CategoryInterest rates

Posted March 21, 20121 Comment Interest rates

When opportunity knocks…open the door.

It’s March, 2012. How will you look back at this month in 5 years time? There are certain dates in history that stand out for all of us. Some are more personal than others, like the birth of my son, the day I met my wife, my first trip overseas, NHL pro hockey camp, etc.

And then there are dates where I look back at missed opportunities.

-October 1984, I had a chance to buy a waterfront lot on Balsam Lake in Ontario’s cottage country, for $22,000…. now selling for $400,000. There was a new condo in east Toronto for $82,000 in September 1987…. now selling for $392,000….(and yes, I think I was 5 years old…Lol!)..

-Or how about that semi-detached house at Danforth Ave and Woodbine, in Toronto, for $175,000 in 1990….now selling for $500,000. More recently, I could have bought a house for $320,000 in 2005, near the water in Burlington, Ontario…..that same house sold for $800,000 last year.

The point it, I think we will look back at March 2012 as the month when the Banks declared mortgage war against each other… Only in this war, there is a winner… YOU, the consumer, YOU the borrower, YOU the investor. We are seeing record low mortgage rates. And they won’t last forever. In fact, this mortgage war is probably going to accelerate interest rate hikes… almost like starting a campfire with gasoline soaked wood… It’s burning red hot but it won’t last for long.

With interest rates are record lows, isn’t this the time to borrow? A $300,000 mortgage will carry for $1196/mth.. and that’s with a 5 year fixed rate term. Bond yields are climbing… 5 yr bond yields are up to 1.71%.. that’s up 30bps in less than a month… 5 year fixed rates follow bond movement… i think it’s safe to say, we should expect rates to climb in the near future… and the reason they haven’t moved yet is because of the Mortgage wars…

We are hearing the cries by the govt and some bankers, telling us not to borrow too much. Personal Debt level concerns are plastered all over the internet and media. But we aren’t seeing many articles telling us how to borrow and invest wisely…. borrow when rates are low instead of borrowing when rates are high… borrow when you qualify instead of borrowing when you don’t… borrow when you don’t need the money… Isn’t that when Banks want to lend you the money?

We have just seen a draft guideline, Bill B-20, entered in for review with a May 1st decision date. These new regulations are aimed at tightening lending rules even further.. and this time it’s targeting Home Equity Lines of Credit.. That’s right, they want to make it even harder to qualify for these products and possibly make the repayment terms more strict…

Opportunity is knocking… answer the door..

Posted March 8, 20124 Comments Interest rates

BMO NO FRILLS mortgage 2.99% is back… but please don’t read the fine print…

Ladies and Gentlemen, here’s a quote from Mr. Frank Techar, head of BMO’s domestic retail bank as published in The Financial Post “We believe these products will allow our customers to borrow smartly,” I couldn’t agree more… After you spend some time reading the product details, you are sure to turn around and run.

BMO’s NO FRILLS mortgage is back…2.99% for 5 yrs fixed and 3.99% for 10 yrs fixed until March 28. Both come with the same restrictions and limitations as before… We give this product a BIG THUMBS DOWNS! We recommend you stay away from this type of product.

Even thought I don’t like the product, I do like seeing these product announcements… they create a buzz and get competitors to react. It’s great for business.

First off, let me say, there are LOWER unadvertised rates out there…you can get another NO FRILLS 5 yr fixed at 2.95% and a REGULAR 10 yr fixed for 3.94%…..Now that I have your attention, I strongly recommend you read the details before making a decision…. mortgages can be complicated. Don’t make the wrong a decision.. speak with a Mortgage Broker.

What makes this product different from their regular line of mortgages are the restrictions and limitations. In January, BMO made headlines when they first announced this so-called ‘special offer’. It’s special alright… READ THE PRODUCT OVERVIEW… In January, I warned against taking this product…. my warning has been reactivated…. Once you read the fine print, you will realize this product is not suitable for most of us..it’s just a lot of smoke and mirrors trying to get you in the front BMO door.. a good marketing ploy… and I’m sure they’ll gain market share because of it. But let’s make sure you understand the fine print…

YOU STILL WANT THAT BMO NO FRILLS RATE?

But let’s say you’ve read all the fine print and still want this product… I’ve got news for you…. There are BETTER PRICED NO FRILLS PRODUCTS…. As a Mortgage Broker I have access to better unadvertised rates… Only problem is, I don’t have a $500million advertising budget… So I have to rely on providing my clients with good advice…Fortunately, my good advice has served me well and 95% of my business comes from repeat clients and referrals.

MY ADVICE

No Frills products came out around 8 years ago and my advice has been the same. DON’T TAKE these products. If you do, chances are you will not come back to me as a satisfied client. I can kiss your future business and future referrals good-bye. And I can’t afford to do that. That’s why you’ll NEVER see me promote or recommend these products. Yes, I have access to them but I’m going to do everything in my power to steer you clear of them.

WHAT’S AVAILABLE TODAY

Interest rate is probably the most important part of a mortgage but it’s not everything. Did you know that there are excellent 5 year fixed rate products hovering between 3.19% and 3.29%? and 10 yr fixed rates of around 3.94%? Why are these better? You don’t have to give up your options. You don’t have the restrictions of a NO FRILLS product, like BMO’s ‘low-rate mortgage’. You have full prepayment privileges.. you can payout the mortgage without having to sell your home.. you can refinance with any lender and not just your original lender… meaning you will be able to negotiate a competitive rate should you need to refinance. On average, Canadians refinance their mortgage every 3 years… This happens for a number of reasons.. selling their home, debt restructuring, family issues, work issues, etc…. Mortgage penalties charged on these NO FRILLS mortgages can be outrageous… we’ve seen penalties of up to 14, 16 and even 20 months worth of interest… Don’t put yourself in that situation…

Get all the facts and then make a decision.

Posted February 16, 2012 Interest rates

CMHC forecasts a healthy housing market for 2012-13…. but fixed mortgage rates have started to climb.

CMHC issued a report that says the economy will expand at a moderate pace over the next few years, as reported in The Spectator. The Bank of Canada should also keep it’s trend setting rate low until mid 2013. This means Variable mortgage and secured lines of credit rates will remain low.

The report also says the average house price in Canada is expected to hit $368,900 this year. But, a closer look at the Greater Toronto Area market shows that house prices are climbing much faster. A lack of supply and a pent up demand, together with record low interest rates are fueling price increases. Reports of homes being sold above asking are popping up outside of Toronto.. including Milton, Georgetown, Oakville, Burlington and Hamilton.

If you’re in the market for a home, my advice would be to not wait til the Spring market. The market is now. Experienced realtors are telling me they have priced a 5% increase in the first 2 months of 2012. Waiting could cost homebuyers $18,000 or more.

FIXED MORTGAGE RATEShave started to climb. Earlier this week we saw RBC and TD pull their special mortgage rate offers… BIG SIX Banks don’t like to compete in the wholesale mortgage market with mortgage brokers… when these 2 banks realized no other BIG SIX bank was offering this rate, they quickly withdrew the offer… read this article... the BIG SIX banks are calling a truce? What does that mean…? Don’t you want your banks to compete? And that last paragraph by BMO’s Frank Techar is priceless.. “We went to 2.99 per cent to draw attention to the benefits of having a mortgage with a maximum amortization of 25 years”. This does make me a laugh a little… BMO’s NO FRILLS mortgage was a way to gain market share and entice borrowers into a restricted and closed mortgage product… Mortgage Brokers already had access to this rate and a NO FRILLS product through another lender… but it’s not a great product and the restrictions are costly…Most brokers will not recommend or even offer this product to their clients.

The ripple effects of this ‘truce’ are that wholesale mortgage rates have started to climb… ING and National Bank have also increased their rates. This could be temporary but if the Greeks get their act together and the U.S. economy starts to improve, we will see rate hikes…. My advice is get your mortgage preapproval now…. These are historical low interest rates… I’m not sure they will be here for much longer.

Posted January 25, 20121 Comment Interest rates

BMO 2.99% No Frills mortgage needs another look.

It’s January 25, 2012… that’s the original deadline date issued by BMO for their NO FRILLs 2.99% 5 year fixed rate mortgage. Since announcing that 2.99% rate, BMO has reportedly been flooded with calls and applications. And rightfully so. That’s the lowest advertised 5 yr fixed rate in history. (we need to say thank you to BMO… they woke up the competition and the competition answered.. we have seen competitive offers from the non-bank lenders… no restrictions or limitations… This is great news for the consumer.)

This product has also drawn some criticism…There was an interesting articles asking if this product was too good to be true…. click here to see what The Toronto Star thinks.

Let’s look at the restrictions and limitations more closely… If you are 100% certain about the next 5 years in your life, your job, your health, your family’s health, then this may be a great product for you…. But if you look at the stats, we, as Canadians, on average refinance or change mortgages every 3 years… With that in mind, the product can be very costly for the unsuspecting borrower….read on and I’ll explain…

I’m not too concerned with the limited prepayment privileges. The biggest potential risk to borrowers is the inability to refinance outside BMO should they experience some financial problems in the next 5 years. If a borrower runs into financial problems and needs to take the mortgage elsewhere, because they won’t qualify for a BMO refinance, they can’t do it. The mortgage can only be paid out if the house is sold…

An an even bigger problem is the BIG SIX penalty calculation…. let’s say you can somehow refinance in 2 or 3 years with BMO, or you do sell the house and are not porting the mortgage… well, now you must deal with a penalty calculation that makes you pay for the original discount you received at the time of the original mortgage…. And LOOK OUT…This is where we have seen penalties of 6, 9, 12, 14 and even 16 months worth of interest being charged by the Banks to get out of a mortgage..(click here to see how banks calculate their penalties). (hey, Federal Government, didn’t you promise to standardize mortgage penalty calculation 2 years ago??… when is that going to happen?))

And if you need more money added to your mortgage, what assurance will you have that BMO or any other BIG SIX bank, will give you a good rate or a discount on those new monies? None… they certainly won’t have to, given your penalty to exit would be higher than other non-bank lenders… This subject is not talked about very much by the media or by the banks… We will be commenting on this further in future posts…. (hey, how about CIBC and that class action lawsuit over mortgage penalty charges??… I’ll be making some comments on this soon).

Here’s some advice… seek out Lenders that have better penalty calculations... they are out there… they just aren’t as obvious as the Big Six Banks… talk to a mortgage broker and get some comparisons… you might be surprised to know that competitive rates exist without having to give up your future options…

Posted January 15, 201232 Comments Interest rates

BMO’s No-Frills 2.99% mortgage offer is not ground breaking…just another trap by the Big Banks..

EXTRA, EXTRA, READ ALL ABOUT IT…. 5 years fixed No-Frills mortgage for 2.99% by BMO….wow, can you believe it? Well, don’t get too excited… At CanadaMortgageNews.ca we give you the straight talk… and guess what, No-Frills mortgages aren’t anything new…

I’m giving a BIG THUMBS DOWNS to this product… and you should too…

I’ve had access to these products in the past and we still have access to them…. but I have NEVER recommended it to any of my clients…. the limitations can be too costly and any potential savings can easily be eaten away with prepayment penalties, fees and the inability to even exit the mortgage…. That’s right, you can’t exit the mortgage in many cases… read on, I’ll explain more..

Make sure you understand how the rates are calculated

Before you start thanking BMO and putting your arm around the banker’s back, you should understand that rates have been inflated for several months… they should actually be much lower…..

Fixed mortgage rates are closely priced to the Govt of Cda bond yields. 5 year Bond yields have been below 1.50% since Nov 1….and have been hovering at around 1.30% since Dec 1. Historically, the best discounted rates are between 1.25% and 1.50% above the bond yields…. That means fixed rates should be at around 2.80%…. Okay, let’s add in a premium for some market uncertainty…. That doesn’t explain why 5 yr Fixed mortgage rates have not been below 3.29%?

Well, I think Canadians are smart enough to know why the savings hasn’t been passed down to them…. yup, Banks are just maximizing their profits… And now, this past week, we saw an announcement that BMO was announcing a special low rate… 5 years fixed for 2.99% … WOW, that does sound great…doesn’t it? Well, maybe not… let’s take a closer look before giving this product the ‘thumbs up’.

A closer look at BMO’s NO-Frills 2.99% special

There are too many limitations to this product…

-maximum amortization is 25 years. your prepayment privileges is reduced to and annual lump sum payment of 10% of the original principal balance and you can only increase your payment by 10%.

-90 day rate hold instead of the usual 120 day rate hold.

-you cannot payout this mortgage prior to maturity unless through a bona fide sale…

-you can only refinance the mortgage with BMO and not with any other lender before maturity…. this will all but eliminate your ability to negotiate the rate… a huge loss for borrowers…. ( you can take your mortgage with you if you move to another house but if you need more money, you will have to negotiate the rate… do you really think BMO will give you the best rate at that time???).

-BMO’s penalty calculation… the BIG SIX banks have the worst penalty calculation formula in Canada. This is one of the biggest kept secrets in the industry… If you had to pay your mortgage early, for any reason.. or if you had to refinance, you would be hit with a penalty calculation that could break your savings account… That’s because the BIG SIX banks use a formula that makes you pay for your mortgage discount, for the entire term of the mortgage… read this article on how they do it…. don’t get caught having to pay a 10, 12, 14 month interest penalty…. (just worked out a mortgage penalty for a client.. if they stayed with RBC, they would have to pay a penalty of $7,000, if they went with one of our wholesale lenders, they would only pay $2,000. this penalty calculating formula is similar to BMO).

By the way, the competition has responded and bettered BMO’s offer

There is some good news to BMO coming out with this product… just as we are writing this, we see that a big lender has come out with a 4 year fixed rate of 2.99% with NO restrictions or limitations… For us, that eliminates BMO’s Low rate special as a serious competitor in the mortgage market. But thank you, BMO, for pushing the Lenders…

My advice, stay away from these No Frills mortgage… speak with your mortgage broker and get full disclosure on this and other products before making any decisions that could end up costing you dearly…