The upside of higher rates
We all know interest rates are going to go up. Even after reading this the big hit we all know is coming is that variable rate mortgage payments go up right away. The rest mentioned below may come later.
Jason Heath Mar 31, 2012 – 7:00 AM ET | Last Updated: Mar 30, 2012 9:09 AM ET
For three years, the word on the street has been that interest rates have nowhere to go but up. But few Canadian commentators – other than David Rosenberg – got the call on rates right. Although the prime rate has risen since dropping to an all-time low of 2.25% in April 2009, the increase to the current 3% rate that has remained stable since September 2010 has been modest to say the least. Long-term rates, like fixed mortgage rates, have gone up and come back down during that time, such that one can currently lock in fixed rates under 3%.
York University’s Moshe Milevsky did a study in 2001, which he revised in 2007, and determined that borrowers are better off going with a variable rate mortgage instead of a fixed rate mortgage approximately 9 times out of 10. That said, we have to be close to if not already in that 10% sweet spot where fixed beats variable.
Despite the opportunity to lock in low rates today, it could actually be beneficial for the average Canadian for rates to rise. Conditions need to warrant rate increases and the Bank of Canada (which directly governs the prime rate) and the bond market (which indirectly governs fixed mortgage rates) won’t raise rates until the time is right. How soon that time comes depends partially on domestic influences, but also on our neighbours to the south and the current eurozone debt debacle.
Greece is a perfect example of why rates should rise. Greek participation in the European Union gave them access to cheap credit and helped facilitate some of the excess spending that has them where they are today. Despite bond markets demanding higher interest rates on Greek and some other European government bonds, market intervention by the EU has helped keep rates artificially low.
The U.S. Federal Reserve has been doing the same thing, buying up U.S. government treasury bills to keep U.S. rates artificially low as well.
It’s hard to justify how artificially low interest rates for an extended period are good for anything other than delaying the inevitable for some market participants.
Higher rates would have a negative impact on those of us with outstanding debt, as higher interest charges would follow. But Canadian debt levels have moved ever higher in recent years, likely a response to the low rates that have been in place in part to stimulate spending. Higher mortgage rates could protect us from ourselves by making higher debt levels more punitive and less tempting.
Furthermore, fixed income investors could benefit. The emphasis on “could” is key. Rising rates typically hurt those holding bonds because today’s bonds are that much more appealing than yesterday’s as rates go up. How much the hurt hurts is a matter of fact. But those renewing GICs or sitting on cash these days are desperately awaiting higher interest rates to help their savings grow. So higher rates could at least lead to higher returns for fixed income investors in some cases.
Higher rates could benefit stock investors. Once again, the emphasis on “could” is key. Higher rates usually mean the economy is improving and inflation is rising. This could be a good sign that corporate profits and corresponding stock prices are moving higher. That said, one has to wonder if low bond and GIC interest rates and cheap credit have pushed more money into the stock market than should otherwise be there. Rising rates could bring income investors back to the more traditional income investments like bonds and GICs from the blue chip stocks they’ve potentially flocked to in order to obtain yield.
Despite the purported uncertainty above on stocks and bonds, higher rates should at least contribute somewhat to restoring equilibrium to credit, debt and equity markets. Something seems wrong with near zero or negative real interest rates. That is, something seems wrong with a GIC investor earning 2%, paying 1% of that away in tax and 2% inflation resulting in an effective return of -1%. On that basis, something seems right about higher interest rates, whether we like it or not. What happens to mortgage debt, stocks and bonds remains to be seen.
Jason Heath is a fee-only Certified Financial Planner (CFP) and income tax professional for Objective Financial Partners Inc. in Toronto.
Mortgage Market Commentary
Mortgage Market Commentary:
With the federal budget fading into the past the question, as always, becomes “what’s next”. The answer seems to be focused on “interest rates”. It seems inevitable that they will rise from their current historic lows. So the next question become: when, by how much, how fast and – given the ongoing concerns about household debt – what will happen.
The U.S. Federal Reserve has made it clear it intends to hold its benchmark rate at near zero into 2014. But popular thinking among economists is that the Bank of Canada could move sooner but not until Q1 2013. The risk of inflation is the biggest deciding factor now.
Short and sweet.
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/
Immigrants the proudest Canadians, poll suggests
We love people that are New to Canada. New immigrants are 20% of our business. There are lots of tricks on what is needed to get a mortgage for them and not all banks do these files BUT WE ARE SPECIALISTS at it. I will upload our brochure for it here.
They can normally buy with:
- 5% down if they have a foreign credit report – England, most all of South America – including Mexico, Portugal or Spain.
- or 10% down. 5% from own savings and 5% from other possible sources – like relocaton allowances, gifts from home, etc.
- and a full time, permanent job.
Call to discuss these files. The one tough part is their files do not get rate holds so it is live deals – when you have an accepted offer to purchase – only.
Most Canadians feel immigrants are just as likely to be good citizens as people who were born here, a recent Environics survey suggests.
Canadians also don’t appear to have problems with dual citizenship or with Canadian citizens living abroad.
The telephone survey is, according to Environics, the first poll to directly ask Canadians their views on citizenship. Its results suggest Canadians have a broad, inclusive view of the concept and of immigrants in general.
“To be a good citizen, it means to contribute to the society, to obey the laws of the country, to help other citizens, to volunteer, and it’s a rewarding feeling when you do all those things,” said Sara Jhangiryan, an Armenian-born resident of Toronto who became a Canadian citizen last year.
“It’s not only to take what the country offers but to give back, as well.”
Although not part of the survey, Jhangiryan echoes the views of many of those who responded to the poll, a joint initiative of Environics, the Institute for Canadian Citizenship, the Maytree foundation, CBC News and the Royal Bank of Canada.
When asked what makes a good citizen, the top five responses were: obeying laws, actively participating in the community, helping other people, being tolerant of others and sharing or adopting Canadian values.
But when asked to list what they did to be good citizens, respondents cited volunteer work, being kind/generous to others, paying taxes, obeying laws and voting.
The survey suggests Canadians see immigrants as their equals: nearly 9 out of every 10 respondents agreed that a person born outside Canada is just as likely to be a good citizen as someone born here.
“There’s no real evidence of people feeling threatened or a sense that, ‘Well, people can come live here from other countries, but they’re not quite the same,'” said Keith Neuman, executive director of the Environics Institute.
When it comes to immigration and citizenship, the views of the majority of Canadians born in the country and the 20 per cent born outside it are largely aligned. Canadian-born and foreign-born respondents were equally likely to feel fully like citizens (78 per cent versus 75 per cent).
Usha George, dean of Ryerson University’s Faculty of Community Services, says the survey’s findings confirm a lot of what those working with new Canadians know already.
The willingness of Canadians to not view a person’s foreign background as an impediment to citizenship is a product of the country’s multicultural policies and the visible effect of immigrants on the economy, George said.
Integration of immigrants has worked in Canada because the government has funded programs that teach immigrants about Canadian values and society has adapted its institutions to accommodate diversity.
“The mutual recognition that we should be respectful to each other and celebrate diversity in a genuine way, those values permeate the whole society,” said George, whose faculty trains many of those who provide social and other services to new immigrants.
Whatever Canada is doing, it seems to be positively influencing immigrants’ views of the country, the survey suggests: 88 per cent of respondents who were born outside Canada said they were very proud to be Canadian, compared with 81 per cent of those born here.
“Canadians who were not born in Canada are more proud than naturally born Canadians simply because we had the choice of being Canadian,” said Vikram Kewalramani, who immigrated to Canada in 2006 from India. “It wasn’t something that, literally, was a birthright. We consider it a privilege.”
For Amal Ibrahim, a Palestinian who became a citizen last year along with her two children, Canadian citizenship is primarily about respecting differences.
“It’s a great diverse culture where people learn how to live in harmony with each other while they have different ideas, different religions and different backgrounds,” she said.
Tolerance of others who are different was among the top five behaviours survey respondents considered a “very important” part of being a good citizen. Others were:
Treating men and women equally (95 per cent ranked this “very important”).
Following Canada’s laws (89 per cent).
Voting in elections (82 per cent – the same as tolerance of others).
Protecting the environment (80 per cent).
Immigrants’ views of what makes a good citizen were strikingly similar to those of native-born Canadians, said Neuman. In the majority of cases, the responses of the two groups varied at most by only a few percentage points.
“People might think … that newcomers are coming [into] this country … with their own sense of what it means to be a citizen, and they don’t really buy into the same perspective that native-born Canadians have,” he said.
“And this research pretty clearly suggests that they’re largely the same perspective, and the more somebody is in this country, the more immigrants buy into the native-born view.”
Canadians are generally satisfied with the rules for obtaining citizenship, the survey suggests. Only 26 per cent of respondents said the rules were not strict enough. Six per cent felt the rules were too strict, though that number tripled for permanent residents.
Canada’s willingness to allow multiple citizenships also got broad approval in the survey: 71 per cent of those surveyed felt Canadians should be allowed to hold dual citizenship.
That sentiment was even higher among 18- to 44-year-olds, with 80 per cent supporting dual citizenship, but lower for those 60 and over, at 58 per cent.
“I am equally proud of both citizenships,” said Natasha Nikolovska-Angelova, 32, who became a Canadian citizen last April. “Macedonia is more like my mother … the country where I was raised, and Canada is the country I chose to live in. It’s like the spouse you choose.… It’s the country of my future.”
Nikolovska-Angelova is part of the roughly 2.8 per cent of Canadians who hold at least one other citizenship.
Most of those surveyed also didn’t have a problem with Canadians living abroad. Sixty-six per cent of respondents who were born in Canada said it was generally a good thing to allow Canadian citizens to live abroad, compared to 55 per cent of respondents born outside of Canada.
The survey of 2,376 adults was conducted between Nov.18 and Dec. 17 and has an overall margin of error of plus or minus two percentage points 19 times out of 20 (+/- 4.3 percentage points for the foreign-born subsample group). Only households with landlines were surveyed.
Burgeoning Calgary population to fuel demand in housing market & the West is now bigger than the East!
The migration West continues! Just yesterday Canada Census noted that for the first time in history the West has more people than the East – sure it is only by 0.1% but hey … it’s official.
The migration continues mostly for jobs in energy and all those people need homes to live in. This supports prices and continued demand – but unfortunately fills up the roads and parking lots too.
New home construction and MLS sales on upswing
CALGARY — A burgeoning population will spark another real estate cycle in Calgary with increased demand fuelling more MLS sales and more new home construction.
But industry experts don’t expect the next cycle to mirror the boom of a couple of years ago which experienced a frenzy of activity and fast-rising house prices due to a lack of supply.
Instead, a stable, steady growth is expected in Calgary’s real estate market.
On Wednesday, Statistics Canada reported the Calgary census metropolitan area had the highest rate of population growth in the country at 12.6 per cent between 2006 and 2011 and is now more than 1.2 million for the region.
Tim Logel, president and partner of home builder Cardel Lifestyles in Calgary, said the population data supports what the industry believes is happening in the market.
“What’s positive about it is that as more people move to Calgary then more of the inventory or the supply that we’ve been working on reducing gets absorbed,” said Logel. “And it gets absorbed quicker and gets us closer to being in a higher demand environment where we’re being asked to produce more new housing products of all types for the market … Over the next year with this in-migration, the extra supply will be absorbed.”
Logel said a new real estate cycle has been started in the city. The last one finished in the spring of 2007 in the Calgary market.
Ann-Marie Lurie, chief economist for the Calgary Real Estate Board, said the growing population will help support increased demand for housing in the resale market as well.
“In the resale market, especially moving forward, we think this will also help really take up some of that inventory that is in the market because we had some out-migration in the past few years. 2010 in particular, in-migration levels were extremely slow and so that impacted our housing market as well,” said Lurie.
CREB is forecasting single-family MLS sales activity to increase by 12.2 per cent this year from 2011 levels and condo transactions to jump by 5.9 per cent. Its forecast is also for average sale prices of single-family homes to rise by 2.1 per cent and by 1.7 per cent for condos.
“It’s much more of a stable growth than it was during the last boom. I just don’t see us moving there,” said Lurie. “We’re not moving into that scenario. It’s a much more stable growth and we have a good supply of inventory right now in the resale market and frankly on the new home market they do have some room to improve in some of their construction.
“They’ve got some room to grow and build more to help meet with those household formation numbers.”
Already in January some real estate data, released Wednesday, is indicating support for increased activity in the market as housing starts and residential building permits showed impressive increases compared with a year ago.
According to Canada Mortgage and Housing Corp., housing starts in the Calgary census metropolitan area totalled 786 units in January, up 52 per cent from 518 units a year ago.
In the region, 336 single-detached units broke ground in January, up 14.7 per cent from the 293 units started in January 2011.
“This represents the sixth consecutive month where starts have increased on a year-over-year basis,” said Richard Cho, senior market analyst in Calgary for the CMHC.
Multi-family starts, which include semi-detached units, rows and apartments, increased to 450 units in January, up from 225 units a year earlier.
“As was the case in the last several months, apartment construction continues to be elevated, averaging more than 340 starts per month since August 2011,” said Cho.
Also, the estimated construction value of building permit applications for the residential sector in Calgary rose by 42 per cent in January compared with a year ago.
In releasing its latest data on Wednesday, the City said residential values increased to $153 million compared with $108 million in January 2011. This represents 651 new residential units, a 73 per cent increase compared with the January 2011 total of 376.
“The overall gain in residential value and number of new residential units can be attributed to increases in the apartment and townhouse sectors,” said Kevin Griffiths, chief building official with the city’s department of development and building approvals.
“For the month of January we accepted six apartment applications for 193 new units compared to zero last year, and 20 townhouse applications for 122 new units, compared to only seven townhouse applications totalling 44 units for the same period last year.”
© Copyright (c) The Calgary Herald
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
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.