We’ve reached the middle of summer and there is very little to report… hey, that’s a good thing.. remember, boring is good when it comes to mortgage rates..
Remember those Experts that called for people to lock into a long-term fixed rate at or around 4.00% last year?.. Variable rates have been under 2.00% for over a year and recently went above 2.00%…. I do understand why some would call for us to lock in….but I’m glad I wasn’t one of them…
Look at today’s 5 year bond rate and it’s 2.29%… WOW! That’s unbelievably low… the 5 year fixed rate is priced from the Bond market and normally, we will see a spread of 1.20% to 1.40% above that… so really, we should be seeing fixed rates as low at 3.50% but the Banks are taking advantage of the spreads and maximizing their profits…..
Let’s not be in too much of a hurry to improve bank profits….
Watch for possible increases in fixed and variable rates later this year.. but remember, we’re still near record low rates.. they will go up, but slowly… no need to panic… yes, this is boring news.. but boring is good…
Last week we saw the Bank of Canada raise the Key Rate by 0.25% and the Banks quickly raised Bank Prime lending rate to 2.75%. For those in a Variable rate mortgage, the question of whether to lock into a fixed rate is coming up again.
No surprise, the media has started the fear mongering and the so-called ‘Experts’ are suggesting that it’s time to lock into fixed rates, once again…. This article came out today and I’m not surprised that these ‘Experts’ have quickly jumped on the band wagon with talk of ‘rates hikes’ and ‘higher housing costs’ to get their name in lights… click here and judge for yourself.
The real question is ‘how much does the Bank of Canada need to raise the Key Rate to control inflation and economic growth?’ And earlier this year, we reported on Ben Tal’s, Senior Economist with CIBC, forecast that the Bank Prime only needs to increase by no more than 3.00%….and that this is the most it should increase… but it will take around 2 years or longer to get there… if they get there at all…. click here for the full report.
So why would anyone lock into a mortgage at over 4.00% today, when they could enjoy rates of just over 2.00% and slowly see their rates rise? If you know that answer, please share with me…
We all have different needs and there isn’t a ‘one size fits all mortgage’… seek professional, unbiased advice…get a strategy in place…. monitor the market and stay informed and you’ll always make the right decision.
BANK OF CANADA RATE UP
July 20th, 2010….an interesting day. This was the 5th of 8 scheduled Key Interest Rate announcements… No real surprises… the Key rate went up by 0.25%…. the second increase this year…
The new Bank Prime rate is now 2.75%. Variable rate borrowers will see a 0.25% increase in their mortgage rate… but don’t feel too bad… your mortgage is probably just over 2.00%….. that’s much lower than even the lowest 5 year fixed rate mortgage of 3.69% which was being offered mid last year….and recent reports are calling for a very slow and gradual interest rate hike…click here for the latest.
PERSONAL DEBT LEVEL DOWN
Remember the reports about the high personal debt levels that Canadians had? We were spending like fools… according to many “Experts”… And bank on May 13, I questioned these reports….
Now we are seeing that Canadian Personal Debt levels are down….Come on… we didn’t change overnight.. we have just been taking advantage of these record low rates to invest or spend wisely…and what’s wrong with that?.. see the latest stats…
It’s been a slow week for mortgage news.. but that’s okay.. when it comes to interest rates, boring is good!
Mortgage rates are remaining low as the Economic data around the world is still not great.
Fixed rate mortgages are hovering at just over 4.00% for a 5 year term… still in historical low territory and well below the 25 year average of 8.25% for posted rates (discounted rates are approximately 6.75%).
Variable rate mortgage continue to be a favorite.. and why wouldn’t it be… under 2.00% rates, fixed prepayment penalties of 3 months interest compared with Fixed rate penalties of 3 months interest or Interest Rate Differential which have been as higher 8, 9, 10, 13 months interest or more… Yes, from your major Banks…
Hybrid mortgages are the hot product lately..l saw some stats stating they have become more popular… but be careful.. these products tend to have limitations and restrictions that can cost you dearly in the future….
Remember, a Mortgage is more than just the rate… Rate is the single biggest factor that affects your overall cost, but it’s not the only thing…
One more tip… any long-term contract has a price.. and the price is usually more expensive than we think.
In February, the Federal government announced many changes to tighten mortgage lending policies to ensure Canadians don’t get in over their head when it comes to mortgages.. they also promised to STANDARDIZE Mortgage Penalties… well, we have not seen or heard anything about it… Come on Feds, make the change… Canadians need your help..
Last week someone sent me this mobile pic from just outside a Scotiabank branch.. We couldn’t help but find the ad amusing… In case you can’t read it.. “Penalty & fees have you upset? No respect? Get service and advice worth switching for”.…
Well Scotiabank, speaking on behalf of all Canadian borrowers for just a minute, the answer is YES… we are upset.. so what are you going to do about it?
Pause… wait… I don’ t hear anything… Just what I thought.. nothing..
We found the arrogance disturbing. Scotiabank is no different than any of the other major bank when it comes to calculating their prepayment penalties…and in fact, I have more than a few clients that will get quite upset after seeing this.
You see, they are part of a long list of Mortgage Borrowers that found out, the hard way, that mortgage prepayment penalties can be extremely high… 6%, 7% and sometimes 10% of the outstanding mortgage balance… Here’s a good example from a Bank of Montreal client… this article was written in Ellen Roseman’s Blog… Her reader is quoting a $30,000 penalty on a $360,000 mortgage with 2 years remaining…
Think you are immune? Well, if you are in a fixed rate mortgage, then I’ve got news for you.. you are susceptible to the same outrageous penalties if you take any fixed rate mortgage. The Banks are selling 5 year Fixed rate mortgages as getting ‘peace of mind’ and protection from potential rate increases…. And yet, study after study has proven that SHORT term and VARIABLE rate mortgages outperform any fixed rate..
Make an informed decision, stay alert and make sure you know what you are getting into when choosing a FIXED rate mortgage… Feel free to contact me anytime for my advice or opinions.