Here’s a great article that explains there is no reason to panic… This week saw the much expected hike in mortgage rates… Bond market is up around 0.30% but the Banks felt they needed to increase the rates by 0.60%….
Hmmmm…didn’t the Banks just announce some HUGE discounted rates a week or two ago? Talk about a strategic PR move…. Well, that didn’t last long…they have all bumped up the Posted rates…
With the Canadian $dollar just about equal with the $U.S. dollar, there is a little less pressure for the Bank of Canada to raise the overnight rate as aggressively as once thought….we can still expect increases of 0.25% to 0.75% over the next 6 to 12 months but remember that we are well below the 10 yr average of 5.177 and well below the 25 year average of 6.92%....Historically, if the $CAD rises, then the Bank of Canada is less likely to raise rates…
3 main factors to watch that will affect the Bank of Canada Rate…. Inflation, unemployment and the $CAD. Oh, and by the way, here are the 8 preset dates when the Bank of Canada sets the overnight rate.
Tuesday, 19 January 2010
Tuesday, 2 March 2010
Tuesday, 20 April 2010
Tuesday, 1 June 2010
Tuesday, 20 July 2010
Wednesday, 8 September 2010
Tuesday, 19 October 2010
Tuesday, 7 December 2010
I’ve debated whether I should share some of these incredible nightmares with you….but there are just so many of these coming up that I had to report them….If you have a similar story, please send me a note so that I might review and share and maybe even try to help.
Bank Horror Story 1
Last year, I had the pleasure of helping out a young family….. They have 5 kids and were in the wrong mortgage product with a short amortization and the bank had recently given them a consolidation loan to help out… The banker did not do this family any favours…
Their monthly payments were still totaling around $2900/mth….A simple review would have revealed that this family had plenty of equity in their home to leverage…. After all, the cheapest money is mortgage money.
I recommended they roll that loan into the mortgage, break the current mortgage, extend the amortization and the end result would be a much lower and manageable payment with a lower overall interest rate….3.75% vs 4.94% and their monthly payment would be $1600/mth...saving them over $1300/mth.
The bank quoted a $5k penalty.. that’s ok… it was still well worth it… the interest savings would be around $13k over 5 years… but then they charged him over $10k in penalties at closing... well, with the help of Ellen Roseman of the The Star newspaper, he got his $5k back…..
Bank Horror Story 2
Here’s another story with a happy ending that just occurred this year… A single mother with disabled son needed to get their payments lower and pull out some money for a new roof….Her mortgage was coming up for renewal so no concerns with penalties, right? WRONG!!
This Bank ( a Big Six bank) decided to renew the mortgage into a closed 6 month term…even though they had been informed by the client that she was paying them out… and informed by her lawyer that they were paying them out…. WHY? I have no idea….but they ended up charging and collecting a penalty for $1600…
Once again, with the help of Ellen Roseman from The Star, the bank refunded the entire $1600 to that client some 3 months later…. The worst part about this story is that the Branch Manager refused to return any calls to the client or her lawyer….. Quite Pathetic.
The Big Banks are reporting $Billion quarterly profits
Have you read some of the financial reports from the Big Banks? Do you know where they are making most of their money? From Domestic Banking… The above stories are just 2 examples where clients are being gouged and ripped off….how many more of these situations exist?
With new variable rate pricing of Prime MINUS 0.45% and 0.50% available, this is probably a great time to break that mortgage and save some money…
Variable rate mortgages have penalties capped at no greater than 3 months interest… if you have a mortgage of Prime 0.25% or above, then you can save $thousands…. Call your Mortgage Broker for an analysis…
Sometimes it’s just easier to see the numbers on a graph.. Here are a few updated graphs from Firstline Trust… Firstline Trust Historical Rates February 2010… Notice the spread between the Bank Prime rate and Fixed Rates… the spread is usually around 1.00% to 2.00% in favour of Variable rates.
Variable rate mortgages have outperformed Fixed rates in over 88% of the time…. here’s a great study by Professor Moshe Milevsky of Schulich School of Business… Milvesky variable rate 2008. And here’s an article today by the Canadian Press that comments quietly, that Variable Rate should still be considered…
Hey, by the way… did I mention that we are still in historical rate territory? If you look back at historical rates, you will see that it’s still a GREAT time to borrow money… Fixed rates in the 4.00% range… Variable rates still under 2.00%… Doesn’t sound too bad to me…
TD and RBC have increased their 5 year posted mortgage rates this morning. We can expect others to follow. This comes as no surprise as the 5 year Bond Market increased to 2.87% causing the margins to shrink.
This is probably the beginning of several increases to come over the coming months. If the Economists are right, then we will see these types of hikes followed by a pause to see how the economy reacts.
We will be paying close attention to inflation, unemployment and the $Canadian dollar.
Fixing or locking in your rate may be an option for some but variable rate mortgages are still around 2.00% below 5 year Fixed Rates.
I’m still a fan of variable rate mortgages. I just think that they are a better product. But hey, that’s just me. We are all different and have different needs. Always talk to a Mortgage Broker to get your needs evaluated.