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Tag5 year fixed rate

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

Variable rate increases again..

Lenders have begun to raise their Variable rate mortgages again…. The second increase in less than a month.  A look at the Bank websites and you will Variable rate pricing is now at Bank Prime less 0%….  that’s 3.00%…   And although ‘3.00%’ sounds like a good rate, a Variable rate at Bank Prime less 0% is not good.

The Banks have gone from an advertised rate of Prime less 0.65% to Prime less 0% in about one month’s time.   Of course, the best wholesale rates through mortgage brokers now sit at Prime less 0.50% and will probably go to Prime less 0.40% after the dust settles.

So what’s causing the Banks to increase their Variable rate mortgages?   They tell us there are “profitability concerns”.   In simple talk, that means they simply want to increase their profit margins now that rates are expected to stay low for some time to come.   They also want to force us to take the much mortgage profitable 5 year fixed rate mortgage, now sitting at 3.99% (RBC website special rate)..    Keep in mind, there are better rates to be had in the wholesale market…. 3.49% seems to be the best 5 year fixed rate today.

But even 3.49% is too high.  The spread between the 5 year govt of Cda bond (1.45%) and 3.49% is still over 2.00%.   Historically, this spread has been between 1.10% and 1.40%..    It’s simply math…. the Banksters are saying ‘ka-ching, ka-ching”.

Posted Mortgage Products

Stock market drop and slight recovery.

Did you know that between July 22nd and August 8th, the TSX index dropped 14%?   Did you know that since August 8th, it has recovered 9% of that loss?  What a roller coaster ride…But there’s good news here…

So how will this affect your mortgage rates?

Fixed mortgage rates are priced from the 5 year Cda govt bonds.. Bond yields also dropped like a rock.. from 2.27% to 1.35% during that same time period…  that’s a 0.92% decrease.  A visit to TD Bank’s website shows us their ‘5 year fixed rate Special offer’ is 4.19%... no drop at all.   Call a Mortgage broker and you’ll see rates of around 3.49% today.

Sure, fixed rates are very low but they should be lower….  Fixed rates are usually priced around 1.30% to 1. 70% above the 5 year bond yield…  Why haven’t you seen mortgage rates keep pace with the bond yield drop?   That’s not hard to figure out… The Banks are maximizing their profits… same old story…Banks are infamous for hiking rates quickly and but slow to move when it comes to cutting rates.

How about Variable rates?

Well, not much to report there… The Bank of Canada meets 8 times a year.   Last meeting was July 19th.  Next meeting is Sept 7th.    You can forget about any immediate rate hike.   Economists have done an about-face with their forecasts…. We were expecting a rate hike this September or October… That’s now been pushed back to 2012… and there were even some rumblings about a possible BOC rate cut (but I’m not sure that’s gonna happen).

At 3.00%, the Bank Prime rate is still very, very low and makes borrowing very attractive…   Current Variable rate mortgages are priced at between Prime less 0.65% to 0.80%…    We may not see interest rates drop, but there is no reason for them to go up for the next little while…. Enjoy the low rates.

Posted Mortgage Rates

TD Economics forecasts no Variable rate hike til 2012

This week, TD Economics said the Bank of Canada probably won’t raise rates til 2012.   How quickly things can change.  Just a few months ago, most Economists and Financial Experts were calling for the Bank of Canada to raise rates this summer.. some said as early as May… Well, that didn’t happen.

There are many reasons but TD’s Chief Economist, Craig Alexander, said it was low inflationary expectations, the negative impact on the European financial instability (Greece, Ireland, Spain, Portugal) and the high $Canadian dollar.  We can also through in Japan’s Tsunami and the Middle East political uprising.

Fixed rates have also not gone up as the Economists were forecasting earlier this year.  Instead, they have come back down to historical lows, once again… The Bond market affects fixed rates and we’ve seen the 5 year Canadian Bond drop 80 basis points since mid April.

All this is great news for borrowers as there appears to be little pressure to raise interest rates anytime soon.

Posted 88 Comments on Mortgage Penalties exposed…. an in-depth study reveals unjust penalties. Case study

Mortgage Penalties exposed…. an in-depth study reveals unjust penalties.

On November 26, 2010, we reported that a good source told us the govt would not follow through on their promise to standardize mortgage penalties until this spring, at the earliest.

On December 15, 2010, we also reported that discounted Fixed mortgage rates were going up but Posted mortgage rates were staying the same… we stated that your mortgage penalty would not decrease as it normally does when rates go up.

We received some inquires about this article.   Questions like ‘shouldn’t my penalty go down if rates are going up?’ and ‘how could a mortgage penalty be more expensive if the Bank’s didn’t increase their posted rate?’

Okay, here’s my shocker statements….  A $200,000 mortgage taken in December 2008 will cost you $16,800 to get out of today…. but 12 years ago it would have cost you approximately $8,340 and even today, it should only cost $11,640.      Got your attention?   Please read the entire report to better understand. Continue reading “Mortgage Penalties exposed…. an in-depth study reveals unjust penalties.”