Great article today in The Globe and Mail… Ok, so why am I promoting an article that talks about NOT dealing with Brokers? The article says, RBC, BMO and now HSBC are not dealing with Mortgage Brokers (RBC never dealt directly but they do put money out through RBC Securities…BMO stopped a few years ago and HSBC just stopped).
The article quoted Marcia Moffat, VP Home Equity Financing, RBC. I have my opinion but what do you think about what she said?…. “The mortgage market is extremely competitive, so the reality is that there is little to no difference between bank rates and broker rates.”
Well, that statement sparked a flurry of comments… read the comments section of the article.. including some words from CanadaMortgageNews.ca. As recent as a few weeks ago, I had client asked if I could give them a letter stating what my rate was so they could take it to their RBC branch and the branch could match my rate… and this happens all the time…
The Banks are a business and want to make a profit…. you heard me say this before? I must repeat it again…far too many don’t believe it… The Banks want you to take the 5 year fixed rate mortgage… it’s the most profitable product for them…
Remember, a few months ago, I wrote about the government introducing new mortgage rules that make it harder to qualify for variable rate and shorter term mortgages (1 to 4 years)…. you must now qualify using the Bank Posted 5 year fixed rate… that’s 6.10% today!! Or you can qualify at the contract rate (fully discounted rate) of the 5 year fixed rate mortgage product….. today, that’s around 4.49%… . Which product do you think borrowers will need to take if they are on a tight budget? yes, the 5 year fixed rate mortgage.
So, why do these lenders not want to deal with Mortgage Brokers? For me the answer is very clear…they want to put you into their most profitable product…. Mortgage Brokers have a duty to recommend and advise the MOST APPROPRIATE PRODUCT.
I’ll be speaking more about Bank mortgage products soon… in particular, the split mortgage products… please don’t get into these products without knowing all the details and reading the fine print….speak with a qualified Mortgage Broker.
Latest figures show inflation is not a problem…. The latest 12 month figures show inflation running at about 1.7% which is within the Bank of Canada’s 2% target rate….
Inflation is one of the biggest factors that affects the Bank of Canada’s key rate (the rate that affects Bank’s Prime rate)…..this is good news for Canadian borrowers as there has been a large amount of media coverage regarding the much-anticipated interest rates hikes…
Oh, and by the way… the Bank Prime rate still 2.25% (an all time low)… Why not just enjoy the low rates and not worry about what might happen in a few years?
No surprise, the Bank of Canada did not raise their key rate today, keeping it at 0.25%. This rate directly affects the Bank Prime rate which is 2.25%. But as so many Economists have forecast, this appears to be the end of the record low Mortgage rates.
But it’s not that bad… we have enjoyed record low rates (almost free money, some would say) for well over a year.. and they are only starting to climb.. we’ll be enjoying low rates Variable rates for some time yet…
In it’s press release, the Bank of Canada stated “the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus. The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 per cent inflation target.”
The big question on everyone’s mind is how fast and by how much will rates increase… Here’s what to look for when it comes to what affects Variable rates:
- Inflation (the target rate is 2% and we are currently at 1.6%…if this increases then the Bank of Canada will want to increase the Bank rate)
- unemployment (currently sitting at 8.2% if we have higher than expected unemployment then this also puts pressure to keep the Bank rate low
- Canadian $ in relation to the $U.S. (today, the Canadian $ jumped over $1.016 and a high $ is bad for Exports and Manufacturing….the higher the Bank Rate, the higher $ will usually increase)
Fixed rates are more volatile as they are affected by the Bond Market… The Bond Market seems to have priced in a 50bps increase by the Bank of Canada as Bond Yields increased by 0.126% to 3.19% at the time this article was written. The Banks have increased Mortgage Rates by 0.85% over the past 3 weeks and should hold until the Bond yields increase to above 3.40% or 3.50%….Historically, the Banks want to earn a spread of around 1.20% and 1.30%.
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
Mark Carney, the Bank of Canada Governor, kept the overnight rate at 0.25%…(yawn…)… The rate that affects all Bank Prime rates and Variable Mortgage Rates has remained at this level since April 2009….
In the announcement, the Bank of Canada stated they were concerned about inflation increasing a little faster than they had forecast. The Economy also grew at an annualized rate of 5% in the fourth quarter of 2009….. (personally, I think it would be surprising to see it continue to grow at this pace…. )
Governor Carney has repeatedly stated he will not increase the rate before June… well June is approaching and some of the Economists are starting to forecast for possible rate hikes as early as June… but nothing too drastic..
One rule of thumb or interesting historical trend is that fixed rates usually increase first or before the variable rates rise….we’ll be watching the bond market (bonds affect fixed rates)….