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CategoryMortgage Trends

TD and RBC raise rates by 0.60%.

TD and RBC have increased their 5 year posted mortgage rates this morning. We can expect others to follow. This comes as no surprise as the 5 year Bond Market increased to 2.87% causing the margins to shrink.

This is probably the beginning of several increases to come over the coming months. If the Economists are right, then we will see these types of hikes followed by a pause to see how the economy reacts.

We will be paying close attention to inflation, unemployment and the $Canadian dollar.

Fixing or locking in your rate may be an option for some but variable rate mortgages are still around 2.00% below 5 year Fixed Rates.

I’m still a fan of variable rate mortgages. I just think that they are a better product. But hey, that’s just me. We are all different and have different needs. Always talk to a Mortgage Broker to get your needs evaluated.

Interest rate hike coming… no need to panic…

We’ve seen a lot of media coverage about the interest rate hikes coming this summer.. yes, it’s true… The Bank of Canada will raise their overnight rate very soon.. By how much? Maybe 0.75% by the end of the year.. or maybe 1.00% like this these Economists are forecasting as reported in the Globe and Mail.

Think about it.. if you arranged your variable rate mortgage before Oct 2008, then you have been enjoying interest rates below 2.00%… WOW!…I mean come on, are you kidding me?  What’s wrong with that…?

So let’s assume rates go up by 1.00% or even 2.00% like some think it will over the next few years… that would still mean your mortgage is below 4.00%…. And the record low for a 5 year fixed mortgage rate is just below 4.00%…

That’s right… even if rates increase by 2.00%, you would still be in historical low rates when compared to a 5 yr fixed rate…..So why is this so bad or going to be such shocker??

And by the way, competition and improved investor confidence is bringing variable rate mortgage pricing closer to normal levels…..the good old days…!

To qualify for a variable rate mortgage you had to qualify at the 3 year fixed rate…posted rate for most lenders…

I hope you are seeing a pattern here…. the New Mortgage Rules coming into effect April 19 will mean you must qualify at the Chartered Bank 5 yr POSTED rate….Banks would love for all their clients to take a 5 yr fixed rate as these are the most profitable product for them…(would you rather pay 1.85% or 3.79%??)

Don’t be in too much of a hurry to get yourself into a higher rate…a fixed rate… you are only buying insurance… and very costly at that…..

For some of us, a fixed rate is worth the peace of mind and is important for us to know what our budget is … Discuss with a mortgage broker…. get the facts…

Is Affordability better or worse?

Here’s an interesting statistic…  5 years ago, a 5 year fixed rate mortgage was around 4.35%… and the maximum amortization was 25 years…. a $250,000 mortgage would cost you $1363/mth.

Today, a 5 year fixed rate mortgage can be found at 3.89% (and lower)… and the payment is $1300/mth….. let’s increase the mortgage to $300,000 and use the new maximum amortization of 35 years… new monthly payment is $1303/mth….

Affordability is better than ever… these historical low rates will not be here forever.. make sure you are taking full advantage…. talk with your Mortgage Broker for full details…

And the credit tightening continues….

It’s official… CMHC just announced further changes to their mortgage rules along with more details of the rule changes announced February 16.

-Qualifying mortgage rates…..up til now, borrowers were qualified on the contract rate of the mortgage or the 3 year rate ….on April 19, that will change to qualifying at the posted rate of the chartered banks …..Effectively, the govt has increased the rate without increasing the rate….quite a magic act…

Let’s think about this for one minute… we have been hearing about the devastating affect to consumers and the housing market should interest rates increase by 1.00% or more… well, the new qualifying rate is 5.39% as of today vs. 3.79% or 3.89% for a 5 year fixed contract rate….  but there’s more.. read on..

-Business for Self individuals will now have to qualify with traditional income validation if you are in business for more than 3 years… the logic is that the majority of self employed individuals can provide traditional income documents and that the business for self programs were for a small segment of the population…

This new change really leaves me scratching my head…. With 20 years experience in the Financial Services industry, I can tell you that the trend is for more Canadians to become self employed.. more contractual workers, less ‘Employees of a company’…  And one of the benefits of being self employed is that there are certain tax advantages that are not available to employees…resulting in a lower net income…

A lower net income will mean you better be able to come up with a 20% down payment because you won’t qualify under these new Mortgage rules that will be administered by CMHC…. I can only hope that the govt will be able to act just as quickly if they see the housing market slow down…

Expect fixed rate increase of 20bp to 30bps as 5 yr Bonds up to 2.70%

Fixed rates could increase as the 5 year Bond yield jumped to 2.70%….this is up 21bps from a week ago… The spread now is 1.19% between 5 yr fixed rate and the 5 yr Bond… normally, lenders want to see a 1.35% spread …. if the Bond market continues to stay at this level or increases further, we will see fixed rates rise.

The U.S. employment stats also came out today…..unemployment held steady at 9.7% which is better than analysts expected… This will also put pressure on the Bond Market… Canadian employment figures come out next week…

Remember, fixed rates has historically increased sooner than the Bank prime rate which affects Variable rate….. This could be the beginning of the slow but steady rise in rates…. It’s certainly not time to panic but we should pay attention…

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