ARE RATES GOING UP?
There is not a tremendous amount of upward pressure on rates at this time, but yes they are going up. They are still abnormally low and many Canadians have taken on a heavy debt load. The government has said that, for now, they do not plan to intervene and this was confirmed in the recent budget release.  Rather, the onus is on the banks to control their lending standards and scrutinize deals more carefully. Bottom line is that lending is becoming more difficult. As we’ve mentioned before, equity-oriented deals are becoming extremely tough, pricing is becoming differentiated based on client profile, and activity is continuing to cool.  STRATEGY/OPPORTUNITY: If you’re in a high fixed rate, you may be able to refinance out into a lower rate depending on the penalty size. If you’re in a variable rate with either no discount, a small discount or a premium you may want to consider taking advantage of the extremely low fixed rates.  If you’re in a variable with a deep discount, you’re in a good position and we wouldn’t necessarily reccomend doing anything unless you are nearing maturity on your mortgage. Again, all deals are case by case. Get in touch and we’ll advise you on what makes the most sense.

Talk soon,
Gord, Steve and Jeff

March 8, 2012
Mark Carney hints at higher rates
By JEREMY TOROBIN
Globe and Mail Update
Bank of Canada cites signs of improvement

The Bank of Canada held its key interest rate at 1 per cent Thursday, while hinting that higher borrowing costs could come sooner than expected by stressing signs of improvement both in Canada and abroad, and again calling household debt the biggest domestic risk.

In leaving borrowing costs alone for a 12th consecutive meeting, policy makers extended what has become the longest pause in several decades, a decision that was expected by Bay Street analysts and economists, most of whom see Governor Mark Carney staying on hold until at least the middle of next year.

However, Thursday’s decision appears aimed at reshaping those expectations.

In the statement, Mr. Carney strongly hinted the central bank now believes the slack in the economy is disappearing more quickly than it expected, and that unless rising oil prices thwart recent momentum, the global economy is on more solid footing.

“Recent developments suggest that the outlook for the Canadian economy is marginally improved,” from the central bank’s last forecast paper in mid-January, Mr. Carney and his rate-setting panel said in a statement on their decision, adding that the “heightened uncertainty around the global economic outlook has decreased.”

Domestically, the central bank said the economy is probably growing faster than expected in the current quarter, and that private demand is expected to be “slightly stronger than projected” as sentiment improves and amid “highly-supportive financial conditions.” At the same time, Mr. Carney again flagged record levels of household debt as the biggest made-in-Canada threat, indicating once again that he is less than comfortable with a key byproduct of his low-rate policy.

“Canadian household spending is expected to remain high relative to (gross domestic product) as households add to their debt burden, which remains the biggest domestic risk,” the central bankers said.

In a hint that Mr. Carney may be inching a touch closer to countering the buildup in household credit by raising interest rates, policy makers noted that inflation is expected to be “somewhat firmer” than in their January forecast, “as a result of reduced economic slack and higher oil prices.” Inflation will hover around the bank’s 2-per-cent target for much of its two-year projection period, due to factors such as “modest growth” in wages and an economy that is moving toward its potential, Mr. Carney and his team said.

Exports, long a source of worry for the central bank, have been helped by a strengthening rebound in the United States – Canada’s No. 1 market – although trade won’t add much to growth because of “still-moderate foreign demand” and competitiveness issues, such as the currency’s “persistent strength.”

Mr. Carney’s decision comes on a morning when the Bank of England and the European Central Bank both held their policy rates steady, as expected, reflecting a sense that the global picture, while far from pretty, is stabilizing and that a worldwide downturn or financial crisis is less likely than a few weeks ago. This, combined with Mr. Carney’s escalating rhetoric about the domestic risk posed by household debt, has all but eliminated the chance of a reduction in interest rates and explains why some economists warn the central bank could start raising borrowing costs sooner than anticipated, perhaps late this year.

Still, there are many potential tripwires on the horizon. The European crisis is showing “signs of stabilization,” the bank said, the U.S. rebound is getting a boost from “recent improvements” in that country’s labour market and China, while slowing, is moderating to a “still-high” rate of growth. However, the world economy will still grow at a slower pace than its long-term average, as a result of de-leveraging in the most advanced economies. Also, should oil prices get much higher, the bank warned, this could “ultimately dampen” the recent gains.

The central bank’s next decision is scheduled for April 17, and policy makers will release a quarterly forecast the following day in Ottawa.

The banks & government are tightening lending requirements for self employed borrowers; specifically, those who write down their income substantially for tax purposes. When this happens borrower’s can take advantage of stated income/equity programs to secure mortgage financing. In a simplified way this means that, so long as you can provide written documentation evidencing that you’re self employed & you have a sizeable down payment/net worth, the banks will lend money based on the equity in the deal rather than on conventional debt service ratios. However, these loans have been heavily scrutinized recently and banks are tightening up, making it harder to borrow with the potential of even more changes in the future. In addition to that, many lenders are now charging rate premiums to equity borrowers to adjust for risk. While this comes as no surprise, it’s important for borrowers to be aware of this when purchasing property, refinancing or renewing a mortgage.

Conversely, self employed borrowers who income qualify (this means that your NOAs (Notice of Assessment) for the last 2 yrs debt service the loan), there are no changes.

Talk soon,
Gord, Steve and Jeff

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.