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CategoryMortgage Trends

Posted Mortgage Products

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.

Posted Interest 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…..giving 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.

Posted 1 Comment on Banks quick to raise but slow to lower rates Interest rates

Banks quick to raise but slow to lower rates

Nothing new about this story…. Since April 11-2011, the 5 year bond yields went from 2.87%,  down to 2.10% on June 24th, and have gone up slightly to 2.34% on July 1st….  Remember, fixed rates are closely tied to the govt of Canada bond yields…So that means the Banks would have lowered their fixed rates accordingly and then raise them slightly, right?

Well, not really…  On April 11th, the Big Six Banks posted rates were 5.69%.. they went down slightly to 5.39% recently but are back up to 5.54%…   What’s wrong with math…?  Why didn’t the Banks reduce their rates accordingly?    It’s called MAXIMIZING your PROFIT…  The banks want to earn a little more at the borrowers expense.

I find it kinda funny but also frustrating when I see articles reporting that Bank profit margins on mortgages is shrinking…  The spread between the 5 year bond yield and the posted 5 year fixed rate is around 3.20%…  and historically, it’s been around 2.50% and sometimes even as low as 2.00%….  Where’s the fierce competition, I wonder?

Banks are a business that want to maximize their profits… Let’s not forget this.

Posted Mortgage News

48% of Canadians use Mortgage Brokers

CMHC released their 2011 Consumer Survey recently …. the big stat that pops out is how many First time home buyers use Mortgage Brokers….. 48% of Canadians use mortgage brokers. 

Canadians are paying their mortgages off sooner… 39% have their payment set higher than the minimum required…. 20% have made a lump sum payment since obtaining their mortgage.

But here’s one stat that tells me Mortgage Brokers need to do a better job when it comes to keeping in touch with their clients and keeping them informed…. 89% of renewers and 68% of refinancers did not change lenders.. they stayed with their current lender. And probably renewed or refinanced at higher rates than they could have obtained through a Mortgage Broker.

Most Banks don’t offer their best rate to existing clients… and that’s a fact… read this article about Borrowers being too complacent and how Mortgage Brokers create competition….

Some more Key Findings from the survey can be viewed here.

Bottom line is that you can lose $$thousands by not seeking professional advice…

Posted Mortgage News

International Mortgage Trends…. first edition

Consumer confidence is everything…  If you feel confident about your job, the economy and housing market, then you probably feel confident about buying a home and being able to pay your mortgage.   Measuring consumer confidence isn’t easy to do…   How about measuring the attitudes of homebuyers from 8 different countries?

Here’s the first edition of International Mortgage Trends, by our friends at Genworth Financial.  This report assesses homebuyer’s attitudes and sentiments from 8 countries spread out over 4 continents.

Surprisingly, the report puts India in the top of most categories, but Canada, Australia and Mexico also shared top spot in many categories.  Ireland, UK, Italy and the U.S. homebuyers were not as optimistic about home ownership and mortgage debt.   Here are some highlights from the report:

  • India and Mexico felt the most confident about how their national economies would do in the next 12 months…Canada and Australia were not far behind.  Ireland and the UK were at the bottom (no surprise there).
  • India and Mexico were also the most confident about their personal financial situation….Australia and Canada were next…Italy and Ireland were most concerned.
  • Rising fuel costs and living expenses seemed to be top concerns for many in almost all countries except Mexico.
  • India and Mexico had fewer problems paying their mortgage debt over the past 12 months… Canada was in the middle of the pack (this was a surprise to me).
  • Living with your parents stat … (reminds me of that movie ‘Failure to launch’… I have a cousin that’s in this situation)… But this can save you money… Over 80% of First time homebuyers (FHB) in India and Mexico share the home with more than one generation… and it’s also more common in other European and Asian countries…..   Canada, UK, and the US are much less likely to house multiple generations under one roof.
  • Average age of the FHB keeps going up… it’s now 31.58 years of age… compare this with 26.6 years of age in the 1970’s… (in Canada, it’s 30.26 years of age).
  • Affordability…42% of FHB feel it’s a good time to buy a home…. 47% for Canadian FHB…and only 6.4% for India (this stat puzzled me after all the other positive outlooks by India’s FHB)
  • Only 30% of all those surveyed were positive about the state of the economy… In Canada, it’s 38%…

There’s a lot of data in this report… I recommend taking a few minutes to review…. Scroll to 18 to see each country’s summary stats and see how Canada compares… In short, Canada seems to have a cautiously optimistic outlook.  Our conservative reputation stands out in most categories.