Interest rate predictions are tough
I found this in a retirment planning post ….
Every year since 2009, experts have predicted that “rates have nowhere to go but up,” only to be confronted with what seems to be perpetually low rates.
Most pundits predict rates will finally start to rise again in mid 2015, but the recent surprise rate cut by the Bank of Canada (from 1% to 0.75%) suggests how futile trying to predict the timing of such a change can be.
Central banks’ zero interest rate policies have resulted in “real” (net of inflation) returns of zero or even less-than-zero after income tax, except for outliers like Russia.
In December, Switzerland even began charging savers for the right to deposit funds!
This post from 2013
http://blog.markherman.ca/2013/07/11/how-low-are-interest-rates-really-here-is-the-big-picture/
Now for the big picture…
Short version: rates are the lowest of all time … like a 496 year low. Is that low enough?
“in July 2012, 10-year yields in the US thus reached with 1.39% the lowest level since the beginning of records in the year 1790.
In the Netherlands – which provide the longest available time series for bond prices – interest rates fell to a 496 year low.
In the UK, ‘base rates’ are currently at the lowest level since the founding of the Bank of England in 1694.
In numerous countries (Germany, Switzerland), short term interest rates even fell into negative territory.”
Mark Herman, Mortgage Alliance, Top Calgary Alberta Mortgage Broker, and #1 mortgage brokerage in Canada for 2013 AND 2014!!!
Variable rate mortgage – how payments will change for the new rate
We are getting many calls on this so here is how it works for MOST of the banks.
The Bank of Canada (BofC) reduced their Prime rate by 1/4 % or .25% last week to 0.75% from 1% where it has been for about 3 years.
The banks took a while to decide ifthey were going to lower their rates as well. 3 times before the banks have either not passed on the entire rate reduction to customers or not moved at all and kep the savings to themselves.
Now that most banks have lowered their rate by .15% this is how payments are impacted:
a. If they have an Adjustable Rate Mortgage – ARM mortgage – then the rate will be the new rate starting on the “effective date.”
b. The payment after the next payment will change to reflect this new rate. (So if you pay monthly on the 1st, the Feb 1st payment will be your current payment, but the March 1st Payment will be the new payment, If you pay weekly every Friday, this Friday will be the same payment but the next Friday will be the new payment)
c. Because the rate has gone down, your payment will decrease.
d. Because the interest rate has gone down, the next payment that is still at your existing payment amount will apply a little more to your principal.
e. Customer will receive a letter with their new payment amounts in the snail-mail.
Hope that clears things up a bit.
Call if you have questions.
Mark Herman, Top Calgary Alberta Mortgage Broker.
ATB = collateral mortgage registrations too
ATB – Alberta Treasury Branches – is registering their mortgages are collateral mortgages.
Are you sure you want one of these?
- Have a look at the previous articles showing why the banks want you to have this, and you do not want it: http://blog.markherman.ca/?s=collateral
- And – what if you move out or are transfered out of Alberta? ATB can only lend in Alberta so your mortgage is not PORTABLE to move to any other province – like with most lenders we work with. You will have to pay it out and pay the payout penalty. 🙁
Calgary, Alberta Mortgage Broker, Mark Herman
2014: #1 Mortgage Brokerage in ALL of Canada! AGAIN!
Yeah!
Mortgages are Marvellous just won the #1 mortgage brokerage for all of Canada, based on total value of funded mortgages at Mortgage Alliance, Canada’s largest SuperBrokerage with more than 100 offices and 1,800 agents from coast to coast.We also won this in 2013 so this is 2 years in a row.
Congratulations to all of our team.
We think it is becuase of our process – ensuring your deal will work BEFORE you buy and getting all the docs in and duscussing your deal with the bank BEFORE you buy!
It works!
Mark Herman, Top Calgary Alberta mortgage broker.
My bank REALLY REALLY REALLY wants my mortgage! Really?
Does your bank really, really, really want your mortgage that badly?
Do you know why?
NOT because they make lots of money on mortgages.
NOT because the bank rep needs to fill their mortgage quota this month (this happens too.)
BECAUSE the banks have studies that if they can get you to have 3 or more products with them, your odds of leaving to go to another bank fall by 75%.
This means 2 things:
- If they can get you to have the mortgage in addition to your existing checking and savings accounts and or credit card then you will probably not leave for another bank and their cost of customer acquisition is very high.
- Then they can cross-sell you the products they really, really make money on:
- LOCs – line of credits – and more credit cards both with overdraft protection and insurance for the minimum payments if you are injured or laid-off.
- mortgage insurance – a huge profit for them as they try very hard later not to pay claims in their post-claim underwriting process
- mutual funds
- long distance phone plans
- travel insurance
- all the rest.
And 1 more VERY important thing:
Banks know that 86% of people will stay with their existing bank at mortgage renewal time. AND if you have the magic 3 products will you move your mortgage somewhere else then?
Banks expect you to chisel them down now, and when you renew they renew you at rates that are typically .25% to .75% higher than they should be. And 86% of people just sign the renewal docs and send them back. (More data from studies.)
This does NOT happen with mortgages via mortgage brokers as the banks know they have to renew you at the best possible rates or the very same broker that took the customer to that bank will be the very same broker that moves the customer to a new bank if for a better rate on renewal.
Do you want to play this game with the banks or just skip it all together?
All this advice from the top mortgage broker in Calgary Alberta, Mark Herman.
Wisdom from Kevin O’Leary, interst rates increases and housing demand
Kevin O’Leary – AKA Mr. Wonderful and self-proclaimed star of Dragon’s Den and Shark Tank – was speaking at our real estate conference yesterday. Surprisingly, he also used to be a professor at Ryerson’s School of Business so he does know more about what he is talking about then you would expect he does.
The short version of his talk – which was way better than expected.
The good news is hiding
- Corporate earnings for the last ¼ of 2014 are being reported this week and they are all good or great, coming off of one of their best years ever! Companies have increased sales and have lots of cash; unless you are an oil company.
- Overall the S&P should be up 7% for 2015 – with lots of volatility – so hold on tight.
Housing
- Even if demand reduces due to less people buying because of the drop in oil prices OR from an increase in interest rates, pricing should stay stable. Alberta will still have in-bound migration and those people still need places to live.
- Demand should stay stable as long as any interest rate increases are less than 1.2% from today’s rates. That is not expected to happen for another 2 – 3 years.
- Big banks are buying solid real estate and less bonds now. An example is a billion dollar building in New York selling at a cap rate of about 1%. That means that the return on the investment is expected to about 1% on a billion dollars. This is much lower than almost any bond and shows the reasoning that real estate is a great investment in today’s changing markets.
Interest Rates
- Today the US 30-year bond fell to a record low, surpassing the previous record low of set in July, 2012.
- The US 10-year bond is almost at record lows as well.
- The problems in the market are not real estate but for long term bonds – like the 30-year bond above – lost about 30% of its expected return.
- 6 of the big banks expectations are for interest rates to begin to rise in October by about 1/4% – the same as what the Bank of Canada said 2 months ago. See previous Blog post from October 22 here: http://blog.markherman.ca/2014/10/22/1138/
- The interest rate increase prediction was before oil fell so interest rates may not increase and stay the same for longer than expected above.
BONUS – 3 Keys to Business Success on the Dragon’s Den
He also shared a few studies on the companies in the Dragon’s Den. They all showed all the companies that boomed all had this in common:
- Their business model could be fully explained in 90 seconds or less
- The owners were able to explain why they were the ones to be able to execute the business model better than anyone else and
- They knew the numbers to their business cold – pricing, costs, revenue, economics, IRR, etc.
All this from the top Calgary, Alberta mortgage broker, Mark Herman at Mortgage Alliance.
CMHC not insuring luxury homes with sales price of more than $1M
This was announced about 4 months ago so it is no surprise – unless you have been sitting on a huge pile of cash and just now thought it is a good time to buy a home for $1,000,001 or more.
Another great example of rules that we have been working under for months that did not make the headlines …
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CMHC no longer offering mortgage insurance for luxury homes
CALGARY – Canada Mortgage and Housing Corp. says it will no longer offer mortgage insurance for homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20 per cent or more.
It also announced on Friday that it will no longer insure loans that are used to finance construction of multi-unit condominium projects, effective immediately.
…
In Calgary, luxury home sales for the MLS market, for properties of more than $1 million, were 359 year-to-date until the end of May, representing three per cent of total sales activity. For the same period a year ago, there were 318 sales, still equating to three per cent of total sales.
Last year, a record was set with 727 MLS sales in the luxury bracket, representing 3.1 per cent of all residential sales in the city, according to the Calgary Real Estate Board.
“Consumers were already required to have 20 per cent down for million plus homes, and insurance was not required for these properties,” said Ann-Marie Lurie, chief economist with CREB.
http://www.calgaryherald.com/business/cmhc+longer+offering+mortgage+insurance+luxury+homes/9915137/story.html