Bank of Canada hints of rates hikes.. bond yields spike up

Bank of Canada Senior Deputy governor, Carolyn Wilkins, made headlines this week when she hinted of pending rate hikes.

The reaction by investors was swift.  Bond yields were up 20bps. Fixed mortgage rates are priced from Gov of Cda bond yields.  Variable mortgage rates are priced from Bank of Canada rate.  And the next Bank of Canada meeting is scheduled for July 12th, the fifth of eight scheduled meetings.  Many are betting we could see a rate hike then.

DON’T PANIC…. RATES ARE STILL RIDICULOUSLY LOW…   The media was quick to find ‘so-called’ experts to quote.  I’ve seen some saying we should all lock in our variable rate mortgages into fixed rate products.  And others say you should brace yourself for payment shock.

Here’s a reality check..   Variable rate mortgage are around 2.20% .. Some are higher, some are lower..    EVERY Canadian must qualify for a Variable rate, using the POSTED 5 year fixed bank rate.  That rate has been at or near 4.64% for several years.

If rates go up, we can expect a slow gradual increase..  around 0.25% at at time.  And here’s the thing..If you can qualify at 4.64%, what makes you think you can’t afford your mortgage at 2.45% or 2.70%??

The sky isn’t falling.   Many Canadians are already paying more than they have to by increasing their regular payments to accelerate the amortization and retire their debt sooner.  In fact, most of my clients are doing this because they can.   Don’t believe everything you hear or read in the media…  We are experiencing record low interest rates and yet, we’re made to feel like it’s a horrible time to have a mortgage..  Anyone else seeing something wrong with this?

By the way, I still like Variable rate mortgages today.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

New threat of Rate hikes… it’s called Finance Minister Flaherty.

Flaherty thumbs up The Federal govt of Canada and the Bank of Canada are supposed to operate independently.  The Minister of Finance gives the Bank of Canada its objectives or its mandate.   And the Bank of Canada is supposed to carry out that mandate.   The dotted line is supposed to allow the Bank of Canada Governor to exercise his/her powers without fear of political influence.

THE COMMENT

But our current Finance Minister, Mr. Flaherty, doesn’t seem to like those rules.  He has repeatedly opened his mouth at inopportune times.   Take last year, for example, when he publicly criticized Manulife Bank and BMO for advertising a 2.99% 5 yr fixed rate.  He actually asked them to pull those ads!  Not that they were the lowest 5 yr fixed rates at the time, but they were the lowest advertised rates by a major BANK. (as my regular readers know, mortgage brokers had lower rates… as they usually do). Read the rest of this entry »

Real estate sales up 21% and 52% due to end of low fixed rates.

home-prices-upAugust real estate resale numbers are in….  and what a jump!  Up 21% in the Greater Toronto Area and an incredible 52% in Vancouver.   And here’s another interesting stat.  The average home price in Toronto is $505,000.  That’s a 5.5% increase from the previous month.

REAL ESTATE SALES DRIVEN BY HIGHER RATES..

But here are my thoughts on what caused the increased sales.  I think it has more to do with the steady mortgage rate increases that we’ve seen since May.  You see, most Lenders and Banks will offer rate holds of 120 days.   So that means you could have got a 5 year fixed rate mortgage preapproval in May for under 3.00%….  Those record low Fixed rates definitely forced many homebuyers to buy for fear they could miss out on the low rates. Read the rest of this entry »

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