Tag5 year fixed rate

Posted December 17, 2012 Case study

Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 1 of 2.

VARIABLE RATE MORTGAGES WERE THE BEST OPTION

For years, I’ve promoted the merits of Variable rate mortgages vs Fixed rates. To me, it was a no-brainer. Historical stats showed that you would save over 1.00% on your mortgage, per year, every year (some years had savings of over 3.00%!). Do the math… That works out to $1,000 to $3,000 per year for every $100,000 of mortgage.

And for years, the BIG SIX BANKS, the Bank of Canada, the Federal govt and other fear-mongers pointed out that Variable rates fluctuated and your rates would change and possibly go up…

If you were able to block out these warnings, do a little research, then you may have been lucky enough to enjoy the huge savings that Variable rates gave us over the last 15 years… Fortunately, over 80% of my clients listened to my advice and chose Variable rate. But even at the height of Variable rate popularity, just 45% of Canadians were ever in a Variable rate product at any one time. Today, it’s less than 15%.

In 2008, the U.S. sub-prime mortgage crisis hit. Financial markets were in turmoil. New Variable rate mortgages were either pulled from the shelf or were priced so high as to make them an unattractive option (prime plus 1.00% with some Banks).

BEGINNING OF THE BANKS HIGHER PROFITS

The Banks actually liked this. After all, the most profitable mortgage product is the 5 year Fixed rate. Not hard to figure out. The lower the interest rate, the less the Bank’s make. This became a great opportunity for the Banks to reduce their Variable rate exposure… And so began the great campaign to force us into 5 year fixed rate mortgages. (by the way, these inflated Variable rate prices only lasted around 6 months…we’re not back to the good old days of Prime less 0.90% but anything at Prime less 0.50% or better is worth a look….it’s worth noting for the record that I still didn’t recommend 5 year fixed rates to my clients during this time… I recommended shorter term fixed rates ranging from 6 months to 3 years and then went back to Variable rate… history has shown that this was the right strategy).

Starting in late 2008, and continuing today, Bankers would call, email or write letters to their Variable rate mortgage clients to warn against higher rates coming… and they should consider locking into a 5 year fixed rate mortgage. There were many reasons given… a bad economy… uncertainty in the financial markets… or my favorite, a special rate offer (it was special alright! Lol!!)… And the media jumped in too. TV, radio, newspapers, major news websites…how many times have you have heard the warnings about rising mortgage rates??…or record personal debt levels?? This created an even higher level of uncertainty and fear… Mr. Potter would be proud!

Think about it… The Banks were strongly recommending that Variable rate clients go from a rate of 3.25% or better, and into a 5 year fixed rate of 5.50%!!? (November 2008). And the worst part about all this is that hundreds of borrowers listened and did it… and have regretted it ever since!!! Where’s your Banker now?…

watch for part 2 of 2… FED GOVT, BIG SIX BANK’S pushed us into Fixed rates!… tomorrow!

Getting a mortgage today? Speak with a Mortgage Broker…and think twice about sticking with your BANK…. you could just save yourself $thousands.

As always, I welcome your comments and questions. Let me know if I can help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted November 9, 201211 Comments Interest rates

O’Leary only wants Fixed rate mortgages…really?

CBC News did a report about Renting vs. Buying, earlier this week.. And it featured Kevin O’Leary and Amanda Lang, two well-known TV personalities….Ok, we covered Rent vs. Own in great detail just a few months ago… And I also talked about using your home as a retirement fund, earlier this week in my Baby Boomer 10 year retirement plan article.. But this isn’t what I want to talk about… I want to talk about some comments O’Leary made about Fixed Rates, during that report.

UNPOPULAR COMMENTS AGAINST O’LEARY

I’m taking a chance by speaking out against Kevin O’Leary. But I must speak up regarding something as important as this… So here it goes…

O’Leary is starting a new mortgage company….Congrats! I’m sure he’ll do well. He said his company would ONLY offer Fixed rate mortgages because Mr. O’Leary doesn’t believe ANYONE should be in a Variable Rate mortgage…. he went on to say that because Fixed Rates are so low, you would have to be insane to stay in a Variable Rate…Hmm.. well, if you are one of my clients then you know how absurd this statement is…

2008-09 MORTGAGE HISTORY LESSONS

Over 80% of my clients are, or have been in a Variable rate mortgage… Most of them enjoyed rates of Prime less 0.75% or better… some even had Prime less 0.90%..and for a while, they enjoyed rates as low at 1.35%!!! During the 2008-09 recession, we were inundated with TV and Media personalities telling us to lock into a 5 year Fixed rate mortgage because of the sub-prime mortgage crisis and stock market crash… You remember that? I do… and I recommended clients do the opposite.. take short-term mortgages until the dust settled on interest rates… This WAS NOT the popular advice… It was panic time…. but that’s when you need to remain calm and review the facts…

Fortunately, most of my clients didn’t listen to the media and followed my advice. I recommended several different products… 6 months, 1 year, 2 year, 3 year and even the short-lived 3 yr Variable rate… In ALL cases, it was the right product choice…. It was the best option at the time for that particular client…My clients have saved $$thousands each and every year through my advice!

(historical fact… Variable rate mortgages have been a cheaper way to finance your home in over 88% of time…Professor Milevsky study.)

TODAY’S STRATEGY

Unfortunately, new Variable rate products aren’t priced as well today…. This is probably that other 12% of the time….And although I am not recommending Variable rates today for most borrowers, it still might be the right product for some… To say everyone should get out of their Variable rate is just bad advice! The GOAL IS TO PAY THE LEAST AMOUNT OF MONEY TO OWN OUR HOMES!

My criteria for choosing Fixed over Variable depends on many factors but here are 3 things I pay close attention to:

1-Variable rate pricing not as attractive.. the best Variable rate today is Prime less 0.35% (3.00% less 0.35% = 2.65%)…..

2-Fixed rates are at historical lows (just over 3.00%).

3-the spread between 5 yr Fixed and Variable should be over 1.00%…today it’s less than 0.50%.

Add all of this up and it’s an easy choice today….I cannot recommend Variable Rate for most NEW mortgages….

THIS DOESN’T MEAN YOU SHOULD GET OUT OF YOUR VARIABLE RATE!!!

If you have a Variable rate of Prime less 0.75%, I would stick with that… that’s 2.25%… why start paying over 3.00%? There is no forecast for immediate rate increases… And this is where I am very concerned…. We have a very well known TV personality that comes out and says everyone should lock into a Fixed Rate mortgage…. I’m sure the BANKS would love to see you out of a 2.25% mortgage and into a 3.00%+ rate. I completely disagree with O’Leary. There is no ‘One size fits all’ mortgage. Everyone is different and has different needs… I’d be very careful about listening to anyone that wants to pigeon-hole all Canadians.

BEWARE THE TV EXPERTS… Just a final note…. How many times have you heard ‘Rates are going up soon’ in the last 4 years.? You must lock into a Fixed Rate… I hear it everyday…. and if my clients listened to these ‘Experts’ they would have been out of their Prime less 0.75% Variable rate and into a 4.00%, 5.00% or even 6.00% fixed rate mortgage! Those that have listened to the facts have done extremely well. There isn’t a crystal ball… it’s not magic, it’s simply viewing the mortgage landscape, current economic trends, monitoring inflation rates and paying attention to govt and policy makers… I really don’t watch the news or listen to any media or TV personalities. I just look at the facts and present them here.

As always, if you have any comments or questions or would like to know what strategy is best for you, give your mortgage broker a call.. or call me if you don’t have a broker. I’d be happy to help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted September 5, 2012 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 August 9, 20121 Comment 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 July 31, 2012 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