The recent announcement from the US Federal Reserve to not raise rates until 2014 coupled with the general weakness in the global economy is keeping mortgage rates down for Canadians. With such low rates, there are concerns about households being increasingly leveraged. Accordingly, mortgage rules/rates are constantly changing to ensure that borrowing remains in check and the CDN real estate market avoids a material correction.  On a macro level this is very positive, however, the implications of the changes are constantly felt by borrowers (and by us) when applying for credit to renew, refinance, or purchase. Specifically, there is more paperwork to go through and deals that would have worked in the past don’t necessarily work now. This should come as no surprise, but it’s becoming harder to borrow money and deals are more heavily scrutinized.

Despite the low rate environment, we’ll see fluctuations on the variable and fixed side of the business. Currently, one of the best rates on the market (without restrictions) is the 4 yr fixed @ 2.99%; but, we’ve started to see some lenders raise this rate and expect that more will follow suit. Bottom line is if you have an existing mortgage with a high rate, are purchasing a place, are 120 days out from renewal, pulling equity out to invest in another property, etc., we would recommend getting in touch so we can hold your rates before some of the historical lows disappear. Click the following link for more on this: http://bit.ly/y7Y3j1
Thx

Jeff, Steve and Gord

Banks rolling back mortgage discounts

Royal Bank raising interest rates on some home loans after reaching historic lows in January

The deep discounts seen in the Canadian mortgage market in recent weeks are beginning to evaporate, as Canadian banks pull back on the historic low rates they rolled out in January.

Royal Bank of Canada RY-T announced Monday that it is raising rates on a four-year fixed-rate mortgage with a 30-year amortization, to 3.39 per cent. That is an increase of 40 basis points from the 2.99 per cent RBC had been offering. (A basis point is 1/100th of a percentage point.)

RBC also increased the rate slightly on a five-year fixed rate mortgage to 4.04 per cent, an increase of 10 basis points.

The move comes after Bank of Montreal BMO-T recently ended a two-week push in late January that saw it offer five-year fixed-rate mortgages with a 25-year amortization at 2.99 per cent.

The move was designed to drum up mortgage sales in an otherwise slow month, and forced other banks to match those rates on a variety of similar offerings. Since banks track each others’ moves closely, it is expected others will likely follow with a similar increase in the days ahead, now that RBC and BMO are pulling back.

When RBC announced it was dropping its rates Jan. 13, the bank intended to keep them in the market until Feb. 29.

The price-cutting by the banks caught Ottawa’s attention, as the Bank of Canada and the Finance Department both remain concerned about Canadians taking on too much household debt. Sources told the Globe and Mail last week that officials in Ottawa were unhappy with the price war that developed on mortgage rates in January, at a time when the government is watching the housing market closely, concerned about consumers taking advantage of low rates to pile on debt, which could result in problems in the future if rates begin to rise.

One of the large lenders has recently offered a 2 week 5 yr fixed promotional rate at 2.99%. HOWEVER, we caution you that you must read the fine print before entering into any mortgage contract; specifically, there are strings attached with this offering. A) You cannot refinance or switch to another institution during the term if a better opportunity becomes available (most people don’t honor out their term) B) your payment will be higher as the max amortization is 25 yrs and not all will qualify C) pre-payment flexibility is lower than a non-restricted rate and limited to 10% lump sum and 10% increase D) there are property restrictions. Bascially, the sticker price is enticing, but there are important restrictions that you must be aware of and understand the repercussions.

We don’t typically send out an iterim update, but we feel it’s important to educate clients on rates and also update them on specials. In response to the aforementioned deal, certain banks have contacted us regarding other specials. IF YOU HAVE A DEAL CLOSING IN THE NEXT 60-90 DAYS, please get in touch with us ASAP to see if you’re eligible for our following reccomendations on the best rate options currently avaiable. We like the 4 YR FIXED @ 2.99% which has no restrictions and ties in nicely with the US election schedule (this has an important impact on CDN rates). We also like the 3 YR FIXED @ 2.89% which currently offers a shorter timeline. This is important because, as you know, variable discounts have dissapeared over the last 5 months and the variable rate has become less attractive; however, it will return at some point, therefore the shorter timeline could play out nicely at renewal at which point the variable could be re-considered. Remember, there are no restrictions on these rates when compared to a standard mortgage offering.

***It’s also imperative that we note that not all applicants will qualify for these deals in terms of debt servicing. Long story short, you can qualify for more money on a 5yr fixed rate. Please call us for more info and to assess what is best for you. These deals are good for 60-90 days.

Best,
Gord, Steve and Jeff

With the sustained low rate environment & rising debt levels, it’s a good time to evaluate your personal finanical position and goals to determine if it makes sense to take advantage of these rates and potentially consolidate some debt to reduce your interest cost. On the same note, property assessments are out and while some areas have changed, others have stayed the same which can have a direct effect on the ability to refinance given that there is a correlation between these values and market values. If you have any questions on this, please feel free to contact one of us and we’ll be able to discuss options with you.  All in all, the global economy remains uncertain and information can change very quickly which affects what we do, so get in touch anytime if you are seeking advice on your mortgage options and strategies. ***REMEMBER, we are able to hold interest rates for 120 days for you.

Bank of Canada could slash interest rates in a big way next year

John Shmuel  Nov 9, 2011 – 4:10 PM ET | Last Updated: Nov 9, 2011 5:13 PM ET

As the nail biter in Europe continues this week, two economists are predicting the Bank of Canada will move to cut rates in a big way next year.

Sheryl King, an economist at Bank of America Merril Lynch, said in a note that the volatility hitting Europe and the risk of damage to the global economy means the Bank of Canada will move to cut rates by a whopping 0.75%, from the current 1%.

“With the Eurozone sovereign debt and banking crisis showing no sign of containment, we think the Bank of Canada will cut rates back to the effective lower bound of 25 basis points (0.25%) early next year,” she said.

Ms. King said the cut would come in two phases, with a 0.50% trim being announced during the bank’s January 17 meeting, while the second and final 0.25% cut coming during the March 8 meeting.

Also predicting a lower interest rate was David Madani, Canada economist at Capital Economics. He is forecasting a more mild cut of 50 basis points, however, saying he expects it to occur in April or June.

Either way, Mr. Madani forecasts that rates will remain low for some time.

“The Bank might communicate that its policy rate will remain at 0.50% for a lengthy period of time, conditional on its projected outlook for consumer price inflation,” he said. “Even if we are wrong, the broader message remains that interest rates will remain unusually low for a very long time.”

Most economists, however, are still predicting that the Bank of Canada will move to raise rates rather than lower them. In a recent Reuters survey of 40 economists last month, the consensus was that the Bank of Canada would move to raise rates in the third quarter of 2012.

Canada became one of the first advanced economies to raise its benchmark interest rates following the recession. The Bank of Canada last raised its rate in September 2010, moving it up by 25 basis points to 1%. It has since held the rate unchanged at 1%.

Email: jshmuel@nationalpost.com | Twitter: jshmuel

Posted in: Economy, Trading Desk  Tags: 2012, Bank Of America, Bank Of Canada, Benchmark Interest Rate, Canada, Capital Economics, Forecast, Lending Rate, Mark Carney, Merril Lynch, Overnight Rate

Variable rates, however, have gone the other direction because lenders have persistently reduced their respective discounts relative to the prime rate. The opposing shifts have compressed the rates which has blurred the line of whether a variable rate or fixed rate is better. As a quick aside, it’s important to note that existing variable rate holder discounts are protected and will only change if the prime rate changes.  Variable rates are currently trending between 2.5% to 2.7% while we have seen 2 yr fixed rates at 2.49%, 4 yr fixed rates at 2.99% and 5 yr fixed rates as low as 3.25%.  Variable rates are more flexible when you consider discharging a mortgage as the payout penalty is more predictable and is equal to 3 month’s interest, whereas the fixed rate payout penalty is calculated as the greater of the IRD (interest rate differential) or 3 month’s interest. If you’re shopping for a mortgage, it’s important to get solid advice and be educated on the terms, as opposed to solely looking at the rate. Your goals with your property will greatly affect which route you go.

Thx

Steve, Jeff & Gord

Here’s the link to Reuters and the article below: http://www.reuters.com/article/2011/09/20/canada-economy-carney-idUSS1E78J0UY20110920

A tremendous thank you to our clients & business partners! – Gord, Steve & Jeff
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