CategoryRate forecast

Posted July 16, 2013 Case study

Looking back 5 years.. which mortgage product did your Banker recommend in 2008?

Remember 2008? It was almost 5 years ago that the U.S. sub-prime mortgage scandal erupted. October 2008, to be exact. That’s almost 5 years ago… And with October and November 2013 renewals being less than 120 days away, we can now lock in some rates for those upcoming renewals. So I thought this would be a great time to see what sort of advice and recommendations the Banks were giving to their mortgage customers.

THE BANK’S ADVICE

The funny thing is, Banks have never changed their advice or strategy. ‘Take a 5 year fixed rate’. That’s all the Banks seem to want to promote. And with good reason… it’s the most profitable product FOR THE BANKS. But historically, it’s NOT the best product to take. There is no historical data that I am aware of that shows taking a 5 year fixed is the best strategy. But I’ll get into that in more detail later. Continue reading “Looking back 5 years.. which mortgage product did your Banker recommend in 2008?”

Posted June 20, 2013 Interest rates

When the U.S. sneezes, Canada gets a cold… I’m getting the sniffles…mortgage rates are headed up.

Yesterday, the U.S. Fed Chairman, Ben Bernanke, announced he ‘could’ start to ease their stimulation of the economy later this year. That small announcement has had a huge impact on the global stock markets and bond yields. Stock Markets are down around 2.00% around the world as of 2.30pm today.

The U.S. has been buying around $85billion worth of bonds every month in an attempt to keep interest rates low. And with that simple announcement yesterday, the world’s markets have reacted. Bond yields have started to climb…

Our own 5 yr Govt of Cda bond yield is up to 1.75%. That’s up around 10bps from yesterday, and up 60bps from the beginning of May. In fact, we haven’t seen these levels since October 2011 and again in March 2012. We already received warnings from our Lenders that wholesale mortgage rates are likely to go up. Remember, bond yields affect Fixed mortgage rates.. but they will have an indirect affect on Variable rates, too. Continue reading “When the U.S. sneezes, Canada gets a cold… I’m getting the sniffles…mortgage rates are headed up.”

Posted May 28, 2013 Interest rates

5 yr Bond yields up significantly.. expect fixed rates to go up..!

5 yr Govt of Canada bond yields are up over 30bps in May. We should expect fixed mortgage rates to increase if they hold at this level. If you are thinking of buying, refinancing or if your mortgage is coming up for renewal, I suggest you contact your mortgage broker and get some rates held. This could be the beginning of the long-awaited mortgage rate hikes.

There is another chart you should look at if you want to see where Fixed mortgage rates are headed over the next 6 months. The 2 year Govt of Canada bond yields are a good 6 month indicator of where rates are going…. and this chart shows the 2 year bond yields jumped over 25bps in May.

We’ll report any changes as they get announced.

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted March 27, 2013 Consumer Debt

BMO caves in to Federal govt pressure and raises mortgage rate.

It was bound to happen. BMO announced their so-called ‘low-rate’ (NO FRILLS) 5 yr fixed rate mortgage would be increasing to 3.09% from 2.99%. This comes shortly after the Federal Minister of Finance, Jim Flaherty, said that he called BMO and asked them to pull their 2.99% ads. Last week, the Minister’s office asked Manulife Bank to withdraw their recent ad promoting a similar low rate.

While, 2.99% isn’t the best rate today, it was the lowest advertised rate from the BIG SIX BANKs. It was somewhat symbolic. Of course, Mortgage Brokers have access to even lower rates through the wholesale mortgage market, but these lenders don’t have the deep advertising pockets that BMO or the other BIG SIX BANKs have. So the publicity surrounding this rate and the increase will get much more air-time. You can actually find full-featured 5 year mortgages at 2.89% today, through a good mortgage broker (a word of warning.. I’ve seen lower rates offered, and I have access to these products… but these products are not full-featured and come with some limitations that make them less attractive… just be careful when choosing your mortgage and your mortgage broker)… Continue reading “BMO caves in to Federal govt pressure and raises mortgage rate.”

Posted September 25, 20121 Comment Mortgage Rates

Listings down, prices up…. housing bubble?

Latest housing stats show listings are down, sales are down… but prices are up, only slightly…. and houses aren’t on the market as long. They are selling faster. Doesn’t sound like a bubble to me. More like a soft landing.

This is exactly what the govt had in mind when it changed mortgage rules a few months ago and made it tougher to qualify for a mortgage. It’s still too early to say if these changes are just right or went too far….. We’ll need another 6 months or so to see the full effect. Best guesses are that the housing market could slow by 5%. But I haven’t seen that happen… In the Greater Toronto area, we are still seeing multiple offers and sales go above asking price…. The interesting stat for me is the fewer number of sales… We’ll be watching that stat… fewer sales over an extended period of time will stop any price increases…

This also means we should expect interest rates to remain low. The Bank of Canada will be under less pressure to raise rates with a flat housing market. Throw in the U.S. Fed’s announcement last week that they were going to keep rates the same until 2014-15, and we have the perfect setting for low rates.

RECORD LOW INTEREST ARE STILL HERE…. WHY AREN’T WE TALKING ABOUT THIS?

Speaking of low interest rates… Here’s some advice… before you put your plans to buy on hold, you should remember that we are still enjoying historically low interest rates. 5 year fixed rates at 3.09%… Variable rates at 2.65%..!! This is a fact that so many of us tend to ignore…. maybe it’s just too boring to talk about. I’ll make it more exciting…

A $400k mortgage will carry for $1912/mth based on today’s 3.09% 5 yr fixed rate…….Wanna wait for house prices to fall and save some money? Ok, but you should also expect interest rates to rise… lower house prices are caused by higher interest rates and higher unemployment… We don’t expect higher unemployment so we must attribute any house price drop to a rise in interest rates……a look back at the last housing crash in 1989 showed interest rates went up to 11% and 12% just before the crash….. make sense so far?

This is where so many of us stop thinking or analyzing…Cashflow and affordability are probably just as important or more important than rate, mortgage balance, purchase price, etc… if you aren’t comfortable with the payment, you will run into problems…. By the way, affordability is still VERY good according the RBC affordability index.

REAL MORTGAGE MATH SHOWS TRUE COST OF WAITING TO BUY

Let’s continue….Let’s say rates go to more normal levels… we’ll use 5% interest rates.. That same $400k mortgage will cost you $2326/mth.…. and if you wanna adjust the mortgage size by $40k because house prices should fall 10%, okay… a $360k mortgage at 5% will cost you $2094/mth... That’s still $182/mth more… and let’s also not forget, that you may have lost 1, 2, 3 or more years of not paying a mortgage down…. Did you know you will pay your mortgage down by around $10k per year in the first 3 yrs alone?

Real Estate isn’t always a great investment, but it usually makes more sense to buy, hold and enjoy, than it does not to buy and rent…. And with interest rates at record lows, it’s even easier to make that recommendation. Stop listening to the pessimist that say the sky is falling or the world is ending… If we listened to them, we would be renting for the last 10+ years… for that’s how long they have been saying house prices are inflated and need to drop…..

As always, if you aren’t sure where you fit in or what’s best for you, feel free to contact me to discuss… Your questions and comments are welcome.

Steve Garganis

steve@mortgagenow.ca

416 224 0114