Best answer I have seen yet is below … it still makes the 5-year fixed the better option right now (for most people)Mortgage Mark Herman, Top Calgary Mortgage Broker
The latest significant news was good, but modest. Canada’s unemployment rate dipped to 7.5% with the creation of 94,000 jobs in July. Most of those are full-time and in the private sector.
Employment levels are linked to inflation, which is a key factor watched by the Bank of Canada in setting interest rate policy which, in turn, can affect mortgage rates.
As the labour market tightens up, employers tend to offer higher wages to attract workers. That increases the cost of producing goods and services, driving inflation. As well, as more people get work and earn more money demand for goods and services increases. If that demand outpaces supply, inflation can also result.
Canada finds itself in this position now. Inflation is running high chiefly because of supply constraints caused by the pandemic. At the same time, more and more people are heading back to work.
That has some analysts forecasting the Bank of Canada will be raising rates to calm inflation. The Bank, however, has been saying otherwise.
It is also useful to watch what is happening in the United States. The two economies are tightly linked and actions in the U.S. can offer useful clues about what will happen here.
In its latest assessment of the American economy the U.S. Federal Reserve continued to down play inflation – which is running high there as well – as “transitory”. The Fed continues to look to the second half of 2023 as the most likely time for any possible rate hikes. While the Bank of Canada has said it expects rates could start rising as much as a year sooner than that, it would be unusual for the BoC to move before the Fed.
The latest in giant payout penalties, this one was $47,291.
Here is a person – one of my ACTUAL ALMOST-Customers who had to swallow a surprise at TD for $35,000. (We tried 3 times to get him to not take that mortgage.)
To make this even more mind blowing, at a 39% tax rate that is $65,700 the person has to pay … about the same as 1-year of income at a full time job, without tax taken off.
- Would you work for 1 year to give it all to your bank if you had to sell or move or close down the mortgage for any reason?
- Would you sign an agreement like that?
- Have you already signed an agreement like this without knowing you have?
EASY to AVOID …
You don’t need to add in this risk to your home purchase. It is easy to get around by taking a mortgage from a major Broker Bank.
Broker banks calculate the payouts the “old way” which was way more fair to you, the buyer. Click here for the posts about payout penalties.
Broker banks also have better Terms & Conditions than the Big-6.
“Broker Banks have better T&C than all of the Big-6. Call a mortgage broker first.”
Mortgage Mark Herman, Top Rated Calgary Mortgage Broker
The Big-6 banks love your money, not your sparkling personality.
This article is old and still shows the same calculations.
We get calls on high payout penalties all the time. The answer is broker lenders have payouts that are about 30% as much as the Big-6 banks.
Mortgage Mark Herman, top Calgary mortgage broker.
This link does a great job explaining why rates are coming down right now for mortgages.
- Events that could cause a stock market crash tend to also cause a “flee to safety” and the 5-year Canadian Mortgage Bond is that safety net.
- When investors buy these bonds the demand goes up so the bonds pay less as everyone wants them.
- The lower cost of the bond means a lower interest rate on your mortgage
This should be a short term blip, so if you are buying a home take advantage of it quickly
Mark Herman, top Calgary mortgage broker
The Big-5 banks do not love you, they love your money, and now they can “trap” you in their mortgages if you fail the Stress Test.
Highlights of the last post are below. The post from January is here: https://markherman.ca/how-the-big-5-banks-trap-you-in-their-mortgages/
The new mortgage rules – called the B20 – allow the banks to renew you at almost any rate they want – or at least not a competitive one – if your credit, income, or debts should mean you can’t change banks.
If your mortgage is at your main bank they can see:
- your pay and income going into your accounts
- debt balances on your credit report
- what your credit score is
- your debt payments
- your home/ rental addresses so they can accurately guess at your home value.
ALL THIS MEANS they can calculate if you can pass the new “Stress Test.”
If you can’t pass it then they know you can’t change banks, are you are now totally locked into them for your renewal. They can renew you at POSTED RATES … 5.34%, not actual discounted rates they offer everyone, today (June 2019) about 2.99%.
The GOOD NEWS is broker banks do not do any of this … so having your mortgage at your main bank only helps them “grind you” later on. …. so how convenient is having your mortgage at your bank now?
Highlights of the article link below are:
Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders … the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.
“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said an analyst. “It’s had the unintended consequence of reducing competition.”
Royal Bank of Canada (RBC), said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations.
Ron Butler said, “Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.
Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.
While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.
“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.
The graph below shows the expected Alberta GDP growth rate for the end of 2015 and 2016. The numbers are still positive – just not as high as they were before.
If the Calgary to Edmonton corridor was a country it would have the 2nd highest growth rate in the world after China.
Now these numbers are back to earth, things will continue as normal as oil slowly works it’s way back to about $70 a barrel.
Mark Herman, Top Calgary, Alberta mortgage broker
Click on the chart to see it larger.
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
The graph below shows why rates have found what we think is a short term low. This will not last forever so be sdure to get a rate hold now!
30 day Canadian Mortgage Bond (CMB) trend – below
The banks get their money for mortgages from the CMB … this is a short term oddity right now. This trend will change soon and is from:
- the quick drop in oil prices
- the surprise rate cut from the Bank of Canada on Prime
- and other world economic activity.
The Bank of Canada has certainly shaken things up with its surprise 0.25 bps rate cut. Even more so because Governor Stephen Poloz has left the door open for a further cut.
Poloz explained that the BoC trimmed its rate as “insurance” for the broader economy in light of the fallout from falling oil prices. He went on to say the Bank was prepared to take out more insurance.
Concerns about unemployment, slowing economic growth and deflation have obviously trumped past worries about record high household debt-to-income ratios.
However, it is not a sure bet that the lower central bank rate will inflate the Canadian real estate bubble. Canadians have established a history of using lower rates to pay down debt, rather than adding to it.
All this from Calgary’s top mortgage broker, Mark Herman