CategoryInterest rates

Posted February 27, 2013 Interest rates

Does 10 yr fixed rates make sense now?…

Fixed rates are still low… and a question I seem to get asked more often these days is, “when does it make sense to take a 10 year fixed rate?” And the answer, for me, is almost never.

Today, you can find a good 10 yr fixed rate under 3.70%. That’s a historical low rate for a 10 yr term. When you hear ‘record low’, it’s worth taking a look.

THE GOOD:

peace of mind… there is something to be said for knowing what your payments will be for the next 10 years. It’s like buying insurance.
we are at historical low 10 year rates.
if you paid your mortgage out after the 5 year mark, your penalty is capped at 3 months interest (a hidden provision in our mortgage laws…. I’m sure the Bankers are trying to get this removed too). Continue reading “Does 10 yr fixed rates make sense now?…”

Posted January 24, 2013 Interest rates

Interest rates to stay low for longer than expected…

The, soon to be, ex-Bank of Canada Governor, Mark Carney, is leaving us with a present… During yesterday’s Rate Announcement, the first of eight regularly scheduled rate meetings this year, Carney said the economy is growing at a slower pace than expected…. we having a cooling housing market….. inflation remains low and is not an immediate concern…. Last but not least, he expects the economy will not reach it’s full capacity in late 2014 and that withdrawing any monetary policy stimulus is less imminent than previously anticipated.

End result, no rate hikes are expected til 2014… These comments come as a bit of a surprise given the Bank of Canada has wanted to raise rates for the past 2 years. Well, maybe it’s Carney’s way of giving us a departing present….Let’s not look a gift horse in the mouth. Continue reading “Interest rates to stay low for longer than expected…”

Posted January 2, 20131 Comment Interest rates

Personal Debt levels and Mortgage Debt levels

Unless you’ve been living under a rock for the past 4 years, it’s impossible to not know the Federal govt’s concern about Canada’s Personal Debt level. The media has covered this topic extensively. After all, bad news sells more than good news…..

Here’s some current stats from Statistics Canada that really gets my blood boiling!…. We now carry a total debt load equal to around 164% of our annual household income. That’s at an all-time high…. The govt is convinced that we are spending too much or our income towards real estate… They have made numerous changes to mortgage lending rules that make it much tougher to qualify for a mortgage. If there really is a problem, why is the govt focusing on low-interest rate products like mortgages?

Current mortgage rates are at around 3.00%. Current credit card rates range from 9.99% to 19.99%….personal loan and car loan rates range from 6.00% to 9.00% and up. Aren’t low-interest rate products better than high-interest rate products? We have not seen any changes to these non-mortgage debt products…. Who benefits from higher rates? Yup, your banker!… Continue reading “Personal Debt levels and Mortgage Debt levels”

Posted December 17, 2012 Case study

Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 1 of 2.

VARIABLE RATE MORTGAGES WERE THE BEST OPTION

For years, I’ve promoted the merits of Variable rate mortgages vs Fixed rates. To me, it was a no-brainer. Historical stats showed that you would save over 1.00% on your mortgage, per year, every year (some years had savings of over 3.00%!). Do the math… That works out to $1,000 to $3,000 per year for every $100,000 of mortgage.

And for years, the BIG SIX BANKS, the Bank of Canada, the Federal govt and other fear-mongers pointed out that Variable rates fluctuated and your rates would change and possibly go up…

If you were able to block out these warnings, do a little research, then you may have been lucky enough to enjoy the huge savings that Variable rates gave us over the last 15 years… Fortunately, over 80% of my clients listened to my advice and chose Variable rate. But even at the height of Variable rate popularity, just 45% of Canadians were ever in a Variable rate product at any one time. Today, it’s less than 15%.

In 2008, the U.S. sub-prime mortgage crisis hit. Financial markets were in turmoil. New Variable rate mortgages were either pulled from the shelf or were priced so high as to make them an unattractive option (prime plus 1.00% with some Banks).

BEGINNING OF THE BANKS HIGHER PROFITS

The Banks actually liked this. After all, the most profitable mortgage product is the 5 year Fixed rate. Not hard to figure out. The lower the interest rate, the less the Bank’s make. This became a great opportunity for the Banks to reduce their Variable rate exposure… And so began the great campaign to force us into 5 year fixed rate mortgages. (by the way, these inflated Variable rate prices only lasted around 6 months…we’re not back to the good old days of Prime less 0.90% but anything at Prime less 0.50% or better is worth a look….it’s worth noting for the record that I still didn’t recommend 5 year fixed rates to my clients during this time… I recommended shorter term fixed rates ranging from 6 months to 3 years and then went back to Variable rate… history has shown that this was the right strategy).

Starting in late 2008, and continuing today, Bankers would call, email or write letters to their Variable rate mortgage clients to warn against higher rates coming… and they should consider locking into a 5 year fixed rate mortgage. There were many reasons given… a bad economy… uncertainty in the financial markets… or my favorite, a special rate offer (it was special alright! Lol!!)… And the media jumped in too. TV, radio, newspapers, major news websites…how many times have you have heard the warnings about rising mortgage rates??…or record personal debt levels?? This created an even higher level of uncertainty and fear… Mr. Potter would be proud!

Think about it… The Banks were strongly recommending that Variable rate clients go from a rate of 3.25% or better, and into a 5 year fixed rate of 5.50%!!? (November 2008). And the worst part about all this is that hundreds of borrowers listened and did it… and have regretted it ever since!!! Where’s your Banker now?…

watch for part 2 of 2… FED GOVT, BIG SIX BANK’S pushed us into Fixed rates!… tomorrow!

Getting a mortgage today? Speak with a Mortgage Broker…and think twice about sticking with your BANK…. you could just save yourself $thousands.

As always, I welcome your comments and questions. Let me know if I can help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted November 9, 201211 Comments Interest rates

O’Leary only wants Fixed rate mortgages…really?

CBC News did a report about Renting vs. Buying, earlier this week.. And it featured Kevin O’Leary and Amanda Lang, two well-known TV personalities….Ok, we covered Rent vs. Own in great detail just a few months ago… And I also talked about using your home as a retirement fund, earlier this week in my Baby Boomer 10 year retirement plan article.. But this isn’t what I want to talk about… I want to talk about some comments O’Leary made about Fixed Rates, during that report.

UNPOPULAR COMMENTS AGAINST O’LEARY

I’m taking a chance by speaking out against Kevin O’Leary. But I must speak up regarding something as important as this… So here it goes…

O’Leary is starting a new mortgage company….Congrats! I’m sure he’ll do well. He said his company would ONLY offer Fixed rate mortgages because Mr. O’Leary doesn’t believe ANYONE should be in a Variable Rate mortgage…. he went on to say that because Fixed Rates are so low, you would have to be insane to stay in a Variable Rate…Hmm.. well, if you are one of my clients then you know how absurd this statement is…

2008-09 MORTGAGE HISTORY LESSONS

Over 80% of my clients are, or have been in a Variable rate mortgage… Most of them enjoyed rates of Prime less 0.75% or better… some even had Prime less 0.90%..and for a while, they enjoyed rates as low at 1.35%!!! During the 2008-09 recession, we were inundated with TV and Media personalities telling us to lock into a 5 year Fixed rate mortgage because of the sub-prime mortgage crisis and stock market crash… You remember that? I do… and I recommended clients do the opposite.. take short-term mortgages until the dust settled on interest rates… This WAS NOT the popular advice… It was panic time…. but that’s when you need to remain calm and review the facts…

Fortunately, most of my clients didn’t listen to the media and followed my advice. I recommended several different products… 6 months, 1 year, 2 year, 3 year and even the short-lived 3 yr Variable rate… In ALL cases, it was the right product choice…. It was the best option at the time for that particular client…My clients have saved $$thousands each and every year through my advice!

(historical fact… Variable rate mortgages have been a cheaper way to finance your home in over 88% of time…Professor Milevsky study.)

TODAY’S STRATEGY

Unfortunately, new Variable rate products aren’t priced as well today…. This is probably that other 12% of the time….And although I am not recommending Variable rates today for most borrowers, it still might be the right product for some… To say everyone should get out of their Variable rate is just bad advice! The GOAL IS TO PAY THE LEAST AMOUNT OF MONEY TO OWN OUR HOMES!

My criteria for choosing Fixed over Variable depends on many factors but here are 3 things I pay close attention to:

1-Variable rate pricing not as attractive.. the best Variable rate today is Prime less 0.35% (3.00% less 0.35% = 2.65%)…..

2-Fixed rates are at historical lows (just over 3.00%).

3-the spread between 5 yr Fixed and Variable should be over 1.00%…today it’s less than 0.50%.

Add all of this up and it’s an easy choice today….I cannot recommend Variable Rate for most NEW mortgages….

THIS DOESN’T MEAN YOU SHOULD GET OUT OF YOUR VARIABLE RATE!!!

If you have a Variable rate of Prime less 0.75%, I would stick with that… that’s 2.25%… why start paying over 3.00%? There is no forecast for immediate rate increases… And this is where I am very concerned…. We have a very well known TV personality that comes out and says everyone should lock into a Fixed Rate mortgage…. I’m sure the BANKS would love to see you out of a 2.25% mortgage and into a 3.00%+ rate. I completely disagree with O’Leary. There is no ‘One size fits all’ mortgage. Everyone is different and has different needs… I’d be very careful about listening to anyone that wants to pigeon-hole all Canadians.

BEWARE THE TV EXPERTS… Just a final note…. How many times have you heard ‘Rates are going up soon’ in the last 4 years.? You must lock into a Fixed Rate… I hear it everyday…. and if my clients listened to these ‘Experts’ they would have been out of their Prime less 0.75% Variable rate and into a 4.00%, 5.00% or even 6.00% fixed rate mortgage! Those that have listened to the facts have done extremely well. There isn’t a crystal ball… it’s not magic, it’s simply viewing the mortgage landscape, current economic trends, monitoring inflation rates and paying attention to govt and policy makers… I really don’t watch the news or listen to any media or TV personalities. I just look at the facts and present them here.

As always, if you have any comments or questions or would like to know what strategy is best for you, give your mortgage broker a call.. or call me if you don’t have a broker. I’d be happy to help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca