What mortgage product does your bank want you to take?

Here are some interesting stats…

-A Variable rate mortgage outperforms a fixed rate mortgage in over 88% of the time… According the Milevsky study done earlier this decade and updated in 2008….

-Variable rate mortgages have been at least 1.00% lower than the 5 year fixed rate mortgage over the past 25 years….and on occasion, better by as much as 2.00%.

-Canadians move every 3 years on average…meaning they must either refinance their mortgage or pay it out.

-a Variable rate mortgage has a fixed penalty of 3 months interest.

-a 5 year fixed rate mortgage has a penalty that is at least 3 months interest but has no limit…. and in the past 18 months, we have seen penalties of 6, 10 and even 14 months worth of interest.

-yet, 66% of Canadians have a 5 year fixed rate mortgage…

Is the 5 year fixed rate mortgage really the right product for 66% of Canadians?    Can the 5 year fixed rate mortgage be the right product for everyone?  Which mortgage product do you think your bank wants you to choose?

By the way, can you guess which mortgage product is the most profitable?…. you guessed it.. the 5 year fixed rate.

Make sure your Mortgage Broker does a needs analysis before they recommend a mortgage product for you…. There is no ‘one size fits all’ when it comes to mortgages….  Ask yourself, ‘who is this mortgage best for’…. my bank or me?

Don’t expect new mortgage penalty laws til next year…maybe.

Mr. Potter would be proud

Seeing that it’s near Christmas, I thought this old classic movie pic was appropriate for today’s topic.  “The house always wins” (in case you can’t read the small print).   And how true that is…

It sounds like the long-awaited Federal Govt’s Standardization of Prepayment Penalties won’t happen til some time next year at the earliest….maybe.    A good source told me that the Govt wants to put that Bill through together with several other Finance laws…..but I’m beginning to wonder if they will make any changes at the pace they are going.

The Bank lobbyist’s have done their jobs well.   Mr. Potter would be proud.   Record low mortgage rates brought us record high mortgage penalties.   6, 10 and even 14 months of interest were charged as prepayment penalties to Canadian borrowers in the past 20 months.   To put it another way, we have seen penalties of $10,000, $20,000 and more. Read the rest of this entry »

Inflation rises to highest level in 2 years…but don’t panic

Latest figures show inflation jumped 2.4% in October according to Statistics Canada… compared with 1.9% in September.    The Bank of Canada aims for an inflation rate of between 1% and 3%.    Anything over 2% can trigger the Bank of Canada to take action… Usually, a hike in the Bank of Canada Rate, which affects Variable Rate Mortgages..

However, it’s no reason to panic.  A one month inflation spike probably isn’t enough for the Bank of Canada (BOC) to take drastic action.  It’s probably gonna take consecutive months of higher inflation or other events before the BOC raise rates again.  Most experts believe the Bank of Canada will not make any changes til next year.

Throw in some Global issues like Ireland’s’ debt and the Korean conflict heating up and you get uncertainty… Uncertainty means rates should stay low for some time…

Annual CAAMP conference Nov 21-23

The annual Canadian Association of Accredited Mortgage Professionals (CAAMP) conference is being held this weekend in Montreal.  CAAMP is the National association for Mortgage Brokers and Lenders with over 12,00o members representing over 1,700 companies.

The conference is a great place to see all the Lenders, Mortgage Insurers, Brokers and other industry product suppliers under one roof.   It’s also a great time to hear about new products, trends and Economist’s forecasts for 2011….  (forecasts are difficult to make during a recovery so I’m sure we’ll be paying attention to what is and what is not said).

To me, the best part of the conference  has always been the Trade show or the Expo.  This is where we can meet everyone in one room, at one time… and on a one on one basis….  One suggestion for CAAMP… expand the time of the Trade show…3 hours isn’t enough to visit all the booths…  perhaps cut out some of the speakers…no disrespect intended to the speakers….

For more information visit the conference website at http://www.mortgageconference.ca.

180 day rate hold at 3.73%… CMHC 2011 housing forecast

As reported earlier today, TD was the first to raise fixed rates… they are up by 0.25%.. The TD Canada Trust Broker rate is 3.94% and can be held for 120 days…  TD has been out of the game with their 5 year fixed rate for some time… Most Lenders are offering 3.49%….. But this will most definitely go up as the Bond yields are over 2.30%…click here for the chart.

There is another option that is less talked about.   A major Bank is offering a 180 day rate hold on a 5 year fixed rate for 3.73%… this may not be for everyone, but it’s an option for anyone looking to buy but hasn’t found a house… or for those with a long closing…

Interesting, CMHC released their 4th quarter forecast and were calling for moderate activity in 2011… but they also said low mortgage rates will help to drive the housing market….This latest increase shouldn’t cause panic…these are still record low interest rates…  But we’ll have to follow the trend and see if CMHC makes any adjustment in their forecast…

TD raises fixed rates 0.25%

With Bond yields up over 30bps in one week, TD appears to be the first to raise fixed mortgage rates.

TD’s new posted 5 year fixed rate is 5.44%. We can expect other banks to follow. More details to follow.

Banks slow to lower rates…but quick to raise them

Some things never change…..On Oct 19th, 2010, the 5 year Canadian Bond yield was 1.85%… It fluctuated up and down but staying below 2.00% until Nov 5th when it closed at 2.053%…  We were expecting the Banks to adjust their Fixed rates downward but it didn’t happen..

Since then, it has kept above 2.00% and is currently at 2.27%….  This increase in the Bond yield usually means Fixed Mortgage Rates will go up..  See the chart here.

But earlier this week, the Big Six Banks lowered their posted 5 year mortgage rate to 5.19% from 5.29%…  This is just a delayed reaction the low bond yields.. but it just goes to show that the Banks continue their pattern of reacting slowing to lowering rates but move like Formula 1 race car to raise rates..

Of course, Posted Mortgage Rates really don’t mean much as the Wholesale Market or Broker Market deals with the true rates.. And Fixed rates dropped late last week to their lowest levels ever. … 5 year fixed rates are now at around 3.49%… with some Lenders even offering 3.39%…  WOW!

Watch for Fixed rates to move upward slightly as the Bond yield is now high enough to warrant an increase…

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