Bank of Canada suggests rate hikes soon…

April 18, 2012 — Steve Garganis

The Bank of Canada met on Tuesday for the 3rd of eight scheduled meetings this year to set the Bank of Canada rate.  As expected, no rate change… But there were some language in the meeting that suggests we could start to see rates go up as early as this year…. here’s an article from The Star and reaction from TD’s Economist.

In short, it appears and I stress the word, appears, as though Mr. Carney is warning us that interest rates will be rising sometime soon.   But Economists aren’t buying into that warning just yet.   There is still too much uncertainly about the global, U.S. and domestic economies.    And as long as these concerns persist, then interest rates should remain low.

SOME EXPERTS DON’T BELIEVE ALL THE DOOM AND GLOOM STORIES

It’s true, we have experienced emergency interest rates for over 3 years now…  It’s no secret the govt is concerned about Canadians get into too much debt.  You’ve heard the figures.  The average Canadians owes around 153% of their annual income…. concerns about a housing bubble.   But how does that compare with the rest of the world?  Here’s an interesting article from the Financial Post’s Andrew Coyne, which says there are other countries that carry 200% and 300% of their annual income in personal debt… there doesn’t seem to be the level of concern about their economies.  So why are we in such a panic?

It appears we are at a point where rates could go up but a lot of things would have to fall into place before that happens… it could take 6, 9 months or even a few years before that happens… maybe longer…?   Any rate increase is sure to be slow….  Don’t panic… if you see an opportunity where you can benefit from these low rates, then act on it… don’t let the media scare you into inaction or lack of action…..

And as always, speak with a professional that can discuss and explain the different mortgage products and trends… make an informed choice.

Posted in Interest rates, Mortgage News, Mortgage Rates. Tags: , , , , , . Leave a Comment »

Mortgage wars end?…only for the BIG SIX Banks…

March 30, 2012 — Steve Garganis

March 29th, 2012 is going to be remembered as the day when the BIG SIX Banks ended their Mortgage War.   Well, at least for now.  Rates are up around 0.50% at Retail Branches of the BIG SIX  Banks.  (don’t worry, Mortgage Broker rates haven’t gone up that much and are lower than any of the so-called discounted or special rates advertised by the BIG SIX Banks.)

In what was an unprecedented, public fight for your mortgage, the BIG SIX Banks pulled down their pants and showed how low they can really go with their rates.   We saw BMO come out with their 2.99% NO FRILLS mortgage… ( a product we wouldn’t recommend to anyone due to it’s restrictions, limitations and penalty calculations).    Unfortunately, too many borrowers don’t look beyond the rate and have signed on for this product..   They will have to deal with the consequences in the years to come.

RBC fired back with a pretty good rate of 2.99% for 4 years… It didn’t have the restrictions or limitations but it still had that unfair penalty calculation.   RBC also took some public shots at the BMO product, through the media and their own website.   It was great to see some real competition take place among our BIG BANKS.    There is always a winner in this war.   You the borrower.

TD, Scotiabank, National Bank and CIBC all followed with a similar 4 year fixed rate at 2.99%.   But they still had that same penalty calculation formula I absolutely don’t like.

“Canadian lenders appear to be extremely slow to pass on changes in the Bank Rate to their customers.“  Anyone remember that quote?  That’s a direct quote from the Bank of Canada review entitled ‘Competition in the Canadian Mortgage Market’.

Here’s another one from the same report “borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”.

The good news about all this rate war stuff is that we saw even better mortgage products being offered through the Mortgage Broker channel.  Remember these quotes the next time you are shopping for a mortgage.

Posted in Interest rates, Mortgage News, Mortgage Products, Mortgage Rates. Tags: , , , , , , , , , , . Leave a Comment »

When opportunity knocks…open the door.

March 21, 2012 — Steve Garganis

It’s March, 2012.   How will you look back at this month in 5 years time?    There are certain dates in history that stand out for all of us.   Some are more personal than others, like the birth of my son, the day I met my wife, my first trip overseas, NHL pro hockey camp, etc.

And then there are dates where I look back at missed opportunities.

-October 1984, I had a chance to buy a waterfront lot on Balsam Lake in Ontario’s cottage country, for $22,000…. now selling for $400,000.   There was a new condo in east Toronto for $82,000 in September 1987…. now selling for $392,000….(and yes, I think I was 5 years old…Lol!)..

-Or how about that semi-detached house at Danforth Ave and Woodbine, in Toronto, for $175,000 in 1990….now selling for $500,000.    More recently, I could have bought a house for $320,000 in 2005, near the water in Burlington, Ontario…..that same house sold for $800,000 last year.

The point it, I think we will look back at March 2012 as the month when the Banks declared mortgage war against each other…  Only in this war, there is a winner… YOU, the consumer, YOU the borrower, YOU the investor.   We are seeing record low mortgage rates.   And they won’t last forever.  In fact, this mortgage war is probably going to accelerate interest rate hikes…  almost like starting a campfire with gasoline soaked wood… It’s burning red hot but it won’t last for long.

With interest rates are record lows, isn’t this the time to borrow?    A $300,000 mortgage will carry for $1196/mth.. and that’s with a 5 year fixed rate term.  Bond yields are climbing… 5 yr bond yields are up to 1.71%.. that’s up 30bps in less than a month… 5 year fixed rates follow bond movement… i think it’s safe to say, we should expect rates to climb in the near future… and the reason they haven’t moved yet is because of the Mortgage wars…

We are hearing the cries by the govt and some bankers, telling us not to borrow too much.  Personal Debt level concerns are plastered all over the internet and media.   But we aren’t seeing many articles telling us how to borrow and invest wisely…. borrow when rates are low instead of borrowing when rates are high… borrow when you qualify instead of borrowing when you don’t… borrow when you don’t need the money…   Isn’t that when Banks want to lend you the money?

We have just seen a draft guideline, Bill B-20,  entered in for review with a May 1st decision date.   These new regulations are aimed at tightening lending rules even further.. and this time it’s targeting Home Equity Lines of Credit..   That’s right, they want to make it even harder to qualify for these products and possibly make the repayment terms more strict…

Opportunity is knocking… answer the door..

Posted in Interest rates, Mortgage News, Mortgage Rates, Mortgage Tips, Real Estate news. Tags: , , , , , , . 1 Comment »

BMO 2.99% No Frills mortgage needs another look.

January 25, 2012 — Steve Garganis

It’s January 25, 2012… that’s the original deadline date issued by BMO for their NO FRILLs 2.99% 5 year fixed rate mortgage.   Since announcing that 2.99% rate, BMO has reportedly been flooded with calls and applications.  And rightfully so.  That’s the lowest advertised 5 yr fixed rate in history.  (we need to say thank you to BMO… they woke up the competition and the competition answered.. we have seen competitive offers from the non-bank lenders… no restrictions or limitations…   This is great news for the consumer.)

This product has also drawn some criticism…There was an interesting articles asking if this product was too good to be true….  click here to see what The Toronto Star thinks.

Let’s look at the restrictions and limitations more closely…    If you are 100% certain about the next 5 years in your life, your job, your health, your family’s health, then this may be a great product for you…. But if you look at the stats, we, as Canadians, on average refinance or change mortgages every 3 years…  With that in mind, the product can be very costly for the unsuspecting borrower….read on and I’ll explain…

I’m not too concerned with the limited prepayment privileges.   The biggest potential risk to borrowers is the inability to refinance outside BMO should they experience some financial problems in the next 5 years.   If a borrower runs into financial problems and needs to take the mortgage elsewhere, because they won’t qualify for a BMO refinance,  they can’t do it.  The mortgage can only be paid out if the house is sold…

An an even bigger problem is the BIG SIX penalty calculation…. let’s say you can somehow refinance in 2 or 3 years with BMO, or you do sell the house and are not porting the mortgage… well, now you must deal with a penalty calculation that makes you pay for the original discount you received at the time of the original mortgage….   And LOOK OUT…This is where we have seen penalties of 6, 9, 12, 14 and even 16 months worth of interest being charged by the Banks to get out of a mortgage..(click here to see how banks calculate their penalties).  (hey, Federal Government, didn’t you promise to standardize mortgage penalty calculation 2 years ago??… when is that going to happen?))

And if you need more money added to your mortgage, what assurance will you have that BMO or any other BIG SIX bank, will give you a good rate or a discount on those new monies?   None… they certainly won’t have to, given your penalty to exit would be higher than other non-bank lenders…    This subject is not talked about very much by the media or by the banks… We will be commenting on this further in future posts….  (hey, how about CIBC and that class action lawsuit over mortgage penalty charges??… I’ll be making some comments on this soon).

Here’s some advice… seek out Lenders that have better penalty calculations... they are out there… they just aren’t as obvious as the Big Six Banks… talk to a mortgage broker and get some comparisons…  you might be surprised to know that competitive rates exist without having to give up your future options…

Posted in Interest rates, Mortgage News, Mortgage Products, Mortgage Rates, Mortgage Trends. Tags: , , , , . 1 Comment »

BMO’s No-Frills 2.99% mortgage offer is not ground breaking…just another trap by the Big Banks..

January 15, 2012 — Steve Garganis

EXTRA, EXTRA, READ ALL ABOUT IT…. 5 years fixed No-Frills mortgage for 2.99% by BMO….wow, can you believe it?    Well, don’t get too excited…  At CanadaMortgageNews.ca we  give you the straight talk…  and guess what, No-Frills mortgages aren’t anything new…

I’m giving a BIG THUMBS DOWNS to this product… and you should too…

I’ve had access to these products in the past and we still have access to them….  but I have NEVER recommended it to any of my clients….  the limitations can be too costly and any potential savings can easily be eaten away with prepayment penalties, fees and the inability to even exit the mortgage…. That’s right, you can’t exit the mortgage in many cases…  read on, I’ll explain more..

Make sure you understand how the rates are calculated

Before you start thanking BMO and putting your arm around the banker’s back, you should understand that rates have been inflated for several months… they should actually be much lower…..

Fixed mortgage rates are closely priced to the Govt of Cda bond yields.   5 year Bond yields have been below 1.50% since Nov 1….and have been hovering at around 1.30% since Dec 1.   Historically, the best discounted rates are between 1.25% and 1.50% above the bond yields….  That means fixed rates should be at around 2.80%…. Okay, let’s add in a premium for some market uncertainty….  That doesn’t explain why 5 yr Fixed mortgage rates have not been below 3.29%?

Well, I think Canadians are smart enough to know why the savings hasn’t been passed down to them….  yup, Banks are just maximizing their profits…  And now, this past week, we saw an announcement that BMO was announcing a special low rate…  5 years fixed for 2.99% …  WOW, that does sound great…doesn’t it?    Well, maybe not… let’s take a closer look before giving this product the ‘thumbs up’.

A closer look at BMO’s NO-Frills 2.99% special

There are too many limitations to this product…

-maximum amortization is 25 years.   your prepayment privileges is reduced to and annual lump sum payment of 10% of the original principal balance and you can only increase your payment by 10%.

-90 day rate hold instead of the usual 120 day rate hold.

-you cannot payout this mortgage prior to maturity unless through a bona fide sale…

-you can only refinance the mortgage with BMO and not with any other lender before maturity…. this will all but eliminate your ability to negotiate the rate… a huge loss for borrowers….  ( you can take your mortgage with you if you move to another house but if you need more money, you will have to negotiate the rate… do you really think BMO will give you the best rate at that time???).

-BMO’s penalty calculation… the BIG SIX banks have the worst penalty calculation formula in Canada.   This is one of the biggest kept secrets in the industry… If you had to pay your mortgage early, for any reason.. or if you had to refinance, you would be hit with a penalty calculation that could break your savings account…  That’s because the BIG SIX banks use a formula that makes you pay for your mortgage discount, for the entire term of the mortgage… read this article on how they do it…. don’t get caught having to pay a 10, 12, 14 month interest penalty….  (just worked out a mortgage penalty for a client.. if they stayed with RBC, they would have to pay a penalty of $7,000, if they went with one of our wholesale lenders, they would only pay $2,000.  this penalty calculating formula is similar to BMO).

By the way, the competition has responded and bettered BMO’s offer

There is some good news to BMO coming out with this product…  just as we are writing this, we see that a big lender has come out with a 4 year fixed rate of 2.99% with NO restrictions or limitations…  For us, that eliminates BMO’s Low rate special as a serious competitor in the mortgage market.  But thank you, BMO, for pushing the Lenders…

My advice, stay away from these No Frills mortgage…   speak with your mortgage broker and get full disclosure on this and other products before making any decisions that could end up costing you dearly…

Posted in Interest rates, Mortgage News, Mortgage Products, Mortgage Rates. Tags: , , . 25 Comments »
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