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CategoryRate forecast

Posted Interest rates

Bank of Canada action not always prudent or correct…

Have to share this article giving us some history on the accuracy of the Bank of Canada (BOC)  interest rate forecasts…   This should get you thinking a little the next time you hear the  BOC forecasts…. Take a look at this Historical Rates chart.. look at the Bank Prime section…   You will notice some trends of rates hikes followed by rate drops…

We aren’t saying BOC rates will fall anytime soon… it’s clear the rate will go up…. but there is no straight line increase if you look back in history… Increases are followed by decreases…

-1992.. the BOC erred and raised rates thinking the economy was strong but they quickly retreated and reversed those increases after realizing it was too much, too soon.

-1995…the Quebec referendum year… remember that?  I do.. I bought a house that year… and interest rates went up 1.00% overnight after fears of a Quebec ‘YES’ vote was more than possible… but then rates dropped like a rock and remained low for several years…

-2000….another recession… the dot.com, dot.bomb error of hi-tech stock greed…  rates had climbed in 1998 and 1999 but dropped in 2001 and remained low once again…

-2008…the U.S. mortgage crisis… the worst Global recession since the Great Depression of the ’30s…. we saw BOC drop the rate to a modern-day record low…Bank Prime was 2.25%…

-2010…the BOC kept it’s promise to raise rates and increased the rate by 0.75% over a 3 month span to 3.00%….

-2011…. ?????  the BOC is expected to raise rates by as much as 1.00% this year, and another 1.50% next year, according to the RBC Economist…. Did the BOC raise rates too quickly?  Can our economy absorb these increases?   Questions that won’t be answered for a while…

It doesn’t mean you have to sit and do nothing

But this doesn’t mean you have to stand by and be a spectator.   By keeping informed with historical trends and understanding your own personal situation, you can be in control…. Understand where you fit in… Is Fixed rate better for you now?  Does Variable Rate still make sense for you?   Can you handle the potential increases that are coming?    A good Mortgage Broker can help guide you to the right answer… Remember, it’s your mortgage, your payment…your decision.

Posted Interest rates

Fixed rates are heading up

Fixed mortgage rates are going up.   Already, TD Canada Trust has announced they are hiking rates by 0.25%.  Their new ‘best advertised rate’ is 4.39%.   They are also increasing their 5 year posted rate by 0.25% to 5.44%.  This posted rate is important if you are buying with less 20% down.   All Banks must qualify borrowers with the posted 5 year fixed rate, or the prescribed rate.

The bond market has climbed steadily over the past few weeks… 5 year Canadian Bond yield is at 2.74% today.  That’s an 8 month high.   The last time the bond was this high, the best 5 year fixed rate was 4.29%.

If you’re thinking of buying or refinancing, contact your mortgage broker and get a rate held.   Most Lenders offer a 120 day rate hold…. You can still get a 5 year fixed rate mortgage for under 4.00%.

On the bright side, these rate increases are a direct result of positive economic data that’s been coming out of Canada.  So although we don’t want to pay higher rates, we don’t want to have a weak economy either.

Posted Mortgage News

CIBC Economist gives us the stats

CIBC Senior Economist, Ben Tal, spoke at this year’s annual Mortgage Broker conference in Montreal.  The conference, organized by the Canadian Association of Accredited Mortgage Professionals, is a great place for Mortgage Brokers to meet all the Lenders and service providers under one roof.

It’s also a great opportunity to hear some of Canada’s experts talk about the economy, real estate, interest rates and the mortgage market.  Here are a few highlights from Mr. Tal’s presentation.

-there are 12.5million households in Canada…31% rent, 69% own..

-of the 69% that own, 39.9% have a mortgage and 28.9% have no mortgage.

-69% of homeowners with a mortgage have more than 20% equity in their homes… only 30% have less than 20% equity in their homes.

-Renters have excellent cashflow… 96% of renters are using less than 40% of their income to pay for all their debts… so in reality, these renters could qualify for a mortgage based on their debt servicing ratios.. (most lenders allow borrowers to use up to 42% of their gross income towards a mortgage payment)…

One more comment that caught our attention was about Variable rate mortgages vs. Fixed rate… The historical data is overwhelmingly in favour of Variable rates….it’s really been a no-brainer… But what about now?  Fixed rates are at historical lows…  Mr. Tal said that Fixed rates might outperform Variable rate over the next 5 years… BUT it is so close that a 0.50% increase in Fixed rates would probably tip the scales back in favour of Variable…

That being said, we must also consider the flexibility of a Variable Rate product.. it does allow one to lock into a fixed rate at any time and it does allow for an early exit at a minimal cost….   For me, Variable rate is still better choice…for most of us.

Posted Interest rates

Inflation rises to highest level in 2 years…but don’t panic

Latest figures show inflation jumped 2.4% in October according to Statistics Canada… compared with 1.9% in September.    The Bank of Canada aims for an inflation rate of between 1% and 3%.    Anything over 2% can trigger the Bank of Canada to take action… Usually, a hike in the Bank of Canada Rate, which affects Variable Rate Mortgages..

However, it’s no reason to panic.  A one month inflation spike probably isn’t enough for the Bank of Canada (BOC) to take drastic action.  It’s probably gonna take consecutive months of higher inflation or other events before the BOC raise rates again.  Most experts believe the Bank of Canada will not make any changes til next year.

Throw in some Global issues like Ireland’s’ debt and the Korean conflict heating up and you get uncertainty… Uncertainty means rates should stay low for some time…

Posted Interest rates

How will the high $Canadian dollar affect mortgage rates?

The Canadian dollar is just about at par with the U.S. dollar…  The BMO Economist sums it up well when he says “Generally speaking, from a stronger currency, consumers win and producers lose.”  As quoted in the Vancouver Sun.

And a high Canadian dollar means the Bank of Canada is less likely to increase the Target Rate which affects Variable Rates…  Any move by the Bank of Canada upwards will only drive the Canadian dollar higher…
A high Canadian dollar hurts our exports as they become more expensive for other countries to buy…  and we will probably see more cross border shopping as our strong $CAD will have more buying power…
Bottom line is that Variable Rates appear to be safe for now… enjoy the low rates…