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Posted 1 Comment on Bond rates up 0.30%…and 5 yr mortgages at 2.99% disappear.. for now. Interest rates

Bond rates up 0.30%…and 5 yr mortgages at 2.99% disappear.. for now.

Last week we saw 5 yr fixed mortgage rates hit 2.99% for the first time ever (these are full featured mortgages, not No Frills products).   But these rates didn’t last long… just 3 days later, bond yields spiked up and mortgage rates followed…  5 yr fixed rates now sit at 3.09%.

The 5 year Govt of Canada bond yields are up 0.30% since July 24th, and are currently sitting at 1.42%.  That’s a 26% increase in 2 weeks.  These bond yields have a direct effect on 5 yr fixed mortgage rates.     If bond yields continue to go up, we could see mortgage rates go up further.    Looking further ahead, the 2yr Govt of Canada bond yields provide us with a 6 month outlook…  they have also gone up from 0.93% to 1.16%, a 20% increase… if the yields stay at this level, we should look for rates to go up slightly…

Still, these are historical low rates… anything under 4.00% is ridiculously low…  We haven’t seen 5 yr fixed rates under 4.00% for over 40 yrs..  This isn’t time to panic…it’s still a great time to borrow money…

This seems to be an ongoing pattern.  Rates go up temporarily, then they drop… they go up, then they drop…    We’ve been stuck in this cycle for over 2 years.  But hey, who’s complaining?  Not anyone with a mortgage….not any real estate investors… this means money is cheap….. and it makes investing in real estate a very attractive option.

For those of us with a pension or if you are heavily invested in stocks, bonds or mutual funds, then you won’t like these low rates as they are keeping your Return On Investment very low……  Personally, I have some money in mutual funds and some stocks…..I started with my RRSP in 1990…. they were supposed to be a safe, long-term investments…. The only problem is, I’ve never made any positive return… Sound familiar?   The only ones making money are the Fund Managers (with their 2% Management fees) and Investment Advisors (with their 5% or 6% Deferred Sales Charges).

I lost my appetite for stocks and mutual funds, in 2000… the year of the dot com, dot bomb, internet stock market crash… the markets have been a roller coaster ride ever since… I got off that ride in 2004 and have never looked back.

If you’re looking for investment strategies in mortgages and real estate, drop me a line or give me a call… I’d be happy to share some of my knowledge and experiences of others that are enjoying positive returns elsewhere.

Steve Garganis

416 224 0114  steve@mortgagenow.ca

 

 

Posted Interest rates

Lenders chop rates again… 2.99%… and Variable rates at Prime less 0.35%!

Today we saw 2 announcements….   For the first time ever, we saw a 5 yr fixed rate being offered for 2.99%.    This is not a No Frills mortgage… so you don’t have to worry about minimal prepayment privileges, or restricted payout options, and no monkey business when it comes to penalty calculation….  You probably won’t see a lot of publicity about this because of the mainstream media was quick to promote the BMO NO FRILLS mortgage as the first 5 yr fixed mortgage under 3.00%….earlier this year.   But I can tell you, it’s a significant milestone.

And we also saw the introduction of the lowest Variable rate mortgage in almost a year… Prime less 0.35%, or 2.65%.   This isn’t one of those NO FRILLS Variable rate mortgages that is full of restrictions… you have all the regular options including being able to lock into the BEST discounted fixed rate at any time.

These 2 offers are very special…   They don’t come with hidden clauses or back door penalties, or exit fees.   These products are legit!

The driver behind the pricing is competition, the increased spread in profit margins and a slowing housing market..   The thirst to grow a business and keep the business on the books is going to see a lot of competition…. and the winners are us… the borrowers…

If you want more info on these rates or other mortgage related issues, call me anytime.

Steve Garganis

416 224 0114

 

 

Posted Interest rates

Wanna know where rates are going? Look at 2 yr bond yields.

Probably the most popular question asked is, “where are rates heading?”  Or “when will they go up?”   Let’s face it, if you have a mortgage or are invested in real estate, then you better know the answer or understand what affects rates.  After all, interest rates can make or break a housing market.

We decided to take a few minutes to explain how you can follow the indicators that affect interest rate movement….  We won’t make you a Financial Expert, but you will gain a better understanding of what affects rate movements…

My first suggestion is to stop paying so much attention to the news or TV… (apologies to my media friends)… but the wild headlines are there to grab your attention…  it’s not that difficult to understand…

Last week, the Bank of Canada met for the 5th time in 2012.   There are 8 scheduled meetings each year… (and by the way, this helps to keep rate movement and monetary policy more predictable…. the more predictable a Govt is, the more stable it’s economy is.)   The Key Rate is set during these meetings… this rate directly affects Variable rate mortgages…. No surprise, the Bank of Canada Governor, Mark Carney, kept the rate unchanged.

That means Bank Prime is still 3.00%.   And with more negative economic news from Greece, Spain, other parts of Europe, the U.S, and now Canada, it’s safe to say rates should remain flat for some time……(remember, bad economic news usually means rates will drop or stay low).

So the Bank of Canada’s Key Rate (also known as Target Rate or Overnight rate) directly affects Variable rate mortgages… but indirectly, they also affect Fixed Rates.   A better short term indicator to watch is the 5 yr Govt of Cda bond yield.   We watch this to see where fixed rates are headed in the short term… say, over the next few days or or few weeks.   A good long term indicator for Fixed rates is the 2 yr Gov of Cda bond yields.   Financial Experts  pay very close attention to this index if they want to know where rates are going in 6 months or longer.  And at present, the 2 yr yields are very low…..

Bottom line, rates should remain low for some time…   Not so hard to follow, right?

And not to confuse you, but historically, Fixed rates usually go up ahead of Variable rates…. so we need to watch Bond yields together, with the Bank of Canada’s Key Rate to gauge where rates are going…

Hope this helps… and as always, feel free to call or email me…

Steve Garganis

416 224 0114

steve@mortgagenow.ca

Posted 2 Comments on New Mortgage rules start today… but BMO study says Canadians pay their mortgages in 15 yrs! Mortgage News

New Mortgage rules start today… but BMO study says Canadians pay their mortgages in 15 yrs!

  The govt’s new mortgage rules go into effect today… well, actually, most Lenders put them into effect a week ago to ensure they had enough time to process applications already in the pipeline.

The new rules are supposed to help us pay our mortgage off faster, make it tougher to borrow money and slow the housing market which in turn will save us from a housing bubble.   And this is also supposed to help lower our personal debt levels.   It all sounds great, but the govt has not provided us with any real data to suggest that we need saving from ourselves.

In fact, a new BMO study shows that Canadians are paying off their mortgages in 15 years or less.   Does that sound like a bunch of irresponsible borrowers?   And there is a lot more data out there that shows over 20% of us are making lump sum payments… and even more are accelerating their payment schedules by increasing their minimum mortgage payments..

If the govt did make a mistake and used a sledgehammer to kill a fly, then let’s hope they will act just as quickly to adjust the rules if their policies were too strong… Let’s hope they will put some sort of review procedure in place to measure the impact of these changes….We already have some pretty tough standards when it comes to borrowing for a house…. maybe we should bring in some rules for Credit Cards or personal loans…  seems like anyone with a pulse can get one of these….

Posted 1 Comment on Part 2 of OSFI’s new mortgage underwriting rules announced Mortgage News

Part 2 of OSFI’s new mortgage underwriting rules announced

Hot topics this week are all the govt changes to mortgage lending…  but before we get into the bad news, I thought I’d start with some positive news…  Interest rates are still at all time lows….  if you have a mortgage or will be getting one soon, today’s rates are lower than ever before…  That means more money in your pocket!   We don’t seem to hear enough about that…

Okay, now for the update…Remember, these changes will affect ALL Federally regulated financial institutions….BUT they won’t affect MOST CREDIT UNIONS and other Lenders..

Yesterday we got a double whammy…  First the Federal Department of Finance announced changes to CMHC insured mortgages.… And later that day, OSFI announced Part 2 of their changes to Residential Mortgage Underwriting Practices and Procedures, better known as RMUP… but I prefer RUMP because that’s exactly where most of us will be feeling the effects of these changes…

The timing of all this tightening puzzles most of us in the mortgage industry.   Canada has been the envy of the world when it comes to our mortgage underwriting practices… The govt seems to be getting more into credit underwriting and procedures than ever before… And yet they have not given us any true data or reason for these changes….

Nevertheless, it’s important to keep up to date as these changes will affect us all.  Part 1 of changes were announced earlier this month through a Draft update on June 6th..   And here are the details of the final changes which come into effect later this year… there is a lot of text in the final draft but we are only focusing on the changes that will have the greatest impact on us:

  • Credit checks should be done more often.. minimum credit scores should not solely relied up to determine a borrower’s credit worthiness.
  • Home Equity Lines of Credit will be limited to 65% loan to value, down from the current 80% loan to value. (still not sure if there will be any grandfathering of existing lines but my guess is no)
  • there is more wording with regards to Lender’s Senior Management having more minimum reporting… (this looked like make-work stuff to me as most Lenders have tons of reporting).
  • Cash-back mortgages are gone (no big deal here…. very few of these products were ever used by us ‘irresponsible Canadians’… )
  • Self-employed individuals will be required to provide and pass an ‘income reasonability’ test… (these already exist with most Lenders)
  • Lenders should use the 5 yr fixed contract rate or the Bank Posted rate when qualifying for Variable rate products…even conventional mortgages… (again, nothing new here.. most Lenders are doing this already….yawn)

Who can blame you if you if you’re having trouble keeping up with all these changes to mortgage rules and lending policies.  We must question the purpose of these changes… little to no proof has been presented with regards to why the govt feels these changes are needed… and the timing may come back to bite them in the RUMP!   Some experts are making the argument that the govt’s attempt to avert a major housing downturn, could actually be the cause of it…..let’s hope not.. only time will tell.

I question why the govt is so focused on the estimated $1trillion residential mortgage market, when we have little or no rules when it comes to the other $500billion of non-real estate debt such as credit cards, loans and lines of credit.   Why is it okay to buy a car with $0 money down or okay to make NO payments for 6 months or 1 year, with interest rates of 8%, 18% and 28%, but if you want to buy or refinance your home, you better be prepared to jump through several hoops?   Can you say, ‘I need to refocus my energy and efforts’?

THE GOOD NEWS

Mortgage Brokers will be much busier with these new changes.   Your traditional Bank and ‘A’ Lender WILL NOT be able to provide the same financing as before…. BUT there are several other Lenders that are ready to fill the gap… including Credit Unions and other non-bank Lenders…..   We could see the small Lenders grow with these changes…  As always, feel free to contact me if you have any questions or need clarification.

Steve Garganis