Why you should get a rate hold right now.

Why you should get a rate hold now.

Let’s get right down to business; the advantages of using a top mortgage broker are listed near the end of this entry but reasons to use us should be pretty obvious by the time we get that far. Good brokers earn our salt because we watch the markets, the lenders, the rules, and the mortgage rates all day for a living. Or the good ones do anyway.

So … What is going on with these super low mortgage rates?

Right now interest rates are at their 111-year lows at about 3.4% for a 5-year fixed, closed, mortgage. The banks consider anything under 4.0% to be free money. Consider the banks have to borrow the funds, include the cost to administer the funds and also make a profit. At 4% there is not much room left for profits – they say.

Now consider the recent US debt ceiling issue (they have not really done anything about facing their debt problems yet) and pile the EU issues on top with the PiiGS – Portugal, Italy, Ireland, Greece and Spain – and the stock market freaked out and did a general sell-off. That is the 49-word summary of the world economy right now.

When the sell-off happened, all those (literally) trillions of dollars have to go somewhere and they go into American Treasury Bonds – the standard for where banks put their short term cash. Those bonds then pay almost no “incentive” or interest to the buyers as banks really have no choice and are going to buy the treasury bonds anyway. This means the interest the bonds now have to pay to get banks to buy them is way less – around 0.25%. The circle is complete when the banks that fund your mortgage borrow money from a bond (the Canadian Mortgage Bond, or CMB) that charges them almost no interest – they then pay the bond almost no interest, and in turn, charge you less to you too. That is how rates are now below the theoretical minimum of “the 4% barrier” and down to these never-seen-before, short term, 3.4% rates.

If you did not follow that paragraph above don’t worry about the background data. Just remember this; as soon as there is even a sniff of economic recovery, as in, the EU or the USA gets it’s mess sorted out, money will rocket back into the stock market and then these treasury bonds (and the CMB) will have to pay more interest to get banks to buy them. That interest cost then gets passed along back to you, the mortgage consumer, and rates go back to above that 4% hurdle. (The long term, 20-year, average for the 5 year fixed mortgage is about 6.5%.)

The news is that the stock market rally might be here very soon because we watch the stock markets very closely too. Then rates go up, everyone gets more confident, people start buying things that they were putting off – like homes, prices start to go up, people from all over Canada move back to Alberta – the CBC National on Nov. 15th just had a 25 minute focus on Alberta and Saskatchewan jobs and worker shortages – and the cycle accelerates with rates and prices increasing. More on my blog here: http://wp.me/pVaY9-5W


How to take advantage of this now

You CAN get a 120 day mortgage rate hold at no cost or risk to you BEFORE the rates go up if you are thinking about buying. We get your file worked up in a day – all that is needed is an application, employment letter, pay slip and some verification of down payment funds – and if rates change we put your file in for the rate hold. If rates come back down you get the lower rate, if they go up you have the rate hold – like free insurance – that can save your thousands a year. Your file waits in the “Rate Watch File” and is sent in when we get notice from the lenders rates are going up. Then the clock starts ticking. We work the system, to your advantage, for you, at no cost to you. It’s true.

So now is the time to get your rate hold BEFORE things improve and rates are at the all time lows. Your grandparents would be envious of our situation right now. When the rush is on there is only so much time to jam deals into the system and it does get crazy busy. Best not to be the person that just misses the old rates. No one wants to be the focus of the “just missed” story others talk about.

What about your bank?

Our lenders give us 1 hour – 2 days notice of a rate increase so we can send in all the files we are working on. I don’t remember a bank ever calling me to say their rates are going up, or even offering to hold my fully worked-up file for the last second before rates change. I would never trust my bank to do that anyway as whomever I talk to seems to always be: on holiday, in training, moved-on, at a different branch, etc, and isn’t the bank supposed to try to make as much money off of me as possible anyway?

Our broker rates are usually always lower than the Big-6 banks because our lenders have lower costs than the banks do. They pass those savings on in lower rates. If the big banks want our business – and they do – then they need to match the other broker-only lenders rates that are lower. Your mortgage can be placed at one of the Big-6 but the broker-only lenders usually have better rates, terms & conditions and are totally secure. A few are actually bigger than the Big-6 banks themselves. How would you feel if your personal banker did not give you their best rate, or use their maximum discretion for you? We always give you the best rates possible.

And here is the killer point. The only thing we do, all day, is mortgages. Bank people do car loans, checking and saving accounts, RRSPs, RESPs, mutual funds and try to give you an iPod to change your main account over to them. All we do is: self-employed mortgages, employee mortgages, Lines of Credit (LOCs), first time home buyers, complicated divorce mortgages, real estate investors, move up’s, move down’s, help pay off debts and credit cards with trapped home equity, New-To-Canada mortgages, 2nd home purchases, recreational property mortgages, and lots more. We know what we are doing mortgage-wise. Your bank may not and probably only has 4 mortgage products. We have access to more than 40 lenders and 100 products.

There are other advantages to using a broker but that is enough for now. If you have been able to hang in here to the end you probably have a question. Feel free to call anytime for a quick chat. We are busy and do not have time to become your mortgage-stocker or send hundreds of emails, which is really what you want anyway; other than the best possible mortgage for your individual situation.

Getting your application in will take the stress of buying away, and end those sleepless nights because you know what your maximum mortgage will be, what the payments will be, and that you took advantage of this window to save thousands when you could. Good work.

Variable mortgage rates are no longer as attractive

Garry Marr  Dec 17, 2011 –

The days of getting any sort of discount on a variable rate mortgage are over — again.

Those mortgages, tied to prime, have become a mainstay of the housing market. And, why not? While prime has stood at 3% at most major financial institutions, the discount has meant a rate as low as 2.1% at times this year.

However, in the last 10 days what was left of that discount — it had already been shrinking for weeks — has disappeared at all of the major banks.

You have to head back to the credit crisis of 2008 to find a similar period where the discount disappeared. At the time, consumers were paying a 100 basis point premium above prime for the privilege of a floating rate.

The new reality is expected to reshape the mortgage market in the coming months, reversing a strong trend that had seen consumers roll the dice on interest rates, confident in the belief they were not going up.

How confident were they? Well the Canadian Association of Accredited Mortgage Professionals says 37% of consumers opted for variable rate mortgages over the last year, bringing the total percentage of those with a floating rate to 31%.

To be clear, anybody with an existing mortgage is unaffected until they renew. Why would you want to renew early or lock in if your present rate is 2.1%?

“If you have three and half years left on that term you are not going to give it up,” said Vince Gaetano, of Monster Mortgage, adding you can borrow at 3.29% if you lock in for five years or 3.09% for four years. “The last decade I’ve been telling people to go variable but I’m saying go fixed [for new clients].”

The other key advantage for a term five years or longer is you get to use the rate on your contract to qualify for a mortgage as opposed to the current five-year posted rate of 5.39%. The difference means you’ll qualify for a larger loan by locking in.

“People are being heavily compelled to lock in,” says Doug Porter, deputy chief economist with the Bank of Montreal, in talking about the negligible spread between short and long-term money.

Will Dunning, an economist CAAMP, said his group was not surveying consumers the last time short-term rates climbed like this so he can’t be sure what the reaction will be this time around.

Meanwhile Farhaneh Haque, director of mortgage advice and real estate secured lending with TD Canada, says she’s already seeing the effects as people shy away from variable. Her financial institution is not offering any discount at all on prime these days, a move necessitated by rising borrowing costs for the bank.

“I think there is a whole different conversation that we are having now than we were a few years ago,” says Ms. Haque, adding at today’s rates fixed products have their own attraction. “The stability it offers with a low rate makes it more affordable.”

While Benjamin Tal, deputy chief economist with CIBC World Markets, doesn’t think variable rates premiums will rise above prime, the drop in the discount we’ve seen in the last few months could impact on the housing market.

In particular, the condominium market seems the most vulnerable as investors trying to stay cash flow positive — virtually impossible in Toronto’s current condo market based on rental rates and the costs of carrying a mortgage with a 25% down payment. Investors have opted for the cheaper variable rate products in an attempt to keep costs down as they waited for a payday based on capital appreciation.

“You know 80 basis points below didn’t make much sense either. I think variable at prime is the new normal. They won’t go higher unless we get a new crisis,” says Mr. Tal, adding banks were not making much money on variable with the steep discounts so they backed away from them.

Mr. Tal’s information points to the record high for variable rate products being driven by investors and he thinks the new rates will hit that segment of the market

“I think you will see an impact on the investor market in the next six months. The shift hasn’t happened yet,” says Mr. Tal.

Calgary housing market demand strong for 2012: RE/MAX


 Great news for the upcoming year.

By Mario Toneguzzi, Calgary Herald December 6, 2011

CALGARY — Fuelled by low interest rates and job security, demand for residential real estate in Calgary is on the upswing, says the RE/MAX Housing Market Outlook 2012 report released Tuesday.

And the real estate firm says Calgary will be a Canadian leader next year in the annual growth rate for MLS sales.

By year-end 2011, 22,500 homes are expected to change hands, an eight per cent increase over the 20,801 sales reported in 2010, it said.

And the average price in Calgary is forecast to appreciate as well, rising a “modest” one per cent to $405,000 in 2011, up from $401,186 one year ago.

The report forecasts the average MLS sale price will jump by three per cent in 2012 to $417,000 while sales will rise by five per cent to 23,600 units.

Lowell Martens, of RE/MAX Real Estate (Mountain View) in Calgary, said any hesitation on the part of some buyers in the city is more than likely a direct reflection of the uncertainty in the European economic situation.

He said commercial real estate construction taking place in Calgary “tells us the long-term feeling out there is very positive for Calgary.”

“We have a very stable market over the next little while. We don’t anticipate any big upswings but at the same time we don’t anticipate any big downswings either. It’s going to be very stable,” he said.

Buyers in the city are cautiously optimistic after more than two years of recession, making their moves while interest rates are at historic lows and housing values are affordable, said the report.

“Single-family homes remain most popular with purchasers, representing close to 60 per cent of total residential sales. Demand is greatest for entry-level product, priced between $350,000 and $450,000,” it said.

“Condominium apartments and town houses have also experienced solid momentum in recent months, with the lion’s share of activity occurring from $200,000 to $300,000. Luxury home sales — priced over $1 million — have been particularly brisk, up approximately 25 per cent over 2010 levels.”

While global concerns still loom overhead, the market appears to be gaining some traction moving into the new year, added the report.

“First-time buyers are expected to continue to capitalize on low interest rates, while move-up buyers cautiously enter the market in the mid-range price points. Sales in the upper-end are expected to remain robust,” said the report.

A recent housing market outlook by Canada Mortgage and Housing Corp. forecast a 2.3 per cent increase in MLS sales in 2012 for the Calgary census metropolitan area to 22,700 transactions and a 2.2 per cent hike in the average sale price to $411,000.

“Many factors that support resale housing demand have become or remained favourable this year, including growth in full-time employment, low mortgage rates and improved net migration,” said the CMHC.

“However, competing factors such as uncertainty in the global economy has kept some prospective buyers on the fence, and will continue to temper any large increases in sales.”

RE/MAX said the Canadian residential real estate defied conventional logic and outperformed expectations in 2011, posting another solid year of housing activity virtually across the board.

The trend is expected to carry forward into 2012 as Canadians “continue to demonstrate their faith in home ownership, despite concerns over the European debt crisis and its impact on the global economy.”

By year-end, an estimated 460,000 homes are expected to change hands, up three per cent from the 447,010 units reported in 2010. Sales are expected to climb one per cent to 464,500 units in 2012. The value of a Canadian home is set to climb to $363,000 by year-end — an increase of seven per cent over the $339,030 posted one year ago. By year-end 2012, the average price in Canada is forecast to appreciate two per cent to $371,000, added RE/MAX.

“What 2011 proves is that real estate continues to have momentum,” said Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada, in a statement. “The economic underpinnings support ongoing demand, particularly as job creation efforts continue and unemployment rates edge down further.”


ING now has the evil & dirty collateral mortgage – like TD and RBC

Also see the article from earlier this year about TD and RBC offering the collateral mortgage – which is an “IOU” for every single $ you have. (http://blog.markherman.ca/2011/05/09/why-you-do-not-want-a-collateral-mortgage-from-td-or-rbc/ ) Essentially YOU give them the right to sue YOU into bankruptcy if they need to repo your house. All other standard mortgages in Alberta only allow the bank to take the house back. Another reason to use a broker that knows what they are doing. Do you really want to put it all on the line for no reason?

ING Direct goes collateral charge

ING Direct will move this month to register all new mortgages as collateral charge, following on the heels of TD and other lenders.

The change is set to take effect on Dec. 10, 2011, with the bank to make a formal announcement to the broker channel later this week.

Canada’s economy surges ahead

There is good news out there for the Canadian economy and home buying. Here is some below.

Christine Dobby Nov 30, 2011 – 7:06 PM ET

The Canadian economy was not as bad as first feared in the third quarter. In fact, it was much better than almost anyone had hoped.

Fuelled by record monthly output from the oil-and-gas and mining sectors and overall export strength as temporary headwinds drifted away, third-quarter economic growth shot past expectations.

Statistics Canada said Wednesday that gross domestic product for the period rose by an annualized 3.5%, beating economists’ more moderate average prediction of 3.0% growth and the Bank of Canada’s forecast of 2.0%. In September alone, the economy grew 0.2% from August, falling just short of a 0.3% increase economists predicted.

The growth during the quarter comes as a welcome change after a revised 0.5% contraction in the second quarter.

Net exports staged a decided recovery as external pressures like the fallout from the Japanese natural disasters in March were no longer a factor.

But the devil is in the details as flagging domestic demand and weak business investment lurked beneath the report’s strong headline growth. A close look at the data has economists forecasting only modest growth — in the range of about 2% — in the coming quarters and predicting the Bank of Canada will remain on hold with interest rate hikes.

Here’s what stood out from Wednesday’s report:


The driving force behind the uptick in GDP for the quarter, exports grew at an annualized rate of 14.4%, up from a pullback of 6.4% in the previous quarter.

Paul Ferley, assistant chief economist at Royal Bank of Canada, said that factors that weighed on Canadian exports in the second quarter — including the Japanese supply-chain disruptions as well as wildfires in Northern Alberta that led to shutdowns of oil sand production facilities — were resolved in Q3 and contributed to the increase.

But, he cautioned, “The boost to third-quarter growth provided by the reversal of these factors is not expected to continue to the same extent into the fourth quarter.”

As the global economy stalls and prospects for a quick turnaround look increasingly grim, economists predict it will could spoil the Canadian export party.


Canada’s unstoppable real estate market was another bright spot during the quarter. Residential construction shot up 10.9% annualized, following on comparatively modest increases of 1.6% in Q2 and 6.7% in Q1.

“After quarters of booming housing starts data, the residential construction bonanza finally translated into the GDP numbers,” said Emanuella Enenajor, economist at CIBC Economics.

The expansion in this sector came from all three major components including fees and transfer costs related to resale transactions, new housing construction and renovation activity.

“Continued strength in new-home sales has elicited more and more new housing construction, particularly in the high-rise condo market,” said David Madani, Canada economist for Capital Economics.

He noted that a reported increase in housing starts bodes well for further strong growth in this category next quarter.


Canadians slowed their spending on goods and services during the quarter, raising red flags for economists concerned about sluggish domestic demand.

Personal expenditures grew at an annualized rate of 1.2%, down from an expansion of 2.1% in the previous quarter.

“A slowing pace of income growth owing to tepid hiring and weaker wage dynamics will likely continue to put downward pressure on consumption activity,” Ms. Enenajor said.


Business investment actually contracted during the quarter with a decrease of 3.6% annualized, down from last quarter’s 14.6% increase.

“Weak business investment is a worry, as it has been an important source of growth since early 2010 and replaced personal spending as the main source of domestic growth,” said Charles St. Arnaud, an analyst with Nomura Global Economics.

He noted that this, coupled with the fact that personal spending is likely to remain weak, “Could mean that domestic demand stays weak over the next few quarters, as global uncertainty remains high.”


The combined slowdown in consumer spending and business investment was a drag on final domestic demand, which rose only 0.9% in the third quarter, down from a 3.1% gain in Q2. The other component, government expenditures, was flat in the quarter as government stimulus spending continues to slow to a trickle.

“Note that the pace of final domestic demand has been consistently slowing since 2010, weakening from around 6% to its current sub-1% pace,” Ms. Enenajor said.

Rates, spreads and all the rest

This is an article that was sent to me. It is totally technical and I love it. This is the real reason behind what are the lowest rates we have ever seen.

It also explains why the days of Prime -.95% are GONE for what looks like a long time.

In between the lines is says rates are going to go up quickly as soon as there is a sniff of recovery.

In the last few days, RBC and Scotiabank have eliminated their advertised variable-rate discounts.

They’re now promoting variable mortgages at prime + 0.10%, twenty basis points more than their previous “special offers.”

Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.

The banks are well aware of that. They know that pricing above prime impacts consumer psychology.

They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.

That said, banks are not just arbitrarily sticking it to borrowers. Far and away, the main reason variable rates are worsening is that banks’ costs are rising.

At the moment, there are multiple factors at play:

•             Higher risk premiums are compressing margins.

O We have Europe to thank for the that.

O The TED spread, a measure of interbank credit risk, just made a new 2½ year high. As volatility increases, banks have to factor that into their funding models.

O Another reflection of risk is the most recent floating rate Canada Mortgage Bond (which some lenders use to fund variable-rate mortgages). It was issued at a 15 basis point premium over the prior issue in August.

•             Margin balancing is an underlying bank motive.

O Banks have publicly stated their desire to even out margins between profitable fixed rates and low-margin variables, and they’re slowly doing just that.

O Back in September, RBC Bank exec David McKay put it this way: “…Given the dislocation between fixed and variable, the very, very thin margins (of variables), we felt we needed to move prices up in our variable rate book.”

•             New regulations (e.g., IFRS) have boosted the amount of capital required for mortgage lending.

O That has lowered the return on capital for mortgages, and thus influenced rates higher.

•             Status Quo for prime rate doesn’t help margins.

O Lenders partly rely on deposits (that money rotting in your chequing and savings accounts) to fund VRMs.

O Demand deposit rates rise slower than prime rate. So, when prime goes up, some lenders get wider margins temporarily.

O When expectations changed three months ago to suggest that prime rate will fall or stay flat (instead of rise like expected), it was bad news for some deposit-taking lenders. That’s because they now have no spread improvement to look forward to in the near-to-medium term.

O MBABC President Geoff Parkin says that until recently, “lenders have been prepared to accept low (VRM) profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages.” As it turns out, the inevitable is taking longer than the market expected.