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Posted Interest rates

Bank of Cda doesn’t change rate…U.S. Fed not to raise rates until 2015?

Bank of Canada announced they were keeping the Target Rate unchanged today, during their 6th of 8 regularly scheduled meetings for 2012.  (This is not a recording..Lol!)

A more interesting topic is the U.S. Fed.  There was an article last week that caught my eye.   The article quotes the San Francisco Federal Reserve Bank president as saying he doesn’t believe the U.S. Fed will raise rates until 2015.  And even if you don’t agree with that forecast, we must acknowledge that US Fed Chairman Ben Bernanke has stated he doesn’t forecast any increases until 2014.

Why is this important for Canadians to follow?  They say when the U.S sneezes, Canada catches a cold.   There’s a lot of truth to that statement.  The U.S. is our biggest trading partner.   History tells us we follow U.S. economic policies and trends.

CANADA MAKES IT’S OWN PATH

But something changed in 2008.   The U.S. had a financial meltdown.  The entire world was impacted and pushed into a global recession.   Somehow, Canada came out of this with minimal damage.   No housing crash.  No Bank failures.  No meltdown.   In fact, many sectors our industry have flourished including our housing industry.   We don’t have any mortgage default problem.   Our unemployment rate is 7.3% compared with the 30 yr average of 8.4%.   And our Banks are reporting $billion quarterly profits.    We are the envy of the world….financially speaking.

CDA GOVT CONTINUES TO FOLLOW US GOVT

Still, the Cda govt continues to follow the U.S. Fed with regards to any rate increases or decreases.  After all, we are still a very small economy compared with the U.S. and the rest of the world.  The Bank of Canada has not increased the Target Rate for 24 months.  Bank Prime currently sits at 3.00%.   And many economists believe we won’t see any increase until late 2013 or even 2014.   This leads me to believe mortgage rates will remain low for some time to come.

BUT WHICH MORTGAGE TERM SHOULD YOU CHOOSE?

The big question is which mortgage term to choose today… short or long?  fixed or variable?   The answer depends on you…. your goals, plans, financial strategy, risk tolerance, etc.   Each of us has different needs… Product selection is very different today.   There is an interested Variable rate product at Prime less 0.35% that has my attention.  5 yr fixed at 3.19% and 3.09% are still available… not a bad option for most of us…. My best advice is to get some advice.   Speak with a qualified, unbiased professional.  Speak with a Mortgage Broker.   A Mortgage Broker doesn’t work for any one Bank.. they can offer a wide variety of products from a large number of Lenders….

As always, if you have any questions or comments, feel free to contact me.

Steve Garganis

steve@mortgagenow.ca

416 224 0114

Posted Money saving tips

Scotiabank to buy ING….how will this affect you?

Earlier this month, ING Groep, the Dutch financial services giant, announced they were looking to sell their Canadian and UK operations in order to raise cash.   ING received a $10billion euro bailout from the Dutch govt during the 2008 Financial crisis and they want to start paying it back.

It didn’t take long to find a buyer for the Canadian operations.  Scotiabank will buy the Canadian division of ING for around $3billion.   The press release hinted at some good news for the Canadian public.  Scotiabank will continue to run ING as a separate entity.  For mortgage clients, this is mainly good news…. but we do have some concerns… Continue reading “Scotiabank to buy ING….how will this affect you?”

Posted 1 Comment on Bond rates up 0.30%…and 5 yr mortgages at 2.99% disappear.. for now. Interest rates

Bond rates up 0.30%…and 5 yr mortgages at 2.99% disappear.. for now.

Last week we saw 5 yr fixed mortgage rates hit 2.99% for the first time ever (these are full featured mortgages, not No Frills products).   But these rates didn’t last long… just 3 days later, bond yields spiked up and mortgage rates followed…  5 yr fixed rates now sit at 3.09%.

The 5 year Govt of Canada bond yields are up 0.30% since July 24th, and are currently sitting at 1.42%.  That’s a 26% increase in 2 weeks.  These bond yields have a direct effect on 5 yr fixed mortgage rates.     If bond yields continue to go up, we could see mortgage rates go up further.    Looking further ahead, the 2yr Govt of Canada bond yields provide us with a 6 month outlook…  they have also gone up from 0.93% to 1.16%, a 20% increase… if the yields stay at this level, we should look for rates to go up slightly…

Still, these are historical low rates… anything under 4.00% is ridiculously low…  We haven’t seen 5 yr fixed rates under 4.00% for over 40 yrs..  This isn’t time to panic…it’s still a great time to borrow money…

This seems to be an ongoing pattern.  Rates go up temporarily, then they drop… they go up, then they drop…    We’ve been stuck in this cycle for over 2 years.  But hey, who’s complaining?  Not anyone with a mortgage….not any real estate investors… this means money is cheap….. and it makes investing in real estate a very attractive option.

For those of us with a pension or if you are heavily invested in stocks, bonds or mutual funds, then you won’t like these low rates as they are keeping your Return On Investment very low……  Personally, I have some money in mutual funds and some stocks…..I started with my RRSP in 1990…. they were supposed to be a safe, long-term investments…. The only problem is, I’ve never made any positive return… Sound familiar?   The only ones making money are the Fund Managers (with their 2% Management fees) and Investment Advisors (with their 5% or 6% Deferred Sales Charges).

I lost my appetite for stocks and mutual funds, in 2000… the year of the dot com, dot bomb, internet stock market crash… the markets have been a roller coaster ride ever since… I got off that ride in 2004 and have never looked back.

If you’re looking for investment strategies in mortgages and real estate, drop me a line or give me a call… I’d be happy to share some of my knowledge and experiences of others that are enjoying positive returns elsewhere.

Steve Garganis

416 224 0114  steve@mortgagenow.ca

 

 

Posted Mortgage Tips

‘Stock investing is dead’, says World’s largest Bond fund manager.

For those of you that have made little or negative returns on your mutual funds and stocks, this statement might sound familiar.  Bill Gross is a founder and managing director of PIMCO,  They manage over $1.7trillion of securities.  His latest Investment Outlook paper had some very strong statements.

He says the historic 6.6% return on the stock market is more of a ponzi scheme.   And we shouldn’t expect the stock market to keep up with the real cost of living.   WOW!… strong words, but coming from someone who manages more money than several countries GDP,  we should pay some attention.

So if stocks and mutual funds aren’t cutting it and aren’t going to cut in the future, where do we turn?   There was no clear answer given in Mr. Gross’ article.   But maybe it’s time to look elsewhere…  There is one investment that has proven to stand the test of time.  Real Estate.  Real estate doesn’t have to appreciate in value to generate a positive return…but of course, it usually does.  How’s that you say?  Well, let’s take a close, but simplified look.

If you bought a property for $300k and put a $60k or $70k down payment, rented the house out, and paid your mortgage off in 20 or 25 years (by the way, the average time to pay a mortgage in Canada is between 12 and 17 years), you would own a tangible asset worth $300k.   And let’s not forget the rental income that just keeps being generated each and every month, year after year…. We can use any number for this but a realistic rent on a $300k property would be in the $1300 to $1600/mth range.  But remember, rents go up with inflation… so we should also expect rents to increase with cost of living.  And if they don’t increase, then inflation isn’t an issue…

Yes, the first 5 years or so, may not see a positive cashflow.. maybe even a negative one… but any loss could be written off against your income… and eventually, you would be in a positive position as your mortgage balance decreases.

Real estate investments scare most of us.  We don’t understand what’s involved.  We imagine the worst… the possible tenant from hell, that doesn’t pay for 6 months or destroys your property….or buying the money pit and having major repair bills, or mortgage rates going up making our payments unaffordable.     But in reality, if you are careful with your property selection, put the time in to manage and watch your property, and are careful with tenant selection, you will be with the majority of investors that see their investment perform well… you will build equity in your property as the mortgage gets paid over time.    And hopefully, the value of your property will only go up…

Maybe it’s time to invest in something we can see, touch and take care of….  instead of a piece of paper like stocks shares or mutual funds.  There’s a growing number of Canadians that are fed up with the stock market and mutual funds… fed up with paying 2% management expense ratios or 6% deferred sales charges only to come out with a negative return….  How may of us have been forced into mutual funds or stocks because we’ve been told to invest into RRSPs to reduce our taxes and invest for retirement?   Has that formula really worked for anyone?  If you want to look at something different but certainly not new, then take a look at real estate… you may be pleasantly surprised.

If you need help with understanding mortgages and how financing an investment property works,  please feel free to contact me.  I’m always happy to help.

Steve Garganis

Posted Interest rates

Lenders chop rates again… 2.99%… and Variable rates at Prime less 0.35%!

Today we saw 2 announcements….   For the first time ever, we saw a 5 yr fixed rate being offered for 2.99%.    This is not a No Frills mortgage… so you don’t have to worry about minimal prepayment privileges, or restricted payout options, and no monkey business when it comes to penalty calculation….  You probably won’t see a lot of publicity about this because of the mainstream media was quick to promote the BMO NO FRILLS mortgage as the first 5 yr fixed mortgage under 3.00%….earlier this year.   But I can tell you, it’s a significant milestone.

And we also saw the introduction of the lowest Variable rate mortgage in almost a year… Prime less 0.35%, or 2.65%.   This isn’t one of those NO FRILLS Variable rate mortgages that is full of restrictions… you have all the regular options including being able to lock into the BEST discounted fixed rate at any time.

These 2 offers are very special…   They don’t come with hidden clauses or back door penalties, or exit fees.   These products are legit!

The driver behind the pricing is competition, the increased spread in profit margins and a slowing housing market..   The thirst to grow a business and keep the business on the books is going to see a lot of competition…. and the winners are us… the borrowers…

If you want more info on these rates or other mortgage related issues, call me anytime.

Steve Garganis

416 224 0114