for right now, 2.99% is hot rate for consideration and is now becoming differentiated by the non rate program offerings of the 5 major chartered banks.
To find out more about determining which of the available 2.99% fixed rate mortgage programs are the best fit for your current financing requirements, please give me a call so we can go over your situation together and review each of the programs in detail in order for you to be in a position to make the best decision in the time you have to work with.
Or as they put it, is four year fixed the new five year fixed?
Here’s a link to the article which includes my take on the subject… http://www.mortgagebrokernews.ca/news/breaking-news/is-the-four-year-fixed-the-new-five-year-fixed/107206
Lately, mortgage lenders have been pricing four year terms very aggressively and are seeing considerable uptake in the market place for the 4 year fixed term.
But to say this is becoming a permanent or long term trend would be a stretch at this point.
Basically, mortgage hunters will always react to the best pricing options on the market. And right now with four fixed mortgage terms being priced as close as they are to variable rates and considerably lower than 5 year fixed rates, it makes sense that this type of rate opportunity is going to be taken seriously.
However, if mortgage term pricing changes further, so will the actions of the consumers … just like you would see in any other market.
For now, 4 year fixed terms are very attractive and will continue to gain buyers.
With the discount on variable rates being reduced and fixed rates coming down, both based on the bond market and the lender’s profit margins on each of these products, the differential between variable and fixed (four year term) has gotten as low as 0.50%.
And even though the vast majority of Canadian mortgage holders are holding tight to variable mortgage rates, its once again time to ponder whether or not you should be switching to a fixed mortgage rate.
The additional one half a percent you would be paying would effectively serve as insurance against short term rates rising over the next four years, focusing the decision making process on risk tolerance than anything else.
And no matter how compelling the argument is to move to a fixed rate right now, the counter argument is that you are still paying more out in interest under the lower fixed rates, which is money you could keep in your pocket.
The banks have created quite a dilemma for themselves in that they have collectively moved the masses to variable rates that are now not making them any money.
And mortgage holders have gotten comfortable with the variable rate risk in that variable rates have created large cash savings over the last decade without any retribution from the financial markets, and the near to mid term outlook is for more of the same for the next couple of years.
Even though we have this half percentage point spread, its unlikely mortgage holders are all of a sudden going to move back or over to fixed rates, even though for many it could very well be the right decision from a risk protection point of view.
And with mortgage refinancing down 40%, mostly to the changes in the mortgage insurance rules, banks want to find a way to increase their profits in their mortgage portfolios.
So now what?
One way to get the marketing moving towards more of a win win solution, is to expand on the available split rate or dual rate mortgage program in the market where the borrower can choose a mortgage product that is a combination of a variable and fixed rate, enjoying the benefits that both offer at the same time.
While these programs exist in the market, there can always be ways to expand on the benefits they provide and promote them more aggressively to start moving people away from a strictly variable rate mind set.
This can potentially be good for both borrower and lender, and also move the market in general away from the large variable rate risk we hold as a country.
It will be interesting to see what the major lenders will be promoting in the months to come and what type of split rate mortgage offerings will be on the table.
This week marks a breaking in the ranks with RBC announcing that they will start to raise their VRM rate today, with the rest of the crowd to follow.
Here is an article that provides more details on RBC’s VRM rate change… http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/08/rbc-signals-that-vrms-too-costly.html
This was going to happen sooner or later as the banks were working off of very thin margins in order to attract business through their variable rate products.
And with the majority of mortgage holders either staying with or moving to variable rate mortgages, the profit margins were likely shrinking while the mortgage risk was on the rise.
So what might we read into this with respect to the overall movement in interest rates?
Not very much I would think.
Interest rates for fixed mortgages are more likely to go down than up in the near term and the global financial market uncertainly overall makes it next to impossible to predict any type of interest rate move.
No, this is more of a case of a lost leader starting to get pulled back from the market.
Its also a good example of how things can change with mortgage programs over time when competitive forces are at work.
If you’re looking to secure a variable rate, then you should look at getting a rate hold which most lenders offer, ranging from 90 days to 18o days. This is not going to hold the prime rate in place for you, but it will lock in the discount off on prime, which is likely going to get reduced across the board in the coming week or so.
Rate shopping for VRM products will also likely decline if everyone follows suit in the market and makes a similar adjustment to RBC.
If you have any questions regarding Variable Rate Mortgages, or any other mortgage financing question, please give me a call and I’ll make sure you get your questions answered right away.
On the surface, this is good news as everyone would prefer to pay less interest than more.
But there is a dark under belly that everyone needs to watch out for as well.
Because we have had low interest rates now for a prolonged period of time, both consumers and businesses have begun to accept this as the normal, go forward cost of debt.
Realistically, this is not going to be the case, so its all about what your personal debt load and ability to service debt is going to look like when rates do go up, which we all hope is years down the road.
The longer low interest rates stay in effect, the more debt people take on because they get lulled into a false sense that the good times are here to stay.
A different way of looking at lower interest is that it provides a great opportunity to reduce debt. With less of your available cash flow required to service debt, there is more money at your disposal to pay down principal which in the long run will provide the most protection against future interest rate rises than pretty much anything else you choose to do.
But with variable mortgage rates near 2%, and real estate markets still on the rise in most parts of the country, its hard to not want to purchase that larger home and live closer to the edge, even though it doesn’t feel right now that there is much risk of any significant change in interest rates.
And if you follow some of the economists, its pretty clear they have no idea where things are headed either.
So its a case of how you choose to utilize the money that gets freed up on a monthly basis and how close to the line you want to live.
Most mortgages now a days have generous prepayment privileges that allow you to pay down the principal without prepayment penalties up to a certain amount each year. This is certainly a sound strategy that can shave years off your mortgage and thousands of dollars off your interest payments.
Alternatively, if you have some flex in your cash flow and can take on more debt to invest more money in a growing real estate market, the return can be substantial to you over time as well.
The key point here is that regardless of how you want to utilize lower interest rates today, its important to think about what happens when rates go up in the future.
Once again, hopefully interest rate rises are a long way away, but they are inevitable, so plan accordingly and manage debt wisely.
Not only is it going to stay put, but much of the economic and financial prognostication seems to think there may not be any rate increase until May of 2012.
Here’s more on the recent BoC announcement … http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/07/deciphering-the-bocs-hieroglyphics.html
That’s the great thing about interest rates is that they are basically impossible to predict with an accurately.
But as the article referred to above mentions, all the careful wording, which everyone tries to analyze to death for clues, seemed to be pointing in the direction of nothing happening any time soon.
This is of course good news for variable rate mortgage holders who will be directly impacted by an increase rates.
The other side of this coin is that even though the overnight rate remains unchanged, rates are still going to have to go up at some point.
The access to cheap money is great, but it can also cause more problems in the long term such as inflation and overheating the economy.
One of the things the article also alluded to is something called the neutral interest rate, which was a new term for me.
Essentially what this refers to is a BoC overnight rate that should ideally move in the 2.5% to 4.0% range, depending on who you talk to.
This becomes an interesting metric for anyone that holds a variable rare mortgage in that upward movement in rates in the not so distant future are likely to move into this range, which would translate to a 1.5% to 3% higher variable mortgage rate.
So the key question then for variable mortgage holders is will they be able to afford their mortgage if rates increase to this “neutral interest rate range”?
If you can’t, there there’s still some time to do something about it, based on some of the projections that interest rates will not increase until next May at the earliest.
At least this gives you something to go buy. Its hard to answer the question as to whether or not you can afford higher interest rates when you don’t have any context as to what higher rates could be.
This is whole “neutral rate range” is not set in stone either, but does provide a measure stick of sorts to crunch some numbers against.
If you have any questions about variable mortgage rares and strategies you can deploy to reduce your lending risk, I suggest you give me a call and I’ll make sure you get all your questions answered right away.
Of course, this is not typical, but there are cases where you may be pleasantly surprised as to the type of private mortgage lending rates that are out there.
For much of the private mortgage lending market, a first mortgage can be priced in the 8% to 11% range. This reflects not only the risk associated with the mortgage being financed, but also the lender’s desired return on investment.
And because someone requiring private money right away may not be able to fully understand or have time to explore the market, they can end up paying a rate that is really higher than the underlying risk of the mortgage.
There is also a small slice of the market where individuals or groups of investors are looking to place private mortgages as an investment vehicle, and have extremely low risk lending criteria.
These individuals or groups are looking to do better than the returns from GIC’s, T bills, and bonds, but without taking unnecessary risk.
The solution for at least part of their portfolio is funding low risk private mortgages.
So for these low risk mortgages, how low can the interest rate go?
In scenarios where you have an excellent property in a very strong market and don’t require more than 50% loan to value, the private mortgage interest rate can get as low as 5% to 6%, with or without a lender fee on closing.
These are really terrific rates and for those lower risk scenarios, this type of money does exist.
But to gain access to it, you have to have enough patience to go through a more conservative assessment and decision making process than what you will find with most private lenders. Lower cost money is lower risk, which almost always moves slower as the decision makers for funding want to make sure that the risk level meets their criteria.
The other challenge with locating and securing the best private mortgage rates is that these specific private lenders are not all that easy to find as they don’t tend to have their own retail presence and in some cases do not even speak directly to the end borrowers.
The access to the lower rate and lower risk lenders is typically through an experienced private mortgage broker who they trust to bring them well qualified deals that meet their lending and funding requirements.
If you have a financing scenario that fits the lending criteria mentioned above and you’d like to explore seeing if you can qualify for a low private mortgage lending rate, then please give me a call so we can go over your requirements together and discuss potential funding solutions that may be available to you.
Most of the time, the lowest cost fixed rate mortgage programs are basically stripped down to the bone, not providing for any type of prepayment in excess of your scheduled payments that won’t trigger a prepayment penalty.
That being said, as rigid as these programs can be, some will still allow you to increase your payment once a year or provide other very subtle, low value benefits in exchange for the best mortgage interest rate they are prepared to offer.
This can be still be a very good fit for first time home buyers or people with rental properties where there is absolutely no intention to want to be paying anything additional down on the mortgage during the mortgage term.
For everyone else, its one of those buyer beware situations that you need to make sure that a slight reduction in interest rate does not automatically take away a prepayment privilege that may be valuable to you over the mortgage term.
There could still be situations in the future where even paying a prepayment penalty may still land you a net savings on a better rate, but you’re going to have to work through the math with your mortgage broker to make sure that is the case. And even if it is, you’re still going to have to pay the repayment penalty out of pocket and net the savings over time, so cash in hand would also be important to make this scenario work.
In any case, there are pros and cons to any mortgage program and if you’re truly looking for the best rate, you may have to compromise on some of the other features that are common with many of today’s competitive mortgage programs.
Before you make any sort of decision, the best course of action is to always be working with an experienced mortgage broker who can not only identify the program that meet your requirements, but also go through the specific terms and conditions of each program and how they may impact you in the future.
According to a recently completed survey by the Canada Mortgage And Housing Corporation, 80% of Canadian home owners are doing some form of annual budgeting, and 71% have factored into their budgeting efforts the possibility the interest rates will be going up.
The major risk area of people not prepared was in the new home owner category where budgeting and cash flow planning was not as predominant as with longer term home owners.
It would seem that all the news related to the projected future path of interest rates and tightening up of mortgage regulations has registered with Canadians that they must be prudent in managing the level of debt they are carrying, primarily mortgage debt, and the potential costs of carrying the debt.
The survey also indicated that 75% of respondents were focused on paying off their debt as soon as possible. Once again, this is good for the economy as a whole that the majority of the general population is more capable of withstanding a significant interest rate increase or a real estate market price adjustment.
It will be interesting to see how mortgage holders will continue to view fixed and variable rates in the months to come in terms of balancing cash flow management in the short term and interest rate risk in the longer term.
As a Canadian mortgage holder or future mortgage holder, there has never been a better time to select a mortgage program that best fits your budget and debt repayment preference.
And with all the information now available on line, its much easier to get a sense of where things are headed in the local and global financial markets, as well as first hand information on how different mortgage products can help you better manage your finances.
Hopefully interest rates will continue to stay down, but the reality is they are more likely to go up than stay where they are for any extended length of time.
If you’re going through a budgeting process and want to further develop your mortgage repayment strategy, I suggest that you give me a call and we’ll go through everything together and get all your questions answered.
According to a recent survey by CIBC, over 60% of respondents said they thought interest rates were going to increase in the next year.
But of those surveyed, only 39% said they would choose a fixed rate at this time.
Here’s a link to the full article from the Financial Post … http://www.nationalpost.com/Prospect+higher+rates+hasn+people+flocking+lock/4880972/story.html
This underlies the ongoing debate over fixed versus variable rates that we have with clients every day.
From a “what should I do” point of view, there is really no right answer. There are good arguments for both, even in a rising rate environment.
The statistics do show that a high percentage of Canadians have been conditioned now to variable rates as staying variable has netted some considerable savings over the last number of years.
And many people have stayed variable during times of rate increases or projected rate increases, only to see interest rates settle down or even fall, further benefiting from their variable rate position.
But there is no guarantee that such good fortune will continue sticking with variable rates.
With all that’s going on in the global financial markets, its not beyond imagination that rates increase and then stabilize at a higher level which would make fixed interest rates very attractive right now.
It’s all about who’s crystal ball is more accurate over time.
And it would appear from some of the statistics out there, such as the CIBC report mentioned above, that there is a good portion of the population that’s going to stay variable until it doesn’t make any sense for them, or they can’t afford the financial risk of rates going any higher.
Added to everyone’s personal assessment of fixed versus variable is the fact that fixed rates have recently been coming down why variable rates have remained unchanged, creating an even greater rationale to go variable at the present time.
Once again, a big part of anyone’s final decision on rate structure is going to relate to their own situation, personal assessment and tolerance for risk, and long term financial plan.
To get more information on mortgage interest rates and what might make the most sense for you and your family, give us a call so we can assess your situation and get all your questions answered.
Fixed mortgage rates are closely linked to the bond market and with the bond yield now at a 5 month low, the correlation with fixed mortgage rates should spark some positive downward movement.
For a look at the most recent yield chart, click on this link …http://www.bloomberg.com/apps/quote?ticker=GCAN5YR:IND
This makes it a positive week overall for the mortgage market with the week starting off with no movement in the Bank of Canada’s overnight lending rate which tends to have a direct impact on variable mortgage rates.
The spread right now between the bond rate and equivalent term mortgage rates are significant enough that competition is likely going to bring rates down in order to grab or maintain market share.
All of this is potentially good news for mortgage holder and mortgage shoppers in Canada.
What type of rate change is likely to take place is hard to predict and it will also vary from region to region in the country, based on competitive forces in each area.
All the financial uncertainty in the world has made it more attractive to hold AAA Canadian Government issued bonds. Bonds have an inverse relationship with interest rates, so as the price of bonds gets bid up higher due to increased demand, the interest rate yield on the bonds drops.
The end result is that mortgage lenders have a cheaper source of money to draw on which should translate sooner than later into lower fixed term mortgage rates.
If you’d like to know more about how these potential rate changes may impact your mortgage situation or requirements, please consult with an experienced mortgage broker to help you stay on top of the expected rate moves.
This is good news for variable rate mortgage holders as most variable rate mortgages move directly with any changes in the over night rate.
The last number of months have produced considerable speculation about if and when rates are going up, and while most economist believe that interest rates are going to be going up, its not likely to happen right away.
A return to a more traditional overnight rate of 2% to 3% is now being pushed back to 2013 by some pundits.
It was only a month or so ago that a rate hike at the end of May seemed like a forgone conclusion. But then again, it shows just how much can change in a short period of time and how unpredictable interest rate movements really are.
For more information about the B of C’s announcement, here is the link to their site … http://www.bankofcanada.ca/2011/05/press-releases/fad-press-release-2011-05-31/
The next scheduled interest rate decision date is not until July 19, and the current consensus from those supposedly in the know is that there isn’t likely to be any further rate increases until at least September.
But, of course any predictions with respect to interest rates are subject to change.
So in the mean time, those holding variable mortgages, or considering one can continue to enjoy the near record run we’ve had in Canada at the low end of the rate spectrum.
Hopefully the trend will continue well into the future.
With the continual advancement of the internet, online services for providing mortgage rates and potentially in the future, signing up for the mortgage online are going to become more visible to those that prefer to do more and more of their business online.
The key to any type of online business is simplicity of service where you can basically point and click on what you want. The closer something is to a commodity, the more likely online competition and offerings will appear.
So if you have great credit and are looking for a very straightforward mortgage offering, shopping around for the best rate on line will likely become an easier process in terms of both convenience in finding what you’re looking for and the speed of completion of the mortgage process.
For anything that’s not completely straightforward, these online line rate quoting services may end up leaving you wanting more.
As I’ve written before, a mortgage decision is one of the biggest financial decisions most people will make in their life time.
So taking the time to understand where you fit into the market, the terms and conditions of different offerings, and settling on rates and terms that make sense for your cash flow and future plans is pretty important.
As I write this article and post it in online media, I truly see the value of using the internet as a tool to assist with the mortgage financing process.
But my objective is to help you locate a suitable adviser who can assist you with the process.
All the posted rate information can be very misleading and many times comes with certain conditions that may or may not make sense to your particular situation.
As a mortgage broker, my goal is to give you broader access to the market and help guide or fit you into a lender’s program that will be the most beneficial to you at any given point in time.
This is an important distinction in the process of locating and securing a mortgage as lender programs and rates are a moving target, so whatever is advertised online today can be different tomorrow and if the information is not constantly brought up to date and refreshed, can end up being misleading.
The other aspect of online rate shopping is that is basically ends up having you select one lender to apply to, based mostly on posted rates.
If you make an application to a unique lender and don’t end up taking their offering, you’re not only right back at the starting point, but you’re also going to have more credit inquiries from a “one at a time” application process.
The point here is that posted online mortgage rates can be very misleading and many times are designed to get you to apply without you being able to tell if you will even be able to qualify for the offer.
Once again, for high credit score, high income, high net worth applicants, low rate shopping on line can be very beneficial.
For everyone else, at least at this point in time, it can be a bit misleading.
If you have any questions about mortgage financing for a residential or commercial requirements, please give me a call and I will make sure all your questions get answered right away.
The election is in the rear view mirror.
We have a conservative majority, so now what?
There is no question that a conservative majority spells greater economic and financial stability to the rest of the world, regardless of how you may have chosen to vote.
Right now the Canadian economy is on a growth path, and any change to the current approach to governance would have been an unknown that could have worked against the financial markets.
Its certainly not that change can’t be good, but change is also an unknown variable with respect to whether or not things improve from change or get worse.
So the short answer is that the results of the election are more positive than negative to the mortgage rates at this time.
That being said, there are certainly a lot of other factors to consider that impact the financial market and staying the course also leaves us with an economy that is starting to overheat a little bit as we narrow the production capacity gap and create inflation in the process.
Everything still points to the Bank of Canada raising their current 1% rate starting sometime in the next two months and then potentially continuing to increase it during the rest of the year to try and keep inflation in check.
The bond rate is trending down at the present time, which could actually create a short term reduction in mortgage rates, but it may not as well, especially if lenders view any reduction to be short lived.
So its hard to say exactly what rates are going to do for the rest of 2011, but on balance they are more likely to go up than down.
At the same time, with respect to mortgage rates in general, we are in about as good a shape we could expect to be in at this time of the year, all things considered.
Different election results could have easily lead to greater uncertainty going forward in the financial markets.
But in the end, the election results are returning us back into more of a “business as usual” mode which hopefully will bode well for mortgage rates going forward.
If you would like to discuss mortgage rates or have any questions on what types of options are available to you in the market, I recommend that you give me a call so we can book some time to get all your questions answered.
Over the past several months all the residential and commercial mortgage rate increases and projections of more to come have pushed consumers and business owners into a mortgage shopping and mortgage rate following frenzy.
But in the last week or so, mortgage rates have back peddled a bit and the pressure has been let out of the balloon in terms of ongoing rate increases … at least for the moment.
I can understand this to some degree, but all the fundamentals and economic forecasts speak to rates more likely to go up than down in the coming months.
So if you’re in need of a new residential mortgage for whatever reason, it would still make sense to hold the course and try to get the best available deal in place versus waiting for rates to jump up again (which they are more likely to do than not right now) and start the frenzy all over again.
I guess part of the rationale for running hot and cold on rate shopping relates to trying to hit the market bang on so you are always paying the lowest possible rate. For the pure speculator that really focuses on the market and its rate movements, this is just the way they approach interest rate optimization.
But for most of the rest of the crowd, the logic doesn’t hold, at least not for me. During an obvious period of mortgage interest rate stability, it doesn’t really matter how you approach managing interest rate risk in that as rates go up a little or down a little, the gains and losses balance out.
However, when most of the signals that the markets are providing indicate rates going to higher levels, then it now becomes necessary to either do something about it or take your chances.
And while a small percentage of the market will lock in their rates at exactly the right time, most will not and end up paying more than they need to.
No one has a crystal ball with respect to mortgage interest rate movements. But if your cash flow is going to be highly sensitive to higher rates in the future, you may not want to play it too close to the vest when protecting yourself against rate increases, otherwise it could be too late.
My advise? Stay the course. If you need financing or you’re cash flow is rate sensitive, keep working through your options regardless if the rates are going slightly up or slightly down right now. If you can afford to be on the losing side of future rate increases, you may want to continue to speculate on the market.