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CategoryRate forecast

Posted 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 Interest rates

Canadians saved $2.7billion on their mortgage by refinancing or renewing this year.

Variable rate mortgages have been extremely popular.   A study by the Canadian Association of Accredited Mortgage Professionals (CAAMP) showed that 37% of Canadians took a Variable rate last year, compared 31% from the year prior.

And Canadians saved almost $2.7billion by renewing or refinancing their mortgages this year.   Wow, that’s a lot of money… maybe too much?   The banks have put a lot of pressure on borrowers NOT to take Variable… they’ve made it harder to qualify by getting the govt involved and having them qualify all new Variable rate clients with posted 5 year fixed rates…. And most recently, the Banks have jacked up their Variable rate pricing from Prime less 0.75%, 0.80% and even 0.90%, to Prime less 0.00% and even Prime PLUS 0.10%.

Watch for the Banks to hike fixed rates as they aren’t earning enough… or so they tell us…

Posted Interest rates

Fixed vs Variable in 2011

FIXED RATES MAKE MORE SENSE TODAY.

If you were  in a Variable rate mortgage over the last 2, 3, 5, 10 years or longer….then you paid less interest than someone in a Fixed rate product.   You probably saved $$thousands each and every year.    Variable rate has been lower than the 5 year fixed rate in over 88% of the time.

But how about today….?  Well, the Banks have changed the mortgage landscape.   They have decided there isn’t enough profit in Variable rate mortgages.    Up until 6 months ago, anyone needing a new mortgage could get a Variable rate at Bank Prime (3.00%) less 0.75% and maybe even a little better..!    If you took a Variable rate 4 years ago, you might still be enjoying Prime less 0.90%!!   Today, a quick search on the net for Variable rate pricing and you’ll find Bank Prime less 0%…. some are actually charging Bank Prime + 0.15%.

But it’s not all bad news.   With the bond market hitting all time lows, we are also experiencing historical low 5 year fixed rates.   Today, the best 5 year fixed rate seems to be 3.39%  (WORD OF WARNING… there are some NO FRILLS rates of 3.19% or lower being advertised out there… these NO FRILLS products carry limited or no prepayment privileges and you cannot exit these product without selling your home.   We are not quoting those rates).

Any upward movement in the Bank Prime rate and you could actually be paying more for that Variable rate vs today’s 5 year Fixed rate.   Yes, today we must consider Fixed rate as a good option…. Just make sure you are choosing the appropriate term.   Anything shorter than 3 years does not seem to give enough of a rate guarantee for most of us.  Anything longer than 5 years is too costly.   5 years seems to be a good option in most cases.  But not for all… we are all different and have different needs… speak to a Mortgage Broker to review all available products and decide which one fits you best.

My guess is that Variable rate pricing will continue to be priced at Bank Prime for the next 6 months to 12 months or at least until Bank Prime moves up or until one of the Banks is losing too much market share and wants to attract more business.

We will be watching and reporting.

Posted Interest rates

BMO Economist forecast no rate hikes til 2013

More good news…. interest rates are not expected to increase til 2013, according to Bank of Montreal.

Really no surprise here.  The global economy is not doing well.  But here in Canada, the economy is performing relatively well.   The only reason our stock market and Canadian $ are down is because of the uncertainty of the European debt crisis.

5 year fixed rates are hovering at 3.39%… and they are even lower for qualified borrowers…. Variable rates are at around 2.60%…  We are in record low territory.

Did you know a $300,000 mortgage will carry for as little as $1199/month?   Hey, if you’re paying $1400/mth for rent, then why not consider buying place of your own…  And for those that want off the stock market roller coaster, a rental property may just be what you need…  Best thing is to talk to a Mortgage Broker, crunch the numbers and see how it looks.   It’s probably easier than you think.

Posted Interest rates

Govt regulator says interest rates extremely attractive…

We can interpret a sentence to mean several different things…   Take for example the following comments made by the head of the Office of Superintendent of Financial Institutions (OSFI), Julie Dickson:

– “current levels of interest rates have already made borrowing extremely attractive to all borrowers.”  (Wall Street Journal)

– “Extremely low rates will be with us for even longer than envisaged before the summer.” (Globe and Mail)

What does that mean to you?   To me, it simply means we are in a historic low interest rate environment.. with an economy that is better off than the rest of the world…  add it all up and it looks like a pretty good time to borrow, if you ask me… Borrowing for a house is NOT the same as borrowing for a car or a trip… A house is a tangible asset.. it appreciates tax-free.  It’s a good investment…

Borrowing to invest

Speaking of borrowing to invest…. rental properties have never looked more attractive…  Borrowing to invest is NOT a bad thing and it is NOT what the regulators and economists are concerned about… They are concerned about borrowers that have borrowed to their absolute maximum capacity and cannot afford to miss a day’s work without being in danger of defaulting on a payment…

Take a bow Canadians… we are doing great!

Last time I checked, Canadians were acting as conservative as ever…. paying down their mortgages faster and borrowing at a slower pace…  Look at these stats from The Montreal Gazette:

– “In Canada, an average of 63 per cent of a household’s home value is equity, while in the U.S. this figure is just 39 per cent.” (Matthieu Arseneau, National Bank).

– “In Canada, 40 per cent of homeowners have no mortgage debt; in the U.S. it’s 31 per cent.” (Matthieu Arseneau, National Bank).

– “Debt amounts to just 24 per cent of a household’s average net worth in Canada, while it’s 29 per cent in the U.S.”  (Matthieu Arseneau, National Bank).

– “Mortgage debt, which was climbing by 10 per cent or more through last year, has throttled back to a six-per-cent pace. Other consumer borrowing hasn’t grown at all over the past year.” (Benjamin Tal, CIBC World Markets).

–  “More than 70 per cent of all mortgage-holders are on an accelerated payment schedule, Tal says, adding: “That’s a smart use of low interest rates.” (Benjamin Tal, CIBC World Markets).

Hmmm… the economists tell us we are doing pretty good, judging from those comments….

Final thoughts.

If interest rates were 6%, 7% or 8%, what we would the media be saying?   ‘INTEREST RATES AT HIGHEST LEVEL IN 10 YEARS!’ … or something like that…  and I bet we would also see this headline…  ‘BANKS WARN THAT FURTHER RATE HIKES ARE ON THEIR WAY….BEST TO LOCK INTO A LONG TERM FIXED RATE NOW’…..

Use your own judgement… seek out professional, non-biased (non-bank) advice…. Hey, I don’t know about you, but I’d rather borrow at 2.60% for aVariable rate or 3.39% for a Fixed rate, than 6%, 7%, or 8%…..  We are experiencing historical low interest rates… they will be here a little longer but they won’t last forever.. enjoy them now… take advantage…