Mortgage interest rates are poised to increase as soon as this summer.
If the banks aren’t prepared to put the brakes on rising mortgage debt, the Bank of Canada may soon be, hinting that it could raise its key overnight rate as soon as this summer.
“The heightened uncertainty around the global economic outlook has decreased in the weeks since the Bank released its January Monetary Policy Report (MPR),” reads Thursday’s announcement maintaining the Central Bank’s benchmark rate at 1 per cent. “With tentative signs of stabilization in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased.”
For analysts, that translates into the strongest indication in more than a year that the bank may have enough room sometime this year to raise the interest rate it charges banks. The knock-on effect would be to raise interest rates for borrowers.
Ensure you get a rate hold before this happens.
Dont get excited about BMO’s 2.99% mortgage again.
BMO is bringing back the 2.99% mortgage again. Don’t get worked up about it. It is just as super-restricted as it was before, 25 year am max and there is a Due on Sale clause causing a need for a payout – which could be literally thousands in penalties.
This mortgage does not fit for most people.
We can get you a full-featured product for the same rate without the crazy risky down side.
business.financialpost.com/2012/03/07/mortgage-wars-round-2-bmo-slashes-rate/
Alberta MLS sales activity to top Canada for next two years: 6.8% hike in 2012
This is great news!
CALGARY — Alberta MLS sales activity is forecast to show the biggest year-over-year gains in the country in the next two years, according to the Canadian Real Estate Association.
In a report released Monday, CREA said MLS sales in the province would grow by 6.8 per cent this year to 57,400 and by another 1.7 per cent in 2013 to 58,400.
Across the country, CREA forecasts 0.3 per cent growth in 2012 to 458,800 transactions but a decline of 0.3 per cent in 2013 to 457,200 units.
The average sale price in Alberta is forecast to grow by 1.4 per cent in each of the next two years to $358,300 in 2012 and to $363,200 in 2013.
Nationally, the average sale price is forecast to decline by 1.1 per cent this year to $359,100 but increase by 0.9 per cent in 2013 to $362,300.
© Copyright (c) The Calgary Herald
Banks Have Canceled their 4-year Promos – Rates on the rise.
Still time to get a rate hold at the old rates if you hop to it.
The banks 2.99% four-year fixed promotions were intended to last until February 29. RBC and others have cancelled them early.
The nation’s banks rates are now:
- 4-year fixed “special offer” by 40 bps to 3.39% – ours is at 2.99% – live deals only, closing in 30 days or less
- 5-year fixed “special offer” by 10 bps to 4.04% – ours is at 3.09% / 3.25% – live deals only, close in 30 days or less
- 5-year fixed posted rate by 10 bps to 5.24% – ours is at 3.29%, 120 day rate hold
Some quick points on these changes:
- Other major banks are expected to match some or all of RBC’s rate increases.
- For just 10-20 bps more (i.e., 3.09-3.19%) you can find several brokers offering 5-year fixed mortgages. That’s a reasonable premium for one extra year of rate protection.
- RBC’s 4.04% five-year “special offer” is almost a full point above 5-year fixed rates on the street. No one other than the most novice mortgage shoppers take this rate seriously.
- RBC spokesman Matt Gierasimczuk attributed today’s rate increases to this:
“Our long-term funding costs have gone up considerably due to global economic concerns and, while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate.” (Source: Bloomberg)
- We can find nothing to suggest RBC’s 4-year fixed funding cost rose 40 basis points since mid-January. It has among the lowest cost of capital in Canada and other lenders have recently launched new 2.99% four-year specials of their own (one of them today). That is some pretty bad spin they are trying to put on.
- The Globe and Mail quotes sources who say that regulators were unhappy with the “price war” that followed BMO’s 2.99% five-year special. That may be somewhat linked to this announcement, hints the article. The government is clearly worried that low rates may incite borrowing and inflate the debt balloon further.
Alberta job growth outpacing Canada: Statistics Canada
This is great news – but a bit old as everyone in Alberta is aware of their friends getting great jobs, without interviews, for more than they were expecting! And all those people are buying homes which will support the prices.
3.9% jump in employment in the past year
CALGARY — Alberta had the highest rate of employment growth in Canada in the past year.
Statistics Canada reported Friday that the province’s unemployment rate remained at 4.9 per cent in January, which was the lowest in the country, and Alberta’s pace of employment growth was 3.9 per cent from January 2011, creating 79,500 jobs.
“I’m finding the job search is taking less time than it would normally take. A lot of my clients are finding work much quicker,” said Eileen Dooley, career coach and team lead at Cam McRae Consulting, an outplacement and career coaching agency in Calgary. “Usually a job search can take anywhere from three to six, eight months. Averaging about two I’m seeing now. Definitely a good time.
“So many companies are hiring. And they’re hiring like hundreds and some thousands over the next couple of years in all different areas. It’s not just technical. It’s not just engineering. It’s administrative. It’s everywhere. So this is a really good time to look for work. It’s a really good time if you’re not happy with your job. If you’re thinking of moving to something else, now is a good time to do it.”
In the past year, the unemployment rate in the Calgary census metropolitan area has dipped from 5.9 per cent in January 2011 to 5.0 per cent in January 2012. Employment growth of 4.9 per cent in the region has created 34,400 more jobs than a year ago.
Nationally, the unemployment rate rose to 7.6 per cent in January from 7.5 per cent the month before. Employment was virtually unchanged in January across Canada rising by 129,000 or 0.7 per cent from the year before.
“While other regions are simply treading water, Alberta seems to be hanging on to its hiring momentum. We expect this trend to continue throughout 2012,” said TD Economics.
Nationally, employment was flat on a monthly basis with only 2,300 jobs created.
Douglas Porter, deputy chief economist with BMO Capital Markets, said that at a national level the employment report reinforces the point that Canada’s job creation engine is cooling markedly.
“There is no one single factor to explain the softening trend, although the sustained decline in finance, insurance and real estate is particularly notable. Previously strong sectors, such as construction and public administration, are also fading. With domestic drivers now gearing down, the job market needs the U.S. economy to gather some serious momentum to keep the recovery on track,” he said.
Unemployment rates in January by province:
Alberta 4.9%
Newfoundland and Labrador 13.5%
Prince Edward Island 12.2%
Nova Scotia 8.4%
New Brunswick 9.5%
Quebec 8.4%
Ontario 8.1%
Manitoba 5.4%
Saskatchewan 5.0%
British Columbia 6.9%
Canada 7.6%
Source: Statistics Canada
CIBC Being Sued: Unfair payout penatly calculations continue
This is interesting.
We have always thought that the way they do their math was odd or different or something.
Another reason to use a good Calgary broker that has other options than the Big 6 banks that continue to take advantage of their own customers. Why do they do this?
CIBC class action attracts hundreds of inquiries
Lawyers spearheading twin class-action suits against CIBC over “vague prepayment terms” have fielded interest from hundreds of the bank’s mortgage clients — that as a case management judge in B.C. gets assigned to the legal action.
“There have been hundreds of inquiries about these cases to our office and that of our co-counsel in Ontario,” Kieran Bridge, a Vancouver lawyer with the Construction Law Group, told MortgageBrokerNews.ca, pointing to borrowers who paid out CIBC mortgage from April 2005 onward.
Firstline clients areamong those concerned that they may have been adversely affected by the lender’s prepayment policy.
A Case Management Judge has also been assigned, what Bridge calls a key, mandatory step in moving class actions forward in British Columbia.
“We applied in November for a judge to be appointed, in order to move the case ahead, and are pleased this has happened,” he said.
The twin lawsuits were filed in B.C. and Ontario last October, alleging some CIBC mortgage borrowers have been unfairly penalized by unclear prepayment terms giving rise to two substantive complaints.
Aside from what Bridge terms “uncertain and unenforceable language” in contracts dating as far back as 2005, he also points to the mathematical formula CIBC used to determine those prepayment charges, calling them “invalid,” or in legal speak a “miscalculation.”
The suits rely on individual representative plaintiffs in B.C. and Ontario. Each of those two notices of claim alleges CIBC applied terms and conditions to certain mortgage contracts that allowed it “unfettered discretion” in calculating mortgage prepayment penalties.
The suits also allege that the actual amounts of those penalties were themselves in breach of the mortgage contracts.
CIBC will haven’t yet filed a statement of defence against the allegations.
“Because these cases are intended class actions, the normal time limit for filing a Statement of Defence is rarely applied,” said Bridge.”There has been no Statement of Defence filed, and no substantive response from CIBC.”
The assignment of a management judge notwithstanding, the suit still must be certified in order to proceed to trial. That could take a year or more.
The collective legal action effectively echoes some of the more-perennial and broader concerns of brokers, who grapple with the widely varying interest rate differential and prepayment penalties many lenders demand of borrowers. The former, sometimes stretching into the tens of thousands of dollars, has presented a major impediment to helping clients take advantage of historically low rates by switching or refinancing clients before maturity, argue many mortgage professionals.
Those challenges have led to broker calls for industry-wide standardization of penalties.
Undoubtedly, broker-arranged mortgages through Firstline are among the thousands of transactions the dual suit is meant to address, said Bridge, at the same time expressing his support for mortgage professionals.
The B.C. lawyer led a similar case against RBC about ten years ago. It ultimately ended in a settlement, said Bridge.
Canada’s East-West economic divide deepens
As the divide gets greater the West continually does better. Alberta is the best place to live and do business in North America right now. That creates home demand and supports home prices.
This is from the Globe and Mail:
Saskatoon will lead the country’s economic growth this year, along with the other resource-rich cities of Calgary, Edmonton and Regina.
The Conference Board of Canada’s annual metropolitan outlook of 27 cities also sees a deepening economic divide between the West and the rest. Growth in factory-heavy central Canada will be tepid and St. John’s, which had led the country’s growth in the prior two years, will tumble to the bottom of its economic growth ranking.
For this year, Saskatoon will tally the strongest expansion, pegged at 4 per cent. The country as a whole is seen growing a modest 2.4 per cent in the year.
Despite global economic turmoil, “high prices for agricultural products, minerals and oil are likely to continue,” said Mario Lefebvre, director of the board’s centre for municipal studies. “Canada’s prairie cities will reap the benefits of this global demand for commodities.”
Saskatoon’s growth this year, underpinned by a resource boom in the province, is actually a slowdown from an estimated 4.6-per-cent expansion last year. Still, the city’s jobless rate of 5.4 per cent is well below the national average, and the jobs boom has meant international migration to Saskatchewan in the third quarter of 2011 hit its highest level since 1971.
Calgary, meantime, is seen expanding 3.6 per cent this year. In 2013, the city is forecast to lead all Canadian cities with growth of 4.9 per cent.
In Edmonton, job growth of nearly 40,000 new positions last year alone is seen supporting domestic demand. A strong energy sector will drive growth of 3.4 per cent this year. Regina’s growth is pegged at 2.9 per cent.
It’s a different story elsewhere. “The outlook is not as promising for cities in central and eastern Canada,” Mr. Lefebvre said. “The uncertain global economy, a continued slow recovery in the manufacturing sector and the windup of fiscal stimulus introduced by governments in recent years will hamper overall economic growth.”
Ontario will be hobbled by a slow U.S. recovery, strong Canadian dollar and government austerity. Manufacturing, meantime, remains well below pre-recession levels.
Belt-tightening in Ottawa will weigh on that city’s economy. Public administration employment tumbled 2 per cent last year, and is forecast to slide another 3.6 per cent this year — a loss of 9,000 jobs over these two years. As result, real GDP growth is pegged at just 1.8 per cent this year.
Toronto’s economy is forecast to grow 2.6 per cent this year, while Hamilton, London, Kingston and Niagara will all see below-average growth.
In Quebec, Montreal’s economy will grow a modest 2 per cent this year as a third straight year of growth in the manufacturing sector helps offset an expected downturn in construction. Quebec City is forecast to expand 2.1 per cent.
Saguenay’s economy will expand by 1.5 per cent this year, its best performance since 2002. The manufacturing sector is expected to resume growth this, boosting employment in the sector.
“The brightest development in Saguenay has to be the return of positive population growth in both 2010 and 2011,” the report said. “As a result, domestic demand has been stronger and should continue to expand in 2012, leading to an almost 2-per-cent rise in overall services sector output.”
St. John’s is expected to see the country’s weakest growth, at just 0.7 per cent this year.
“After two spectacular years, the St. John’s economy has limited growth prospects this year,” the report said, amid a booming construction sector. Looking ahead, “waning offshore oil production wells, fewer housing starts, and the end of the infrastructure spending program will weaken economic growth.”
In B.C., Vancouver will grow 2.6 per cent amid a decline in residential construction and growth in the services sector. Victoria will grow a scant 1.9 per cent.
Credit Score Info – this is great data
Below is a good article on credit scores.
Mortgage applications are evaluated on 4 factors. You can think of them as “legs of a chair.” If 1 or 2 legs are shaky it could still stand if the other 2 are strong. Obviously, a 1, 2 or 3 leg chair does not work so well.
The 4 factors are:
- Credit report and score – this article is all about this point
- Down payment amount and source of funds
- Employment history
- and Property quality.
There is lots of good info below on #1 and here are the magic percentages that are hard to find:
- 35% of your score is your debt -to-limit ratio of your existing credit. There are extra points for balances at less than 50% of the max and you slowly lose points as you get up to 75%. Even $1 over limit can cost you 50 points or more.
- 30% of your score is your repayment history. Ensure you make ALL of your payments on time, even if it is only $10. These are tracked for 7 years so on time payments are super important. Remember to pre-pay if you are going to be away on holiday – this is where most people get caught.
- Only 10% of your score is based on “credit inquiries.” There is more on that below.
- The final 25% of your score is based on a few other “things” like:
- your credit mix (installment payments like car loans and RRSP loans, and revolving credit like credit cards)
- the length of time your that you have had credit – banks like to see 2 years for each to get a good idea of what your long-term behavior is like.
- and collections, judgments, other “things”
So … Why is it so important to have a good credit score?
“When a client is applying for a mortgage, they need to bear in mind that lenders (and in most cases, the insurers as well) put considerable weight on the applicant’s credit score,” explains Leslie Penney, a mortgage professional in St. John’s.
“It’s basically a snapshot of a client’s credit situation at that moment in time, although it also reports on the client’s credit history.”
Credit scores are determined by using a complex formula and rating scale, says Penney. Credit rating agencies look at your income, your debt repayment history, your total approved credit limits, your credit usage levels and more and that information is crunched into a scoring system that assigns a number of between 300 and 900. This is known as your FICO score. The higher you are on the scale, the less risky you are to a lender.
For example, says Putnam, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. So that means that anyone with this score is very likely to get that loan or mortgage they’ve applied for. These scores, which are called beacon scores, may also be used to determine the interest rate you will pay on the loan for which you’re applying.
Credit rating agencies like Equifax Canada and TransUnion Canada are typically used in Canada to determine scores. Remember that your credit report or rating is not the same as your credit score, though they’re closely linked. You can get your report or rating from Equifax or TransUnion for free by going to their websites. Equifax now offers a phone based service for free reports without score at 1-800-465-7166. Your credit score will cost you approximately $23 and it will include your credit rating or report. See the appropriate websites for more information.
Mortgage and credit experts all recommend getting a sneak peek at your credit rating yearly or every two years. The main reasons for this are to ensure that the information the credit bureau has is accurate and to make sure you’re not the victim of fraud. “Because we love to borrow money, that means almost every adult Canadian has a credit file,” explains Putnam. “More than 21 million of us have credit reports. And most of us have no idea what’s in them. Are there mistakes? Have you been denied credit and don’t know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions.”
Factors affecting a credit score are paying your bills on time. This one weighs fairly heavily with some estimates as high as 35 per cent, says Tanner Coles, a mortgage expert at Dominion Lending Centres in Surrey, B.C. “Most of the public is aware that by failing to make debt payments on time or not at all, that will damage their beacon score,” he says. “I cannot stress enough how important it is to make your payments on time, even if it is just the monthly minimum. The credit report will show when you have made late payments and how many times. This is a large red flag for lenders. They want to see that you are able to pay your debts. The riskier it is for the lender, the harder it will be for you to obtain a mortgage.”
Don’t be afraid to use your credit as lenders want to see a history of repayment, says David Larock, an independent mortgage agent in Toronto. But keep your credit card balance well below your account limit. “Most people don’t realize that spending up to their limit every month will hurt their score, even if they pay in full each month,” Larock says. “There are two ways to address this: spend less or get your limit raised. In fact, raising your limit, if you qualify, is one of the easiest ways to help your credit score.”
Consumers also need to be wary of heavy-duty credit seeking, says Kristian Harris, a mortgage broker with Monstermortgage.ca in Toronto. Harris is adamant that consumers should not apply for every credit card that comes their way as this will bode poorly on your rating. “Unless you absolutely need it, don’t do it,” he warns. “Typically, the ones that need credit are the ones who use it, and they’re the ones who get in trouble.”
Most credit holders are unaware that your credit is negatively affected every time a company checks your credit, says Coles. Your score may decrease by a couple points every time you authorize an inquiry. “This is a major benefit of using a mortgage broker rather than shopping for a mortgage on your own,” he says. “A mortgage broker is able to pull a credit report once and use this report to find you the best product. A consumer who approaches five different banks about a mortgage will have five different credit inquiries which will hurt their beacon score. Sometimes this is difference between being able to get a great discounted rate or not.”
Larock thinks borrowers need to be wary of having too many credit lines. A series of small loans can hurt your score because it looks like your cobbling together any credit you can get your hands on and lenders will worry that you could end up in a position where you have borrowed more than you can pay back.
The best way to avoid this is to consolidate your debt into one large loan, he recommends. Negative credit issues can stay on your record for quite a while, depending on what province you live in and the type of issue reported. Three to six years is the average length of time that negative credit information must stay on your record in most provinces.
If you have poor credit, don’t despair, says Harris. Resolve to improve your rating by paying down balances and paying your bills on time. People with exceptionally poor credit need to re-establish their credit by getting a secured credit card. These cards are similar to gift cards as you pay the credit company upfront and then make purchases on it until the balance depletes.
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.