TagBank of Canada

Posted December 18, 20122 Comments Case study

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

IT’S NO COINCIDENCE THAT THE BIG SIX BANKS CONTINUE TO REPORT RECORD PROFITS.

The Bankers were onto something. Now if they could only keep Variable rate pricing higher or make it tougher to get a Variable rate mortgage…. In 2010, the Fed govt would help increase those Bank profits…All new Variable rate mortgage borrowers would need to qualify at the Bank posted 5 year fixed rate. The Feds said they had to tighten Mortgage Lending Rules… They had to make it tougher to qualify for a mortgage with fluctuating interest rates to ensure we would not have a ‘housing bubble’ and a ‘mortgage default problem’… This pushed out 5% more borrowers from qualifying for, and benefiting from Variable rates. And by the way, at that time, Variable rates ranged anywhere from 1.50% to 1.95% compared with the best discounted 5 yr fixed rate of 3.89%…..! Anyone seeing a pattern here? (Some stats to remember…Mortgage defaults have been under 0.50% for over 15 years are currently at around 0.33%… this is at or near record lows!!… so where’s the problem??)

This is also when the BIG SIX BANK’S inflated, and unfair mortgage penalty calculation came to light. The lower rates became, the higher mortgage penalties climbed… $10,000, $20,000, $30,000 in mortgage prepayment penalty charges were popping up in mortgage blogs and news sites. Even the media had to jump in and cover some of this… And when Canadians needed a break in their mortgage payments, they were left out in the cold. These inflated penalties made it impossible to get out of their higher Fixed rate mortgages without paying an enormous penalty. Continue reading “Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 2 of 2.”

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 September 19, 2012 Mortgage News

Mortgage Broker vs. Mortgage Specialist

Getting calls on this topic once again so I thought I’d clear the air on this very important topic. So what’s difference? They both arrange mortgages…. and both can offer advice and product select, right? WRONG!!!. The differences are a plenty….I’ll cover the more relevant ones here.

I’ll start with the a quote from a recent Bank of Canada study that tells the story very clearly: “… borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly.” click here for the entire study.

I can probably stop writing after that statement but I wanted to point out a few more things:

A Specialist works for one Bank or a single Lender. They are employees of the Bank or Lender. They can only offer you one brand of products.
A Broker is independent. They are not employees of any Bank or Lender. They can offer products from several different Lenders.
More Lenders competing for your business means betters terms and rates.
A Specialist isn’t required to be licensed to arrange mortgages. There are no standards for educational requirements (although most Lenders do provide some in-house training).
A Broker must successfully complete a Provincially regulated Broker course and continue to maintain their good status to keep that license.
A Broker can provide unbiased advice. They work for you, the borrower.

Look, you wouldn’t ask Burger King who makes the best burgers and expect them to say Harvey’s? So why would you ask a Bank Mortgage Specialist to tell you which Lender has the best mortgage product for you? Enough said.

Banks and Lenders are great suppliers of money, but they can’t give unbiased advice. They can only offer you their products…and they will try to charge the highest rate possible… but that’s okay. They are a business. And they will always try to maximize the profit for their employer, the Bank.

If you would like to compare mortgage products and rates, call your Mortgage Broker.

Don’t have one?, then call me. I’d be happy to help.

Steve Garganis

416 224 0114

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 July 23, 2012 Interest rates

Wanna know where rates are going? Look at 2 yr bond yields.

Probably the most popular question asked is, “where are rates heading?” Or “when will they go up?” Let’s face it, if you have a mortgage or are invested in real estate, then you better know the answer or understand what affects rates. After all, interest rates can make or break a housing market.

We decided to take a few minutes to explain how you can follow the indicators that affect interest rate movement…. We won’t make you a Financial Expert, but you will gain a better understanding of what affects rate movements…

My first suggestion is to stop paying so much attention to the news or TV… (apologies to my media friends)… but the wild headlines are there to grab your attention… it’s not that difficult to understand…

Last week, the Bank of Canada met for the 5th time in 2012. There are 8 scheduled meetings each year… (and by the way, this helps to keep rate movement and monetary policy more predictable…. the more predictable a Govt is, the more stable it’s economy is.) The Key Rate is set during these meetings… this rate directly affects Variable rate mortgages…. No surprise, the Bank of Canada Governor, Mark Carney, kept the rate unchanged.

That means Bank Prime is still 3.00%. And with more negative economic news from Greece, Spain, other parts of Europe, the U.S, and now Canada, it’s safe to say rates should remain flat for some time……(remember, bad economic news usually means rates will drop or stay low).

So the Bank of Canada’s Key Rate (also known as Target Rate or Overnight rate) directly affects Variable rate mortgages… but indirectly, they also affect Fixed Rates. A better short term indicator to watch is the 5 yr Govt of Cda bond yield. We watch this to see where fixed rates are headed in the short term… say, over the next few days or or few weeks. A good long term indicator for Fixed rates is the 2 yr Gov of Cda bond yields. Financial Experts pay very close attention to this index if they want to know where rates are going in 6 months or longer. And at present, the 2 yr yields are very low…..

Bottom line, rates should remain low for some time… Not so hard to follow, right?

And not to confuse you, but historically, Fixed rates usually go up ahead of Variable rates…. so we need to watch Bond yields together, with the Bank of Canada’s Key Rate to gauge where rates are going…

Hope this helps… and as always, feel free to call or email me…

Steve Garganis

416 224 0114

steve@mortgagenow.ca