With rates on the rise, is it worth a 2nd look at longer term mortgages?
- Rates have substantially increased over the last 6 of months. We have seen 3 prime rate increases with more on the horizon.
- Fixed rate mortgages have also followed suit due to bond market instability and the increases are noticeable.
- Consumer sentiment has rapidly moved from Variables rates to longer term Fixed rates of 5, 7, and 10 years.
The long-term trend for rates is up!
The advantage of Fixed rates is that they provide clients with added security and stability against this recent storm of volatility. This storm doesn’t seem to have an end in sight either with many questions still to be answered in the coming months. When will bond rates stabilize? Will global pressures continue to drive increases? Will we see a return to historical norms? What will be the impact of recent events on the Canadian economy?
Some clients are more concerned with rate trends these days it’s with good reason. Perhaps the interim answer to all this instability and volatility is to start looking long “term”. 7 & 10 year terms to be specific.
Longer term mortgages like a 7 & 10 year term help insulate clients against potential increases in the short to long-term as well as provide safety and consistency with mortgage payments that won’t fluctuate with the markets volatility.
We don’t have to go back very far (6-7yrs) to a time when 10 year mortgages were a very popular and attractive option. During that period of time many case studies show this product didn’t work out for those borrowers who selected those 10 year terms, however there was a major difference between that period of time and today. 6-7 years ago we were in a more stable rate environment and there was very little difference between the 5 & 10 year rates at the time. Shortly after this period, rates quickly dropped to even further all-time lows.
Compare those details to our current market situation where rates have now bottomed, and it becomes quickly apparent rates have been continually rising with more sustained increases forecasted.
If security is your top key, lets talk about a 7 or 10 year mortgage option today.
Mortgage Mark Herman
Top Calgary Alberta Mortgage Broker
This is just in from TD Economics, a .75% Prime rate increase is expected to be phased in – probably in 1/4% increases – starting in July 2017 and being fully in by December.
The rates they show below are for corporate rates, consumer rates are a bit higher.
Consumer prime is at 2.7% today so that would be the same increase of .75% taking it from 2.70 to 3.45% by the end of 2017.
• Our current forecast is for the Bank of Canada to begin raising interest rates in July of 2017, increasing the policy rate to 1.25% (from its current level of 0.5%) by the end of 2017. It is possible that with additional infrastructure-led growth the Bank may choose to begin hiking rates earlier and perhaps more aggressively.
All this and more from Calgary, Alberta top mortgage broker, Mark Herman.
Below is a great summary of why this rate cut is not a big deal mortgage wise.
All the banks kept their rates the same but for TD that lowered their Prime rate by 0.10% only. No other banks have followed yet and are not expected to. As you can see the banks will keep that rate cut to boost their profits … because they love money; specifically, your money, not you.
Variables went down only by 0.1% … and fixed rates all stayed the same … at their 115 year all-time lows. Looks like mortgage interest rates are as low as they can go.
Mark Herman, top Calgary Alberta mortgage broker for home purchases and mortgage renewals.
Why the Bank of Canada’s interest rate cut won’t help us.
After seven years of interest rate cuts, this economic lever is a spent force. The law of diminishing returns means each new cut has less and less impact.
The Bank of Canada decision Wednesday to cut its key lending rate for the second time this year to 0.50 per cent …
The impetus behind the cut wasn’t really about getting you to borrow more or ease your borrowing burden. It was about widening the gap between our interest rates and those in the U.S. to push our dollar down.
“Canada’s economy is undergoing a significant and complex adjustment,” the bank said in its rate decision, noting there was a modest recession in the first half of the year as the economy contracted.
Our dollar started the day down a third of a cent to 78 cents, a level not seen in 10 years. That’s going to make snowbirds unhappy, but the central bank is more interested in fuelling exports to our larger trading partner.
Can the Bank of Canada really save the day? Rates are already so low, we’re at the point of diminishing returns. Each new cut is greater in percentage terms than the last, but the real impact is smaller and smaller.
Here are four reasons this cut isn’t likely to make much difference:
1. Not much relief
If interest rates are at 15 per cent – not far off what I was paying for my first mortgage – and fall to 10 per cent, that’s a 33 per cent decline and puts a huge amount of money in your pocket.
If the rate is 0.75 per cent and falls to 0.50, it’s the same 33 per cent drop, but the saving is negligible. By the time it filters down through the banking system to your line of credit, the difference may add up to a Big Mac meal.
Wednesday’s move by the central bank means the banks will likely lower consumer borrowing costs a little. The betting is that they’ll give us 10 basis points and they’ll keep the other 15. TD Bank was first off the mark, doing just that.
So, suppose you’re a good bank customer. Your $100,000 secured line of credit is at prime, plus half a point, or 3.35 per cent (2.85 plus .50). You’re making an interest-only payment each month which comes to $279 a month.
The bank passes on 10 basis points. Your new combined rate is 3.25 per cent, or $271 a month. Spend that $8 wisely.
2. Indifferent businesses
Businesses who need money to invest are already borrowing. This rate cut won’t make a difference to their plans…
3. Indifferent consumers
… many consumers see the low rates as normal. He’s right, in that anybody 45 or younger has only lived in an environment of falling interest rates. So 10 basis points off is just more of the same and unlikely to generate much interest….
4. Drooping dollar
Economist have noted that the January rate cut did send the dollar lower, but did little to accelerate growth, even as the loonie fell from 87 cents to about 82 cents and now 78 cents..
Here is a great summary of what is causing mortgage rates to be nosing up in the near future. They really should have gone up by now but the anticipated “Spring housing market rush” competition with the banks is holding them down.
Mark Herman, top Calgary, Alberta mortgage broker for home purchases and mortgage renewals
The latest round of economic data has real-estate watchers returning their focus to interest rates.
- Activity in the bond market and the latest employment numbers are fueling predictions there will be a bump in fixed-rate borrowing costs in the near future.
- Employment improvements are generally seen as a harbinger of inflation. That, along with other domestic and international considerations, is pushing up government bond yields, which in turn drive fixed mortgage rates.
- There is also the notion that the big, trend-setting lenders will be looking to move rates up to bolster profits.
- As well, Bank of Canada Governor Stephen Poloz has hinted he might be willing to let inflation run in order to avoid hiking the policy rate. That would also put upward pressure on government bond yields.
The graph we watch to show us this is here:
- As for variable-rate mortgages, the betting is there will not be a Bank of Canada increase until the middle of 2016, holding variable rates in place for the foreseeable future.
We watch all kinds of indicators for when mortgage rates may change.
This is the main one, the CMB – Canadian Mortgage Bond. As you can see it is on the way up and mortgage rates and the graph are directly related.
Rate Watch Program
When rates go up the banks call us and give us at least 2 hours – and sometimes 2 days – notice. This lets us send in all the files that we are working on for 120 day – or 4 month – rate holds. All the files that have enough data in them – at least an application and the disclosures and a payslip – get rate holds at today’s rates.
The banks do not do this for you! Another reason to use a broker that works the system to your advantage at no cost to you!
Mark Herman, top Calgary Alberta mortgage broker for new home purchases and mortgage renewals.
We watch lots of technial things to see where rates are going. One of those is the CMB – Canadain Mortgage Bond.
Today, the benchmark government of Canada five year bond yield ended the week at 0.79%, up from 0.73% the previous week.
that means that fixed rates may move up from their 2.74 – 2.79% soon.
Get your rate hold / applicastion in!
Mark Herman, AMP, B. Comm., CAM, MBA-Finance
WINNER: #1 Franchise for Funded $ Mortgage Volume at Mortgage Alliance Canada, 2013 and 2014!
Accredited Mortgage Professional | Mortgage Alliance | Mortgages are Marvelous