inflation and Canadain mortgages

Inflation & Mortgage Interest Rates

Here is the near term expectations of mortgage interest rates.
Short version:
  • 5 Year fixed are going up and never getting back down to where they are now.
  • Variables are also great – right now they are Prime – 1% or 2.45% – 1% = 1.45%, and as below, should stay there until 2023! Almost 20 more months!
Both of these are awesome options right now.
Mortgage Mark Herman, Top Calgary Alberta mortgage broker for 1st time home buyers
THE DATA:

Bond traders believe inflation is going to be rising over the coming months and have been demanding increased bond yields.  That has led to increasing interest rates for bonds and, consequently, increasing rates for the fixed-rate mortgages that are funded by those bonds.

The traders say the COVID-19 vaccine rollout and plans for vast infrastructure spending – particularly in the U.S. – are boosting expectations of a broad recovery and an increase in inflation. Better than expected GDP growth in Canada and shrinking unemployment in the U.S. would tend to support those expectations.

This, however, puts the traders at odds with the central banks in both Canada and the United States.

The Bank of Canada and the U.S. Federal Reserve also expect inflation will climb as the pandemic fades and the economy reopens.  There is a pent-up demand for goods and services, after all.  The central banks see that as transitory, though, and appear to be looking past it.  The U.S. Fed has gone so far as to alter its inflation target from 2% to an average of 2%, over time, thereby rolling any post-pandemic spikes into the bigger, longer-term calculations.

The Bank of Canada and the Fed have committed to keeping interest rates low, probably through 2023.  Both say inflation will have to be sustained before interest rate moves are made to contain it.  The integrated nature of the Canadian and American economies means it is unlikely the BoC will move on interest rates before the U.S. Fed.

$37,000 Payout Penalty at CIBC

The latest in giant payout penalties, this one was $47,291.

Here is a person – one of my ACTUAL ALMOST-Customers who had to swallow a surprise at TD for $35,000. (We tried 3 times to get him to not take that mortgage.)

To make this even more mind blowing, at a 39% tax rate that is $65,700 the person has to pay … about the same as 1-year of income at a full time job, without tax taken off.

  • Would you work for 1 year to give it all to your bank if you had to sell or move or close down the mortgage for any reason?
  • Would you sign an agreement like that?
  • Have you already signed an agreement like this without knowing you have?

EASY to AVOID …

You don’t need to add in this risk to your home purchase. It is easy to get around by taking a mortgage from a major Broker Bank.

Broker banks calculate the payouts the “old way” which was way more fair to you, the buyer. Click here for the posts about payout penalties.

Broker banks also have better Terms & Conditions than the Big-6.

Link to the article: https://toronto.ctvnews.ca/american-who-sold-home-in-toronto-shocked-by-47-000-mortgage-penalty-1.5212884

“Broker Banks have better T&C than all of the Big-6. Call a mortgage broker first.”

Mortgage Mark Herman, Top Rated Calgary Mortgage Broker

 

$47,000 Payout Penalty

“Talk to a mortgage broker before you get a mortgage; even if it is at your own bank” says Mark Herman, Top Calgary mortgage broker.

In this case the bank loved this guy’s money, and did not listen to what he wanted. Now he has a $47,000 payout penalty.

If he went with a mortgage broker bank/ lender the payout would be $5,875. Eight, yes, 8 times less. Or $41,000 LESS.

Also see our post for OUR ALMOST customer who had his bank match our rates, but not our lenders Terms and Conditions. Now he has paid a $35,000 payout penalty. If it was at the lender we recommended it would have been $5,500.

https://toronto.ctvnews.ca/american-who-sold-home-in-toronto-shocked-by-47-000-mortgage-penalty-1.5212884?fbclid=IwAR3dmveUnldnmjcMSGEVXrSvcOr4UFtnEKoNPVjFPe02mp0HZ0CuqxC6mS8

Variable rates to hold steady for 2019

Here is the latest on changes to the Prime rate for variable mortgages. The news is good as Prime is now expected to stay the same for the balance of 2019!

Remember:

  1. Variable rates can be locked in at any time for what the rates are on the day you lock in on.
  2. The maximum payout fee for is 3 months of interest

Rate hike disappears over the horizon

Apr 22, 2019
from First National Financial LP

The likelihood of a Bank of Canada interest rate increase appears to be getting pushed further and further beyond the horizon.

The Bank is expected to remain on the sidelines again this week when it makes its scheduled rate announcement on Wednesday.

A recent survey by Reuters suggests economists have had a significant change of heart about the Bank’s plans.  Just last month forecasters were calling for quarter-point increase in the third quarter with another hike next year.  Now the betting is for no change until early 2020.  There is virtually no expectation there will any rate cut before the end of next year.

The findings put the Bank of Canada in line with the U.S. Federal Reserve and other major central banks.  World economies have hit a soft spot largely due to trade uncertainties between China and the United States.

This is good news for variables

Mark Herman, Top Calgary Mortgage Broker

the WORST: Mortgages @ Big-6 Banks

This blog summarizes why getting a mortgage from 1 of the Big-6 banks is the worst idea:

Here is the article that is fully correct:

Big Banks vs. Broker Lenders:

https://www.huffingtonpost.ca/justin-thouin/mortgage-rates-big-banks-small-lenders_a_23662938/?ncid=fcbklnkcahpmg00000001&ec_carp=2134708585009717321&ec_carp=2154161423063642695

Always talk to a mortgage broker before buying, or renewing or refinancing your mortgage

Mark Herman; Top Calgary, Alberta Mortgage Broker

 

Moving to YYC: How to buy ASAP

Moving to Calgary and Buying a Homes As Soon As Possible

This is a common question, and as usual, the way the banks / lenders want things done is exactly the opposite of what works in real life, for real people, like you.

You Want: To buy a home in Calgary, move the family in, get settled and then start the new job – RIGHT! That makes the most sense.

The Lenders want:

  • You to have 1 full-cycle payslip BEFORE then will fund your mortgage and
  • You to be completed the 90 day probation if you have a probationary clause in your new employment

Why?

PAYSLIP: The first full-cycle pay-slip – meaning 2 full weeks of pay – critically needs to match your employment letter / job offer at 40.00 hours; or whatever it is that you are guaranteed for pay. If it does not match, then your income is not guaranteed, and the lenders want to see guaranteed pay.

39.97 hours is not 40.00 hours; it means the 40 hours is not guaranteed and the lenders often decline to fund your mortgage.

PROBATION: In Alberta, you can be let go for no reason in the first 90 days of employment – even if you are NOT on probation. It does not matter if there is/not a reason, it is the law.

Obviously, if you just moved here, bought a home and are let go, the odds of you moving back are high. And the bank is left in the risky position of losing money on the home or making an early CMHC claim. Which is why they want to see either: NO probation, or a shortened & completed probation period, or a completed probation period.

Work-Arounds:

  • Workaround 1: We recommend and often see new employees specifically asking for no or short probation periods. You are taking the risk moving here, the employer is often willing to waive the probation – which can be the key to speeding a home purchase.
  • Workaround 2: Depending on how your math works out, you may be able to carry 2 mortgages at 1 time. There are 2nd Home Programs that can work for situations like this, but again, the math is different for everyone.

How to make the move as smooth as possible

The smoothest way to buy a home when relocating is to start the job first. Ask for the employer to waive or shorten the probation period. Then rent, stay with friends, or anything that works for the first 2 or 3 weeks. Then when you have a full-cycle pay slip you can buy a home that works for you and take possession as soon as possible is a much smoother transaction. Otherwise you are “trying to push a rope up a hill” and the bank’s don’t like that at all.

We see issues with people buying too soon all the time. Forcing the system often backfires on new home owners. The resulting brain damage is not worth trying to do the transaction backwards in the eyes of the banks.

Mark Herman; top Calgary Alberta Mortgage Broker, with best rates

How the Big-5 Banks Trap You in Their Mortgages

Yes, the Big-5 banks do not love you, they love your money.
 
 
Now they can “trap” you in their mortgages with the Stress Test to get more of your money that they love!
 
 
Highlights of the article below show how the new mortgage rules – called the B20 – allow the banks to renew you at almost any rate they want – or at least not a competitive one – if your credit, income, or debts should mean you can’t change banks.
 
 
If your mortgage is at your main bank they can see:
 
  • what your credit score is
  • your pay and income going into your accounts
  • your debt payments
  • other debt balances on your credit report
  • your home/ rental addresses so they can accurately guess at your home value.
 
AND this means they can calculate if you can pass the new “Stress Test.”
 
 
If you can’t pass it then they know you can’t change banks, are you are now totally locked into them for your renewal. They can renew you at POSTED RATES … 5.39%, not actual discounted rates they offer everyone, today about 3.69%.
 
 
The GOOD NEWS is broker banks do not do any of this … so having your mortgage at your main bank only helps them “grind you” later on. …. so how convenient is having your mortgage at your bank now?
 

Highlights of the article link below are:

Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders …  the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.

B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said Eight Capital analyst Steve Theriault. “It’s had the unintended consequence of reducing competition.”

Royal Bank of Canada (RBC), the country’s biggest lender, said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations and also to improvements it has made to make it easier for customers to renew.

Ron Butler, owner of Toronto-based brokerage Butler Mortgage, said the changes leave borrowers with less choice.

“Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.

Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.

While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.

“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.

Link to the full article is here: https://business.financialpost.com/news/fp-street/canadas-big-banks-tighten-grip-on-mortgage-market-after-rule-changes

We saw the “Mortgage Renewal Trap” coming long ago when the Stress Test was announced. It is more important than ever to consider Mortgage Broker Lenders for your mortgage now.

Mark Herman, Top Calgary Alberta Mortgage Broker.

Collateral Charge Mortgage – a big deal

Collateral charge mortgage registration … is a big deal in most circumstances.

Short Version

  • This is a method of registering your mortgage currently used by nearly every Chartered Bank / Big-6 Banks at this time.
  • You are unlikely to avoid it if you are at a Big-6 Bank so it is important to understand the ramifications.
  • Avoiding having your mortgage held by the same institution as the balance of your debts such as; credit cards, over drafts, unsecured credit lines, car loans, etc.  This is worth serious consideration. See the bold summary in the last paragraph below.
  • Have your mortgage as a stand alone piece of a bank-relationship if you must place it with a Bank
  • Ask about more information re ‘Monoline‘ lenders; broker lenders that do not register this way.

Long Version

The Financial Consumer Agency of Canada website provides the following definition;

Collateral Charge (a.k.a  ‘All-indebtedness’) – A type of mortgage whose features may include the ability to potentially borrow additional funds, subject to your lender’s approval, without the need to discharge your mortgage, register a new one and pay legal fees. If you want to switch your existing mortgage to a different lender at the end of your term other lenders will not accept the transfer of your mortgage. This means you may/ probably will need to pay fees to discharge your existing mortgage and register a new one in order to change lenders. The fee for this is the lawyer charge incurred.

The 1 Benefit:

The (potential) win for the client is avoiding new legal fees for securing a line of credit or increasing the mortgage balance in the future.  This assumes the choice was made to register the mortgage for either the ‘125% of the value‘ option or a maximum amount greater than the actual mortgage amount.  If that was not the case and you chose to register the mortgage with a collateral charge lender for ONLY the mortgage amount then the upside is actually quite limited.

Some Of the Negatives:

The ‘all indebtedness’ mortgage brings any other debts held by that specific lender under the umbrella of the registered security against the Real Estate.  In other words co-signing a credit card or car loan for somebody (who then stops making payments) carries a risk of a foreclosure action against your property as a remedy for what was perceived to be an unrelated debt.  Read that last sentence again.  Yes, your home is on the line for any other form of debt held by the same institution as your mortgage.

It is also (potentially) costly to transfer the mortgage to a new lender come renewal, in particular if the mortgage balance is under $200,000.  However the topic of transferring 2, 3, or even 5 years down the road is less pressing.  I would suspect most readers are still wrapping their heads around the concept of a $5,000.00 Visa balance potentially triggering a foreclosure action – which it very well can. (I have seen this occur in the case of two clients, admittedly, also rare.)

Transfer costs are becoming less of an issue as we currently have at least two lenders stepping up to offer a ‘no-fee switch’ program for collateral charge mortgages at renewal time.  Your choice of lenders is limited and the rate for this is not “best rates” as the new lender is paying for the cost of the change “under the covers.”

Following is the key point around this topic, in my opinion;

Yes, this is a far reaching method of registration with serious ramifications.  However as nearly all institutions (most likely the clients current bank as well) now register in this fashion it is perhaps a key consideration that one should in fact not have all their banking, credit cards, and small loans with the same institution as their mortgage.  Rather splitting accounts between two separate institutions, and ideally having their mortgage held with a third financial institution is altogether more prudent.  Think ‘Church & State’.  Mortgage with Lender A, consumer debt/trade lines with Lender B, and perhaps any Business accounts with Lender C.

If all banking as done at ABC bank, and the mortgage is placed with XYZ lender we then eliminate exposure to the potential darkest side of a Collateral Charge mortgage.  The Collateral Charge itself is not an evil thing, it is a policy that exists with nearly all Big-6 Banks, but NOT standard with Broker Lenders. It is designed, as one may expect, to protect the interests of the Financial Institution over and above those of the clients.  Once aware of theses potential ramifications one can then structure their finances in such a way that the reach of a collateral charge is in fact quite limited.

What the Dept. of Finance said about it …

The Department of Finance -DoF – has noted that the Big-6 are NOT disclosing this clearly enough. This point alone should be the alarm. Here is what the DoF has said …

“The impacts of having a collateral charge mortgage may differ from traditional mortgages. For instance, switching between lenders may be more difficult. To make an informed choice, consumers need sufficient information to clearly understand the costs and consequences of collateral charge mortgages relative to traditional mortgages. The Government will require enhanced disclosure, better equipping borrowers to understand these impacts’

This topic deserves more attention than it typically gets at the time of the initial mortgage planning, please take a few minutes to discuss it.

CONTACT US

We answer from 9-9 x 365 and are the Top Calgary Alberta Mortgage Brokers. Call to discuss if you would like more on this.

Mark Herman, Calgary Mortgage Broker.

403-681-4376

 

 

Calgary Housing Market Still Strong

Below is an article that notes Calgary’s home prices are still supported.

Mark Herman, top Calgary mortgage broker for purchases and mortgage renewals

Calgary’s housing market is not under threat of a correction despite a downturn in the local economy, Canada Mortgage and Housing Corp. said in an analysis Thursday.

Its assessment of 15 metro markets lists Calgary as “low risk” while Toronto, Regina and Winnipeg were rated “high risk.” The review considered four factors — overheating; acceleration in house prices; overvaluation; and overbuilding — as of the end of March.

“The low price of oil has affected many different sectors of the economy, affecting employment and income growth, and increasing the unemployment rate. Weaker labour market conditions have also slowed migration to the region,” CMHC said of the Calgary-area market.

Meanwhile, Vancouver — one of the country’s priciest real estate markets — was deemed low risk, even as home prices there continue to soar. The benchmark price of a detached home in metropolitan Vancouver hit $1.1 million in July, up 16.2 per cent from a year ago, the Real Estate Board of Greater Vancouver said last week.

… Statistics Canada said Thursday that new home prices in the Calgary area rose 0.1 per cent in June.

“Higher land prices were largely offset by builders reducing prices because of market conditions,” the federal agency said. Prices were up 0.7 per cent year-over-year.

In its latest report, the Calgary Real Estate Board said the average MLS sale price for July was $476,446, down about 1 per cent from a year ago while the median price of $435.000 grew by 2.35 per cent. The benchmark price, which CREB identifies as a typical property sold in the market, was largely unchanged at $455,400.

With files from The Canadian Press

mtoneguzzi@calgaryherald.com

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