Everyone deserves a break

Yes, everyone needs some time off, including me.  I am taking a little break.   Back in January 2011.

But before I go, I want to say thank you for making our first full year at CanadaMortgageNews.ca a great one!   My personal goal was to write 2 posts a week  and get the word out to as many Canadians as possible…  122 posts later, we had tens of thousands of hits… the site has really taken off in the past 3 months… all thanks to you…  no advertising, no sponsors… all word of mouth…it’s all you…  Thank you.  I hope you have found the info and opinions helpful.

Let me take this opportunity to wish you and your loved ones a safe and happy holiday at this festive time of the year.

Steve Garganis

Editor, CanadaMortgageNews.ca

PS.  Watch for more breaking news in the coming year.. including possible changes to mortgage rules (yes, more), the long-awaited standardized prepayment penalty calculations (sounds like it’s coming) and a real estate market that is expected to be flat, but that’s not everyone’s opinion.  Oh, and of course, mortgage rates…where are they going?   We’ll bring you the latest… but right now, rates are expected to remain flat for the next little while…

Higher Bond yields are bringing higher fixed rates..but that’s not all.

Some of Canada’s major banks have raised their 5 year fixed mortgage rates… but not their posted rates.   It’s become common practice for the Big Six Retail banks to show a posted 5 year fixed rate ….but in the past few years the Banks have also started to advertise their so-called ‘special’ rate.

The ‘special’ rate has increased by 0.25% to 4.19% to 4.29%, depending on which Bank you visit.  Of course, these rates are still much higher than the true discounted rates available through Mortgage Brokers.   Wholesale 5 year fixed rates are still around 3.69% to 3.79% (these will probably go up in a few days by 0.25%).  But this is nothing new.

What’s different this time is that the Posted Rates didn’t go up.  We’re not sure why, but here is one definite result of this move…your mortgage prepayment penalty will not decrease, which is the usual effect of an interest rate hike.   That’s right, if you have a closed fixed rate mortgage to payout, your penalty is either 3 months interest or Interest Rate Differential (IRD).

IRD is calculated many different ways now and we are hoping the Federal Govt’s announcement of a standardized prepayment penalty will come soon (we hear it could come this spring).   Currently, Banks use formulas that include the Posted rate to calculate your penalty.  This calculation has become a lucrative source of revenue for the Banks.  Reports of 6, 10 and even 14 months worth of interest have been charged to unsuspecting borrowers.  Record low rates means record HIGH penalties.  Come on Federal Govt, we need this change now.

As an aside, Variable rates are still around 2.25%…. this larger gap between fixed and variable is going to make Variable more attractive.

Social networks, internet and Personal referrals….The test of time.

Information is hitting us at an astounding rate… Used to be radio, TV and newspapers ….then came the internet…now it’s social network like twitter and facebook or personal blogs…. Mortgage info and opinions are everywhere…It’s as simple as doing a Google or Bing search on your iPad or mobile phone..

But how reliable is the info you are getting and can you find what you really want online?  After all, we’re not buying a new TV or appliance…. this is a mortgage, a huge debt…

I did a search on ‘mortgage’ and got 3.5million possibilities.   I narrowed it down to ‘mortgage rates canada’ and still got 1.3million sites…how could anyone know which site is best for them?  Or credible?

I tried one more time…‘ best mortgage product for married couple buying their third home with one child in Ontario’… there, that’s quite specific.. only got 5,710 possibilities…

Many of the sites were small businesses but a lot were blogs, and that’s ok…I like blogs… Some of the sites are great.  But how many of these sites really know what they are talking about?   I was quite disappointed to see that many of these sites were being run by unqualified people with little or no practical experience in the Mortgage or Financial Services industry.  And this really troubles me.

So here are a few tips to finding a credible site or blog expert:

-is the writer or editor easily found and identifiable?

-how many years of experience does this person have in this industry?

-what makes that person an expert or an authority?

-how much practical time does this person have in the business? (are they all theory and no practical experience?)

-is the site or blog personally managed by the creator or editor?

-are there any sponsored links or banner ads on the site and if so, is there any possible conflict by having that sponsor?

-would that sponsor still allow for impartial writing or distribution of information? (careful, the answer isn’t always that easy)

THE TEST OF TIME…..In the end, I find that most of us still value the opinion of a trusted friend, a colleague or business associate or a family member.  These people’s opinions, within our circle of trust, still carry more weight than any internet site…  The internet is great for gathering info and opinions but be sure you know where that info is coming from and what the motives are behind that info…

TD taking action with new collateral mortgage

No, the hand-cuffs are still on if you took a TD Mortgage recently.. yes, they are still being registered as a collateral charge and not the normal, conventional charge…

But I heard from a good source that TD is working on changing their policies to allow for the transfer-in of collateral mortgages.  That would mean that TD would accept collateral mortgages from other financial institutions should new clients wants to bring their mortgage to TD.

But how does this help a TD client that is up for negotiation with their mortgage when TD knows they cannot transfer that mortgage out without having to pay new legal fees to move that mortgage?   The borrower loses their leverage to negotiate…it’s really that simple…  here’s a great article from Gail Vax-Oxlade telling us what she thinks about TD’s new collateral mortgage.  Remember, collateral mortgages are not accepted by other financial institutions for transfers….

This subject isn’t going away… we will see if other Banks will follow TD’s lead and go with a collateral mortgage charge or whether they will accept collateral mortgages for transfers.  Stay tuned for more on this major shift in mortgage registration.

And who will pay that extra cost to transfer mortgages in and convert them to TD’s collateral charge?   For now, it’s TD picking up the cost, but does anyone really expect that to continue?   At some point, that cost will most likely be passed to the consumer.

TD is taking a big risk.. maybe it’s a calculated risk… they certainly have the deep pockets to pay for this.. at least for a little while…. I’m sorry to say it looks like the TD borrower is going to lose out in the end.

Vacancy rates fall in Canada…there’s an opportunity here.

Here’s some interesting stats  from Canada Mortgage and Housing Corp.    Apartment vacancy rates are down…

The national vacancy rate is 2.6% compared with 2.8% from October 2009.  CMHC attributes this to the economic recovery.. according to CBCnews.ca.

We are also hearing reports of Real Estate Investment Trusts (REITs) buying up properties as they expect  the rental market to remain strong.

And here’s one more article about the Florida housing market… 90,000 homes and condos were bought by International Investors…  read more here.

Add in historical low mortgage rates and this looks like a good time to buy an investment property…. Consider that a $250,000 mortgage will carry for around $1072/mth based on a 5 year fixed rate of 3.79% (lower rates are available but we’re using a higher rate for illustration purposes).      Something to consider….

Bank of Canada doesn’t raise the rate

Today was the last of eight regularly scheduled meetings by the Bank of Canada (BOC).  The BOC didn’t raise their Target rate.. no surprise here.   With uncertain economic data in the U.S., Ireland and even a little shaky news in Canada, there was no chance of a rate hike.

It’s widely believed that Governor Mark Carney will not raise the rate until March 2011 at the earliest, or maybe even May 2011… possibly later…  read more here.

One thing is for certain, the longer things remain uncertain, the longer we will be enjoying these record low rates… Variable rate mortgages can be had at 2.25% and a 5 year fixed is around 3.69%.   Borrow wisely…

CIBC Economist gives us the stats

CIBC Senior Economist, Ben Tal, spoke at this year’s annual Mortgage Broker conference in Montreal.  The conference, organized by the Canadian Association of Accredited Mortgage Professionals, is a great place for Mortgage Brokers to meet all the Lenders and service providers under one roof.

It’s also a great opportunity to hear some of Canada’s experts talk about the economy, real estate, interest rates and the mortgage market.  Here are a few highlights from Mr. Tal’s presentation.

-there are 12.5million households in Canada…31% rent, 69% own..

-of the 69% that own, 39.9% have a mortgage and 28.9% have no mortgage.

-69% of homeowners with a mortgage have more than 20% equity in their homes… only 30% have less than 20% equity in their homes.

-Renters have excellent cashflow… 96% of renters are using less than 40% of their income to pay for all their debts… so in reality, these renters could qualify for a mortgage based on their debt servicing ratios.. (most lenders allow borrowers to use up to 42% of their gross income towards a mortgage payment)…

One more comment that caught our attention was about Variable rate mortgages vs. Fixed rate… The historical data is overwhelmingly in favour of Variable rates….it’s really been a no-brainer… But what about now?  Fixed rates are at historical lows…  Mr. Tal said that Fixed rates might outperform Variable rate over the next 5 years… BUT it is so close that a 0.50% increase in Fixed rates would probably tip the scales back in favour of Variable

That being said, we must also consider the flexibility of a Variable Rate product.. it does allow one to lock into a fixed rate at any time and it does allow for an early exit at a minimal cost….   For me, Variable rate is still better choice…for most of us.

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