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Posted Mortgage News

BIG BANKS need your help for higher profits!!

The more I think about it, the more fired up I get!   OSFI (Office of the Superintendent of Financial Institutions) has come out and said Bank profit margins are shrinking and the BIG Banks may start to loosen their credit lending policies in order to write more business and therefore earn more profit.

This statement just doesn’t make any sense…. let’s think about this for a minute… Take a look at Financial Post’s Biggest Companies ranked by profit in 2010.…let’s see where the Banks rank:

– is RBC $5.2 billion

-#3 is TD Bank $4.6 billion

– #4 Bank of Nova Scotia $4.2 billion

– #9 Bank of Montreal  $2.9 billion

– #12 CIBC $2.4 billion

Five of the top twelve most profitable companies are Banks!!!  This doesn’t look like the Banks are hurting that badly, does it?  We should also not forget that the govt has made several changes to mortgage lending rules…It’s already harder to qualify for a mortgage and line of credit…  So what gives, OSFI??

Look, OSFI has spoken and we must not ignore this….I don’t like what they are saying and the logic they are trying to give us doesn’t make sense….But we can’t bury our head in the sand either… The Banks have too much power… We should prepare ourselves for changes… Make plans and adjust accordingly… Don’t wait for the Banks to act.

It’s clear to me that we could see some changes in lending policies…My guess is this will translate to some increased rates on your secured lines of credit, a possible review of your account, even a reduction in your limit… That’ right, the banks can even call your line of credit and ask you to repay it in full…!! They might ask you to lock into a fixed rate mortgage or get into an amortized repayment schedule instead of just paying interest only.

But it doesn’t end there… commercial accounts will also be under the magnifying glass, in my opinion.  Commercial loans and mortgages get reviewed annually by the Banks…This is why it’s very important to choose your commercial lender carefully… Not all Banks are alike… there are some institutions that offer commercial loans that are not callable…

Bottom line is to be aware, stay informed and act accordingly…. If you are not sure where you fit in with these possible changes, give me a call.. I’m happy to help.

Posted Consumer Debt

Setting us up for fewer rate drops and higher bank profit margins..

It’s becoming clear that the Banks and govt want us to boost Bank profit margins…. Yes, it’s true!   They want you and I to pay a higher interest rate so that the Banks can earn a higher profit…

Let’s look at some facts…

-The Banks recently got together and increased their Variable rate pricing from Prime less 0.75% to Prime less 0% (the Bank websites are showing their variable rates at Prime less 0% but there are still places you can get Prime less 0.40%).   So why is that?  They tell us ‘profitability concerns’ is the reason…

-The best 5 year fixed rate on the web from any of the Big Six Banks is 3.99%… Yet, the 5 year govt of Canada bond yields are at 1.43% today…that’s a spread of 2.56%... historically, that spread is between 1.10% to 1.50%… (by the way, you can still get a 5 year fixed rate at 3.39% from reputable lending institutions).   The Banks are making a fortune these days on Fixed Rate mortgages.

– OSFI (Office of the Superintendent of Financial Institutions) has now come out and said that they are concerned consumers will borrower more than they should because interest rates are so low… and because of this, they are urging Banks not to loosen their lending criteria, especially on Home Equity Lines of Credit…

Read the warning signs

If you read between the lines, we are being warned that tighter lending rules could be just around the corner for Secured lines of credit… I don’t think the govt needs to make any further changes to mortgage lending…both secured lines of credit and mortgages…  We have seen several rules changes over the past few years….  But  the message we are being fed is that Banks need to charge a higher rate of interest because consumers cannot be trusted to borrow wisely…

The reality is that interest rates should actually be lower than where they are today.   Cost of funds are down… so why can’t we just let consumers pay fair market interest rates?  It’s one thing to be told that interest rates are going up because of market conditions and cost of funds… but when I start hearing that Bank Profit concerns and consumer spending habits are issues, then I have to start questioning the motives.   This just sounds like another excuse to raise rates and charge the average consumer more…..Consumers beware…!

Some good news

There was some good news… and that is that US interest rates are forecast to remain low into 2013…. Canada usually follow the US very closely….Hey, let’s enjoy the low interest rates…. a $300,000 mortgage will carry from between $1200/mth and $1325/mth…what’s wrong with that?  Enjoy Canada… Enjoy.

Posted Interest rates

Govt regulator says interest rates extremely attractive…

We can interpret a sentence to mean several different things…   Take for example the following comments made by the head of the Office of Superintendent of Financial Institutions (OSFI), Julie Dickson:

– “current levels of interest rates have already made borrowing extremely attractive to all borrowers.”  (Wall Street Journal)

– “Extremely low rates will be with us for even longer than envisaged before the summer.” (Globe and Mail)

What does that mean to you?   To me, it simply means we are in a historic low interest rate environment.. with an economy that is better off than the rest of the world…  add it all up and it looks like a pretty good time to borrow, if you ask me… Borrowing for a house is NOT the same as borrowing for a car or a trip… A house is a tangible asset.. it appreciates tax-free.  It’s a good investment…

Borrowing to invest

Speaking of borrowing to invest…. rental properties have never looked more attractive…  Borrowing to invest is NOT a bad thing and it is NOT what the regulators and economists are concerned about… They are concerned about borrowers that have borrowed to their absolute maximum capacity and cannot afford to miss a day’s work without being in danger of defaulting on a payment…

Take a bow Canadians… we are doing great!

Last time I checked, Canadians were acting as conservative as ever…. paying down their mortgages faster and borrowing at a slower pace…  Look at these stats from The Montreal Gazette:

– “In Canada, an average of 63 per cent of a household’s home value is equity, while in the U.S. this figure is just 39 per cent.” (Matthieu Arseneau, National Bank).

– “In Canada, 40 per cent of homeowners have no mortgage debt; in the U.S. it’s 31 per cent.” (Matthieu Arseneau, National Bank).

– “Debt amounts to just 24 per cent of a household’s average net worth in Canada, while it’s 29 per cent in the U.S.”  (Matthieu Arseneau, National Bank).

– “Mortgage debt, which was climbing by 10 per cent or more through last year, has throttled back to a six-per-cent pace. Other consumer borrowing hasn’t grown at all over the past year.” (Benjamin Tal, CIBC World Markets).

–  “More than 70 per cent of all mortgage-holders are on an accelerated payment schedule, Tal says, adding: “That’s a smart use of low interest rates.” (Benjamin Tal, CIBC World Markets).

Hmmm… the economists tell us we are doing pretty good, judging from those comments….

Final thoughts.

If interest rates were 6%, 7% or 8%, what we would the media be saying?   ‘INTEREST RATES AT HIGHEST LEVEL IN 10 YEARS!’ … or something like that…  and I bet we would also see this headline…  ‘BANKS WARN THAT FURTHER RATE HIKES ARE ON THEIR WAY….BEST TO LOCK INTO A LONG TERM FIXED RATE NOW’…..

Use your own judgement… seek out professional, non-biased (non-bank) advice…. Hey, I don’t know about you, but I’d rather borrow at 2.60% for aVariable rate or 3.39% for a Fixed rate, than 6%, 7%, or 8%…..  We are experiencing historical low interest rates… they will be here a little longer but they won’t last forever.. enjoy them now… take advantage…