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MonthAugust 2011

More Banks raise their variable rates

BMO has joined RBC in raising their Variable rate mortgage pricing. The Financial Post reports that BMO raised their Variable rate mortgages from Prime 015% to Prime less 0%.

Can you say, ‘we want to force borrowers into the more profitable 5 year fixed rate products’???  That’s right.. The Banks would rather see you in a 4.00% rate vs. a 2.25% rate…  And why not?  They are a business after all.

We have also just received reports from other wholesale lenders that they will raise their pricing as well…  If you were looking at buying a house, refinancing your mortgage or had a mortgage coming up for renewal in the next 4 months, I would suggest you speak with your Mortgage Broker and get some rates locked in…

It’s important to understand, the Bank of Canada is not likely to raise their rate anytime soon.   Bank Prime remains at 3.00%.  We are seeing the Bank Economists tell us they think the economy will remain slow… The Banks do not make as much profit with the low Variable rate mortgages… They want and prefer you to take a 5 year fixed.. these are the most profitable mortgage products for them.

So  the bad news is Lenders will raise their Variable rates slightly, the good news is that we are probably going to continue to enjoy mortgage rates under 3.00% for some time to come…..

Solar power subsidy… part 3 and the conclusion of my application.

Solar power…. those words make me think of green energy.. no more smoke stacks… electric cars, no nuclear power plants..etc…    These were some of the reasons I applied to get my own home approved for the Ontario Government’s Microfit subsidy program.   Oh, that and the $0.805/ KwH that I would be earning… a $0.70/KwH profit… Sounds like a no-branier, but would that be enough of an incentive for me to go through with the purchase?

Three months ago, I began the process of applying to the Ontario Power Authority for approval to the Microfit program and was approved.   I applied for approval to the Local Distributor Company (LDC local hydro company) my case it was Burlington Hydro.   They sent out an Engineer to ensure my house would qualify….. good news is that I was approved…  Everything was set.  I just needed to get a site assessment for my our peace of mind to see if my house was positioned correctly to take advantage of the sun’s rays.

I contacted an installer and supplier… They did a free site assessment…(most installers and suppliers wanted to charge me a fee)…  My house was not positioned to achieve optimum efficiency…. I would achieve only achieve 72% efficiency out of a recommended 90%…. Cost to install 30 high-end panels would be $45k.    My expected annual return would be around $5,500.

End result…it would take me almost 10 years to recover my investment… but then again, I would have that 20 year govt contract selling my power at $0.805/Kwh compared with paying $0.11/KwH…

So after several dozen hours spent researching, applying, meeting with inspectors, installers, etc and 3 months later, my decision is to not move forward with the install.   There are many reasons but it seems to me that we still don’t know what effect this would have on the value of our homes…. Will prospective buyers like the panels in 3, 5, or 10 years?   Will the panels be out of date when I go to sell?   There just seems to be too many unanswered questions at this time…

The installer told me that my approval from OPA is good for 12 months… and maybe the price of the panels will drop enough that it could make sense for me to get the installation done…. but right now, a 10 year payback it way too long….   I’ll update you further should I have any new information…

My advice to anyone that is looking to participate is to do your research… there is a lot of data to be digested…  Buy Canadian… don’t just go with the lowest cost panels… buy quality.. we have some harsh weather in Ontario… Contact the Canadian Solar Industries Association for some referrals…. seek out a reputable installer and supplier… Get recommendations directly from the manufacturer….

If you want more info, just drop me a line and I’d be happy to share more details of my research.

RBC raises their Variable rate mortgage pricing.

Earlier this year, we saw a few lenders raise their Variable rate pricing from Prime less 0.75% to Prime less 0.50%…. Most other lenders did not follow.. But it made us wonder if there was some concern that the Bank of Canada might hold off on any increases in the  Bank Prime this year, as was widely forecast by most Experts….

Sure enough, the recent stock market collapse, the European and US debt crisis has put any potential rate hikes on the back burner with most Economists forecasting for no increases until next year…

Fast forward to today… The Financial Post reported that RBC would increase their pricing from Prime less 0.65% to Prime less 0.45%.   This move would indicate that the RBC Economists think the Bank of Canada is not in any hurry to raise the Prime rate…. or they believe the BOC may even lower the rate at some point…

Mortgage Brokers still have access to better priced Variable rate products through their wholesale channels but will other Lenders raise their pricing in the coming weeks?   We’ll be watching and will let you know…


Stock market drop and slight recovery.

Did you know that between July 22nd and August 8th, the TSX index dropped 14%?   Did you know that since August 8th, it has recovered 9% of that loss?  What a roller coaster ride…But there’s good news here…

So how will this affect your mortgage rates?

Fixed mortgage rates are priced from the 5 year Cda govt bonds.. Bond yields also dropped like a rock.. from 2.27% to 1.35% during that same time period…  that’s a 0.92% decrease.  A visit to TD Bank’s website shows us their ‘5 year fixed rate Special offer’ is 4.19%... no drop at all.   Call a Mortgage broker and you’ll see rates of around 3.49% today.

Sure, fixed rates are very low but they should be lower….  Fixed rates are usually priced around 1.30% to 1. 70% above the 5 year bond yield…  Why haven’t you seen mortgage rates keep pace with the bond yield drop?   That’s not hard to figure out… The Banks are maximizing their profits… same old story…Banks are infamous for hiking rates quickly and but slow to move when it comes to cutting rates.

How about Variable rates?

Well, not much to report there… The Bank of Canada meets 8 times a year.   Last meeting was July 19th.  Next meeting is Sept 7th.    You can forget about any immediate rate hike.   Economists have done an about-face with their forecasts…. We were expecting a rate hike this September or October… That’s now been pushed back to 2012… and there were even some rumblings about a possible BOC rate cut (but I’m not sure that’s gonna happen).

At 3.00%, the Bank Prime rate is still very, very low and makes borrowing very attractive…   Current Variable rate mortgages are priced at between Prime less 0.65% to 0.80%…    We may not see interest rates drop, but there is no reason for them to go up for the next little while…. Enjoy the low rates.

Bond market drops… expect fixed rates to follow.

It’s the morning after the US govt agreed on a new Debt Ceiling…… and like a scene from ‘The Hangover’, many of us are waking up to unfamiliar surroundings with a big headache and an uncertain feeling in our stomach…. let’s call it a ‘financial hangover’.   The global stock markets are down… back all gains made this year…  The Chinese credit agency has downgraded the US credit rating...

The 5 year Canada govt bond yields has dropped to 1.84%...  A level only seen twice before…  first, just after the October 2008 US mortgage crisis and again late last year.

So what’s the good news??   This should mean lower fixed mortgage rates are coming… let’s hope the Banks move as fast to cut the rate as they do when they raise them.   This also means less chance of any rate hikes….

Enjoy the low rates.

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