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Tagvariable rate mortgage

Only two things in life are certain Death and Taxes

Death, taxes and interest payments. Part 2 of 2.

Only two things in life are certain Death and Taxes

Part 2 of 2….  In Part 1, we examined rental properties and how they can be a great way to reduce your taxes, build net worth and create an income stream.  Part 2 looks at Interest payments.  Interest payments are a big part of our personal expenses.  Here are a few suggestions on how to reduce your interest costs.

Continue reading “Death, taxes and interest payments. Part 2 of 2.”

Remember when I said rates could go down, not up?!

saving money-young woman putting a coin into a money-box-close up

If you’re a regular reader of this site, you’ll know I’ve been very skeptical and critical of the Bank of Canada (BoC) for continuing to increase interest rates. It just hasn’t made sense.

The BoC raised rates FIVE TIMES between July 2017 and October 2018. That’s a 1.25% increase. For anyone with a $300,000 mortgage, your payment increased by $189 per month. Or, to put it another way, for every $100,000 of mortgage, your payment went up by around $63 per month.

Yet, we kept hearing that the BoC wanted to raise rates further. Economists and other experts were saying we should expect more rate increases by the end of 2018! Wow!

Continue reading “Remember when I said rates could go down, not up?!”

Where are rates headed? Down!

Rate Image, Nov 2018

Whenever there’s speculation that the Bank of Canada (BoC) will raise its key interest rate – or rates actually rise – many people are preoccupied worrying about locking in if they have a variable rate or renewing early in a fixed rate.

But, don’t panic! Rates aren’t going through the roof.

Continue reading “Where are rates headed? Down!”

Why Did the Bank of Canada Raise Rates Last Week?!

Canada Mortgage rate 20180509

Last Wednesday, the Bank of Canada (BoC) raised its overnight target rate to 1.5% – up from 1.25%. This is the fourth increase since last June, when the target rate was 0.5%.

The timing is suspect to me. Last year, we had an increase around this time, but that was coming off of the hottest housing market in 29 years. We’re currently on the heels of a brutally slow spring market, yet rates are still rising? I don’t get it… this is a poor decision, in my opinion.

When it comes to four rate increases in the past year, there are facts, realities and perceptions that come into play… Continue reading “Why Did the Bank of Canada Raise Rates Last Week?!”

Variable rate is out, Fixed rates are in…. But, which term…?

Variable rate mortgageFor more than a decade, I’ve been recommending Variable rate mortgages, as the product of choice. My clients have saved $thousands.  It’s been a great 11 year run..   But now, the strategy has changed slightly.   Read on, to see my newest recommendations..

QUICK VARIABLE RATE HISTORY.

First, you need to understand the history..  Variable rate had lots of pluses.   It had a lower rate of interest, the penalty can never go over 3 months interest, and you have the option to lock into a Fixed rate at any time.

Being in a Variable meant paying lower rates.  In fact, the difference, compared with Fixed rates, ranged between 1.00% and 3.00%.  This translated to several $$thousand in less interest each year. Continue reading “Variable rate is out, Fixed rates are in…. But, which term…?”

Rates usually drop leading up to a Federal election!

Election 2015History tells us that mortgage rates usually drop leading up to an election. And 2015 has followed that trend.   It started in January of this year, when the Bank of Canada (BOC) Governor, Stephen Poloz, shocked Economists with his surprise 0.25% Bank Rate cut.

(CanadaMortgageNews.ca readers will remember, not all were shocked, as I had predicted a rate drop just days earlier).

Then in July, the BOC Govr did it again..  this time, it wasn’t as much a shock.  The Bank Prime was cut by another 0.25% after months of negative Economist data showed the Canadian economy was slowing.  Continue reading “Rates usually drop leading up to a Federal election!”

Will Variable rates increase as Bank Prime drops?

where to invest  Here’s a warning to all….   Watch out for the BANKS to increase their Variable rate mortgage pricing.  History tells us that when the Bank of Canada lowers their Target Rate, and the Bank Prime falls, Variable rate mortgage pricing increases.

If you have a mortgage coming due in the next 4 months, speak with a mortgage broker to get you a rate hold immediately!

Today, you can get Prime less 0.65% on a Variable rate mortgage.  That’s 2.85% – 0.60% = 2.20%. THIS PRICE COULD DISAPPEAR!  2.20% is a great rate!   No one would argue that.  The BANKS are counting on you to be content with that 2.20% rate. On March 4th, the Bank of Canada meets again to set the Target Rate.  And all indications point to another 0.25% reduction.   Continue reading “Will Variable rates increase as Bank Prime drops?”

Bank of Canada Rate cut is positive news… don’t listen to fear mongers.

fear FEAR..!  They say fear motivates us to do things we shouldn’t.  If you’ve been reading the News Headlines for the past several weeks, you’ve been hammered with RATE HIKE FEARS!  Everyone was saying rates were gonna go up.

It wasn’t just speculation, it was a foregone conclusion.  Almost factual!   There were headlines even reporting how much of an impact these new ‘higher rates’ would affect our lives, our budgets, our house values, our savings, etc.    We saw so-called ‘Experts’ recommending we lock into long term Fixed rates!   There was one articles telling us we should consider selling out homes!   I mean if you didn’t know better, you would think the sky was falling!

Panic was starting to set in for thousands of Canadians.  I was getting calls from concerned consumers asking if they should be doing anything with regards to their mortgage, their investments, and other personal finances. Continue reading “Bank of Canada Rate cut is positive news… don’t listen to fear mongers.”

Stay away from mortgage cashback offers!

CanadianBills It’s the Spring market…  ok, the weather isn’t saying this but the real estate market is.  You’re gonna start seeing and hearing more ads on TV, radio, news sites, even finance blogs.    So here’s a some quick words of advice.  STAY AWAY FROM TODAY’S CASH BACK OFFERS!

There are a few different types of mortgage cash back offers.   The most common offer is one where the Bank or Lender gives you 5% of the mortgage balance on closing.  That’s right they give you 5% back in cash.  For example: a $400,000 mortgage would get you back $20,000 in cash.

This type of cash back does serve a purpose.  If you are a young home buyer with little or no down payment, but you have a good job and don’t want to wait to save up that down payment, then this isn’t a bad way to get in the market.  Just ask those that did this 5 years ago.   With real estate values up by around 35% to 50% in that time, this isn’t a bad deal.   Continue reading “Stay away from mortgage cashback offers!”

You heard it here first!… Rule of thumb for choosing Variable over Fixed.

First For the past few years, the Bank of Canada has warned us about the imminent interest rate hikes.   Reminds me of the boy that cried wolf.    “Interest rates are going up…  soon!…  real soon…. really, really soon!!”   But last week, the new Bank of Canada Governor, Stephen Poloz, surprised many experts when he said rates would remain low for quite a while.

This announcement prompted many advisors to jump on the Variable Rate bandwagon and start recommending Variable rate over Fixed rate.   I agree…  Variable rate is the obvious choice for most of us today.   But I also noticed a familiar rule of thumb being quoted in the media.   So I wanted to set the record straight. Continue reading “You heard it here first!… Rule of thumb for choosing Variable over Fixed.”

5 year Fixed rates are going up.. time to consider Variable rate.

graph trend upThe 5 yr Gov of Cda bond yields hit a 2 yr high on Friday reaching just over 2.00%.  That’s up around 0.35% since mid July and up around 0.75% since May.   The increase started in May when the U.S. Federal Bank Chair, Ben Bernanke, made some comments about possible easing of the Fed’s stimulus program beginning as early as September.

Fixed mortgage rates are closely tied to the Gov of Cda bond yield.   When the yield goes up, mortgage rates are sure to follow.  With 5 yr fixed rates expected to rise, it makes for an interesting mortgage market.  Which product and term is best to choose today?   The answer is different for everyone.   We all have different needs, goals and risk tolerances.   Continue reading “5 year Fixed rates are going up.. time to consider Variable rate.”

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

Flaherty and Harper

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 itMark Carney 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.”

Fed govt, BIG SIX BANK’s pushed us into Fixed rates!…part 1 of 2.

Mark CarneyVARIABLE RATE MORTGAGES WERE THE BEST OPTION

For years, I’ve promoted the merits of Variable rate greedy bankermortgages 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).

Flaherty and HarperStarting 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

O’Leary only wants Fixed rate mortgages…really?

CBC News did a report about Renting vs. Buying, earlier this week.. And it featured Kevin O’Leary and Amanda Lang, two well-known TV personalities….Ok, we covered Rent vs. Own in great detail just a few months ago…  And I also talked about using your home as a retirement fund, earlier this week in my Baby Boomer 10 year retirement plan article.. But this isn’t what I want to talk about…  I want to talk about some comments O’Leary made about Fixed Rates, during that report.

UNPOPULAR COMMENTS AGAINST O’LEARY

I’m taking a chance by speaking out against Kevin O’Leary.   But I must speak up regarding something as important as this…   So here it goes…

O’Leary is starting a new mortgage company….Congrats!  I’m sure he’ll do well.    He said his company would ONLY offer Fixed rate mortgages because Mr. O’Leary doesn’t believe ANYONE should be in a Variable Rate mortgage…. he went on to say that because Fixed Rates are so low, you would have to be insane to stay in a Variable Rate…Hmm.. well, if you are one of my clients then you know how absurd this statement is…

2008-09 MORTGAGE HISTORY LESSONS

Over 80% of my clients are, or have been in a Variable rate mortgage… Most of them enjoyed rates of Prime less 0.75% or better… some even had Prime less 0.90%..and for a while, they enjoyed rates as low at 1.35%!!!  During the 2008-09 recession, we were inundated with TV and Media personalities telling us to lock into a 5 year Fixed rate mortgage because of the sub-prime mortgage crisis and stock market crash…  You remember that?  I do… and I recommended clients do the opposite..  take short-term mortgages until the dust settled on interest rates…  This WAS NOT the popular advice…  It was panic time…. but that’s when you need to remain calm and review the facts…

Fortunately, most of my clients didn’t listen to the media and followed my advice.   I recommended several different products… 6 months, 1 year, 2 year, 3 year and even the short-lived 3 yr Variable rate… In ALL cases, it was the right product choice…. It was the best option at the time for that particular client…My clients have saved $$thousands each and every year through my advice!

(historical fact… Variable rate mortgages have been a cheaper way to finance your home in over 88% of time…Professor Milevsky study.) 

TODAY’S STRATEGY

Unfortunately, new Variable rate products aren’t priced as well today…. This is probably that other 12% of the time….And although I am not recommending Variable rates today for most borrowers, it still might be the right product for some…  To say everyone should get out of their Variable rate is just bad advice!  The GOAL IS TO PAY THE LEAST AMOUNT OF MONEY TO OWN OUR HOMES!

My criteria for choosing Fixed over Variable depends on many factors but here are 3 things I pay close attention to:

1-Variable rate pricing not as attractive.. the best Variable rate today is Prime less 0.35% (3.00% less 0.35% = 2.65%)…..

2-Fixed rates are at historical lows (just over 3.00%).

3-the spread between 5 yr Fixed and Variable should be over 1.00%…today it’s less than 0.50%.

Add all of this up and it’s an easy choice today….I cannot recommend Variable Rate for most NEW mortgages….

THIS DOESN’T MEAN YOU SHOULD GET OUT OF YOUR VARIABLE RATE!!!

If you have a Variable rate of Prime less 0.75%, I would stick with that… that’s 2.25%…  why start paying over 3.00%?   There is no forecast for immediate rate increases…   And this is where I am very concerned…. We have a very well known TV personality that comes out and says everyone should lock into a Fixed Rate mortgage…. I’m sure the BANKS would love to see you out of a 2.25% mortgage and into a 3.00%+ rate.   I completely disagree with O’Leary.    There is no ‘One size fits all’ mortgage.   Everyone is different and has different needs…   I’d be very careful about listening to anyone that wants to pigeon-hole all Canadians.

BEWARE THE TV EXPERTS…  Just a final note….  How many times have you heard ‘Rates are going up soon’ in the last 4 years.?  You must lock into a Fixed Rate…    I hear it everyday…. and if my clients listened to these ‘Experts’ they would have been out of their Prime less 0.75% Variable rate and into a 4.00%, 5.00% or even 6.00% fixed rate mortgage!   Those that have listened to the facts have done extremely well.   There isn’t a crystal ball… it’s not magic, it’s simply viewing the mortgage landscape, current economic trends, monitoring inflation rates and paying attention to govt and policy makers… I really don’t watch the news or listen to any media or TV personalities.   I just look at the facts and present them here.

As always, if you have any comments or questions or would like to know what strategy is best for you, give your mortgage broker a call.. or call me if you don’t have a broker.  I’d be happy to help.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

 

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

 

 

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