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TagMortgage Rates

Posted Case study

Giving up the Bank Kool-aid.

Big six banksRecently, I’ve had several new clients contact me about getting out of their higher rate BANK mortgage… No surprise here… with interest rates reaching new all-time lows, it only makes sense to look into this further…

But I’ve noticed a very familiar pattern developing….See if this sounds familiar:

1-First, you hear about these record low fixed rates… maybe online, from a friend, or from one of my current clients…

2- You contact your Bank to see what they can do…

3-Your Banker gives you 2 options… 1- pay an inflated prepayment penalty (BIG SIX BANKS make you pay for any rate discount) and get into a new 5 yr fixed rate of 3.29% (this is the best advertised rate today by a BIG SIX BANK).  OR 2- they’ll blend the penalty into a new mortgage but your rate will be higher… (this never works to your advantage.. there is NO assurance the Bank will offer you the absolute best discounted rate when calculating your new rate.. it’s been a favorite tactic of the Banks for decades…don’t drink this kool-aid… it will cost you $$thousands). 

Most of us will stop right there and go no further…We’ve consumed so much Bank kool-aid that it’s turned us into a flock of sheep… But if you’ve started to become immune to the Bank tactics and want to explore further, then read on…

4- You call a Mortgage Broker, maybe me… you discover that today’s best 5 yr fixed rate is under 3.00%…   (That’s today’s best 5 year wholesale mortgage rate with NO ADDITIONAL RESTRICTIONS OR LIMITATIONS…It’s important to understand this fine point.)  And you discover it’s now worth paying the penalty to get into this new mortgage.

5- Everything is going great… but come payout time, your Banker contacts you… They make a last-minute plea to save your business… Somehow, they miraculously offer to match the Broker rate…

Every heard of this before?  What would you do?

Most of my clients, that go through this process, quickly discover who has their best interests at heart.  They realize it’s better to deal with ‘rate-setters’ vs ‘rate-matchers’.    But oddly enough, I have seen some clients stick with their Bank… Like other addicts, they can’t seem to explain it..   Even after going through the entire mortgage review and approval process (or what I refer to as the  Bank detox process).   When asked why they stayed, they couldn’t give any logical reason.  They just keep going back to the Bank for another fix.

10 years ago, this happened more often.  But times have changed.  Kool-aid is out.  Protein shakes and Red Bull are in.  Today’s consumer is more educated… information flows faster.  Even the Bank of Canada said “borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”. (February 2011 entitled ‘Competition in the Canadian Mortgage Market’’).

As always, if you have any questions or comments or are just looking for a better mortgage, please free to contact me anytime.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Posted 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

 

 

Posted 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

Posted 5 Comments on Beware of your Bank’s ‘special’ renewal offer…. it could cost you dearly. Mortgage Rates

Beware of your Bank’s ‘special’ renewal offer…. it could cost you dearly.

Spring is the home buying season.   Summer is the mortgage renewal season.    It’s been that way for as long as I can remember.   Most of us want to move in the summer months when it’s warmer and when kids are out of school.

Once again we’re seeing the BANKs calling borrowers ahead of their actual renewal date.    And once again, they’re counting on you believing they have your best interest at heart.   And once again, I’m here to warn you against signing those offers without having a discussion with your Mortgage Broker.   In most cases, if not all, those offers aren’t that ‘special’.

Here’s just one example of that trust costing this Scotiabank client $3,000.

Just this week, Scotiabank offered one of my clients a renewal at  3.49% for a 5 year fixed rate…Does sound familiar to anyone?  It sounded great to him.   But for some reason, the client didn’t return my calls, my emails or letters about their upcoming renewal.   And I can understand, sometimes life just gets in the way.   Besides, it’s Scotiabank…surely, they’ll have this repeat client’s best interest in mind?   Surely, they will offer him the absolute best rate?

Guess again…  By signing that renewal, and not calling me to verify how competitive the interest rate really was, the client will end up paying around $3,000 more in interest charges over the next 5 years… on a $200,000 mortgage balance.   Today’s best 5 yr fixed rates are hovering around 3.19%.   The real cost could actually end up being more than $3,000 if the client needs to refinance or pay the mortgage off before the 5 years is up.   That’s because Scotiabank, like the rest of the BIG SIX BANKs, uses a prepayment penalty calculation that has the client paying for the original discount given at the time of mortgage funding.    This method of calculating penalties is NOT used by all Lenders but it IS used by all of the BIG SIX BANKs.

But we need to also be aware of other Lenders that are offering those too good to be true deals… If you see lower rates, beware.. there’s probably a catch.   It could be a NO FRILLS mortgage or some sort of hidden exit fee or penalty.

Don’t take any chances….  Call your Mortgage Broker.  One phone call could have saved this client $3,000.   If you don’t have a broker, feel free to call me.  We’re here to help.

Steve Garganis

1 866 812 0516

Posted Mortgage News

US govt debt crisis and a slower Canadian economy

It seems US has reached a compromise on the debt ceiling and another crisis avoided.    President Obama and the Republicans have come to an agreement.   read more here.

We already knew the US was on shaky economic ground… no one really knew how a US debt default would affect Canada or the rest of the world.   It certainly wouldn’t be a good thing.

But before we can breathe a sigh of relief, Canada’s Gross Domestic Product (GDP) fell by 0.3% in May.  The largest single month drop since May 2009.  This unexpected drop is good news for those of us with mortgages.

Interest rates are expected to remain low for this year.   And a Bank of Canada rate hike is less likely in September or even October.

Enjoy the low rates.