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Posted Interest rates

Choose short term money for long term gains.

short termOnly recently has 5 year fixed rate become a product worth considering when it comes to paying the least amount of interest on your mortgage.   Studies prove that short term mortgage funds are the cheapest way to finance a house.. this includes Variable rate mortgages.

Historically, Variable rate and short term fixed rates have had lower rates than long term rates.   And yet, the BIG SIX BANKS, the Federal govt, and several popular finance experts have preached 5 yr fixed.  ‘You must take 5 year fixed so you know what your rate is.’   That’s a load of nonsense.   It’s true, that over the past 2 years, 5 yr fixed did make more sense given that the spread between Variable and Fixed was less than my target of 1.00%.  (I like to see a 1.00% spread between Variable and 5 yr fixed before recommending Variable).    Continue reading “Choose short term money for long term gains.”

Posted Interest rates

Time to look at Variable Rates again.

Variable rate mortgage

With fixed rates up around 0.60% over the last 4 weeks (currently at around 3.49%.. there are some lower rates but these come with conditions so we are using the more widely available rate) we must again take a look at Variable rates.   Today’s best Variable rate product is sitting at around Prime less 0.40% … there’s even a few promotional Variables at Prime less 0.50% for qualified applicants.   But for this article we will stick with Prime less 0.40%.  That’s 2.60% today.  We are almost at that 1.00% spread that I like to see.

Two years ago, the best Variable rate was at Prime less 0.75% with the option to lock into the BEST discounted fixed rate at any time (this option is important, don’t ever settle for a variable product that doesn’t have this clause).   And 5 years ago, we had Variable rate products as low at Prime less 0.90%. Continue reading “Time to look at Variable Rates again.”

Posted Interest rates

BMO Economist forecast no rate hikes til 2013

More good news…. interest rates are not expected to increase til 2013, according to Bank of Montreal.

Really no surprise here.  The global economy is not doing well.  But here in Canada, the economy is performing relatively well.   The only reason our stock market and Canadian $ are down is because of the uncertainty of the European debt crisis.

5 year fixed rates are hovering at 3.39%… and they are even lower for qualified borrowers…. Variable rates are at around 2.60%…  We are in record low territory.

Did you know a $300,000 mortgage will carry for as little as $1199/month?   Hey, if you’re paying $1400/mth for rent, then why not consider buying place of your own…  And for those that want off the stock market roller coaster, a rental property may just be what you need…  Best thing is to talk to a Mortgage Broker, crunch the numbers and see how it looks.   It’s probably easier than you think.

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 Mortgage News

School’s in for Bank of Canada

To all the kids…. including my son…..”Have a great year at school.. make it fun… make it count”.

Tomorrow is the 6th of 8 scheduled meetings for 2010 by the Bank of Canada…a time when they set the Target Rate or Overnight Rate, which directly affects the Bank Prime Rate and your Variable Rate Mortgage.

The original plan called for Mark Carney, Governor of Bank of Canada, to raise interest rates steadily over the next year or so by as much as 3.00%… but it’s become a little tougher to make that move.

Less than impressive economic news in the U.S., Canada and the rest of the world has given concern about a double dip recession…. raising the rates during a period of uncertainty is risky business.   Right now, experts are calling for a 60% chance of a rate hike but then a pause to see how this will affect the economy.

Longer term forecasts have been amended for more modest rate hikes in 2011….  all good news for Borrowers…  stay tuned as we continue to monitor the latest reports…

Bottom line, new Variable rate mortgages can be had for around 2.05% to 2.10%… so even a 1.50% increase would  beat out a 5 year fixed rate….