Last October, we reported one of the biggest changes by a major bank in recent history…. TD Canada Trust changed how they would register mortgages… Quietly, TD announced they would now register all mortgages as a collateral charge… Most borrowers won’t know what the difference is, but for us in the financial industry, we know this will have huge ramifications and limitations and could end up costing the average borrower $$thousands. Click here to read what the experts say.
And then in December, we heard a rumor that TD was looking at ways to transfer in collateral mortgages…. They wanted to give us the impression that there were few limitations to taking a TD mortgage… uh, let me say that again… that’s TD collateral mortgage.
We just heard that this has been put on the shelf. They just can’t figure out a way to transfer in collateral mortgages… If this doesn’t make you think twice about taking a TD mortgage, then I don’t know what will. I’ve never heard of any bank accepting a collateral mortgage for transfer……Just isn’t possible with today’s real estate and mortgage laws.
Oh and by the way, if you’re wondering.. TD will allow you to transfer in your mortgage from any other financial institution… But be warned, once you are there, I think you’ll have a hard time getting out.
On April 14, I attended the annual Independent Mortgage Brokers Association (IMBA) annual conference. We were fortunate to have Canada Mortgage and Housing Corporation’s (CMHC) Regional Economist, Ted Tsiakopoulos, share his outlook on the economy, real estate and interest rates.
Click here for the entire presentation. This is a summary of CMHC’s outlook:
- No evidence of housing bubble.
- housing market is stabilizing in Ontario.
- we won’t see the growth in prices as in years past.
- this outlook is still uncertain given all the global events, both political and economic.
- credit growth is slowing.
- Interest rates will rise as economy improves.
The good news is that there doesn’t seem to be a housing bubble. Interest rates will gradually return to normal. And we don’t seem to be taking on as much personal debt as the government and media has led up to believe in the recent months.
This week, we saw two major mortgage lenders raise their Variable rate pricing from Prime less 0.75% to Prime less 0.65% and Prime less 0.50%…
This is really quite unexpected…. We cannot ignore what is happening… The explanation given for the prices changes is ‘profitability concerns’. But the cost of Variable Rate funds hasn’t really changed. We believe there are a few other possible explanations.
First, we are seeing more borrowers flock to Variable rate mortgages again…. With a 2.20% difference between a 5 year fixed rate and a Variable rate, it’s been much easier to choose to Variable. Banks make more money on 5 year fixed rate mortgages and would rather push you into these products…. And yet another reason is the possible gains in the recent polls by the NDP.
According to this article in the Globe and Mail, we should brace ourselves for more costly mortgages if the NDP keeps moving in the polls. Here’s a quote from the article that says it well, “This interest rate premium on social democratic governments is unfair and tragic. But dismissing it is unrealistic.”
We don’t normally get involved in politics on this site… not unless it can affect mortgage rates, the housing market or the economy…One of the more infamous examples was in 1995 during the Quebec Referendum. Does anyone remember that?
Just before the referendum, a new poll had suggested that Quebecers’ could win a majority vote to separate. This sent the Canadian stock market and the Canadian dollar plunging. You might also remember that the Bank of Canada rate jumped 1.00% over night along with mortgage rates. It’s the single biggest increase that we have ever seen. It forced many of us to lock into a 5 year fixed rate… (something the Banks loved as the 5 year fixed rate product is the most profitable).
I’m not saying this will happen again but there was a report in The National Post that says BMO put out a warning to investors that things could be shaky if Jack Layton and the NDP continue to gain ground in the polls.
Another recent development this week is that a few major Lenders have increased their rates on new Variable rate mortgages. We have seen them go from Prime less 0.75% to Prime less 0.50%. They say it’s due to profitability pressures…. but I wonder if has more to do with the election next week?
The old Cashback mortgages
As a general rule, cashback mortgage offers have never really worked to the benefit of the borrower. The Banks loves it when a borrower takes one of these deals because it costs the borrower more, earning a higher profit for the Bank.
A cashback mortgage is easy to understand…. The Bank will usually give you Posted Bank Rates with some cash back on closing… The cash back is depends on the term of the mortgage but it’s usually been between 2% and 5.5% of the mortgage balance.
If you have a $250,000 mortgage, the thought of getting $5,000 to $13,750 back in cash on closing sounds pretty good… But let’s take a closer look…
If you do the math, this usually works out to around a 0.60% to 1.10% discount off Posted Rates. Today’s posted 5 year fixed is 5.69%… that would give you an effective fixed rate of around 4.59% at best… Compare this with today’s wholesale discounted fixed rates of 4.19% and the REAL cost of getting that 5.5% cashback means you will pay $4,767 more over the 5 year term.
The New cashback mortgages
Recently, we came across an interesting offer from one of the major Lenders…. Thought we’d share the details…
-5 year fixed rate of 4.29% with a 2% cashback for mortgages under $400k gives an effective rate of 3.89%…and 3% cashback for mortgages over $400k gives an effective rate of 3.69%.
-5 year variable rate of Prime less 0.50% with a 2% cashback for mortgages under $400k gives and effective rate of Prime less 0.90%.. and a 3% cashback for mortgages over $400k gives and effective rate of Prime less 1.10%
Note: if you were to apply the cashback at the time of closing, the effective rates would be even lower.
There is a catch…These cashback offers are only available for mortgage refinances or transfers from other financial institutions… they are not available for purchases (we don’t understand why but that’s the deal)… AND you CANNOT pay these out early with giving back the entire cashback to the Lender…It is also a little harder to qualify for these products and the approval process is a much more involved and time consuming… You will definitely want your broker to be involved in helping processing the approval… (don’t be surprised if your broker has to charge you a small fee for their time…it will still be well worth it.)
I must say, even with these limitations, it may still be worth considering. It’s good to see some more competition in this segment of the mortgage market.