Mar 08

New Qualifying Rate Clarified

By Steve All Posts, Interest Rates No Comments »

Ever since the Government announced new rules regarding the treatment of insured mortgages, there has been a lot of speculation as to exactly which 5 year rate would be used for qualification purposes.

Well, now it is clear that effective April 19, all high-ratio insured mortgages, whether they are variable or fixed, with a term under five years will be qualified using the greater of:

  • the chartered bank 5-year posted rate (5.39% today), or
  • the contract rate.

The posted qualifying rate will be published by the Bank of Canada each Monday at 12:01am Eastern Time on their website (Look for series V121764)

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Mar 08

Fixed Rates on the Rise?

By Steve All Posts, Interest Rates No Comments »

Govt. of Canada benchmark bond yields: 5 year

Canadian 5 Year Government Bond Yields jumped 24 basis points last week, leading again to speculation that fixed rate mortgages will also start to increase as soon as this week.

On our side, we’ve heard from at least one lender that is indicating increases will be coming to fixed terms this week, so now is the time to contact us so we can take the appropriate action to lock in the current rates for you.
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Mar 05

Budget 2010 – Standardized Pre-Payment Penalties

By Steve General, Interest Rates, Mortgage Policies No Comments »

The 2010 Federal budget was released yesterday, and we found this one interesting item.

We’ve been actively telling clients to not rely on calculations made by us to estimate their Pre-Payment penalties when considering a mortgage refinance, and to instead explicitly ask their current mortgage holder what the penalty will be.  Well, it seems that someone other then just us took notice of the inconsistencies in the calculation of these penalties and has decided to fix it.

The Government is proposing “Standardizing the calculation and disclosure of mortgage pre-payment penalties. It is important that consumers have the information they need when making financial decisions, including when to pre-pay a mortgage. As such, the Government will bring forward regulations to bring greater clarity to the calculation of mortgage pre-payment penalties.”

We couldn’t agree more!!

In the meantime, anyone with a fixed rate mortgage of more then 4.5% should really consider a refinance at this time no matter where you are in the term!  Two factors weigh into this:

1.  The cost of the refinance vs the potential interest savings.

2.  The risk of waiting for renewal and facing much higher interest rates for a new term!

Contact us, and we’ll help you to decide if a early renewal is right for you or not!

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Mar 02

March 2010 Rate Notice

By Steve All Posts, Interest Rates No Comments »

The Bank of Canada announced today that they will again hold rates steady until at least the end of June.  There is little doubt that sometime after June 30th rates will increase, but we don’t think that the Bank of Canada will be inclined to raise rates dramatically.  We will continue to monitor their reports. In the meantime, their are several other factors that people should consider relative to their mortgage financing in the short term:

1. Recent changes to the Mortgage rules may make it desirable to address your mortgage needs before April 19th.

2. The HST Transition will start impacting purchases starting on July 1st, 2010. 3.

3. Interest rates are historically low, with variable rates from us as low as 1.85%, and 5 year fixed rates as low as 3.64%, now is the time to lock into low rates before they increase.

A complete, printable version of the February 2010 Rate Sheet and previous rate sheets can be found in our Documents Library.

If you or anyone you know is considering getting a mortgage, refinancing their existing mortgage, or wants to learn more about how these factors may impact you, please contact us for a no obligation review.

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Mar 02

Bank of Canada Holds rates steady again.

By Steve General, Interest Rates No Comments »

The Bank of Canada met today (not tomorrow as I mentioned in a previous post), and again announced that it is maintaining the Prime rate at 0.25 percent.

Bank of Canada governor Mark Carney

While there continues to be speculation that rates will increase as soon as the first half of 2010 is over, we still think that it is too early to start predicting significant rate increases.

The Bank continues to be committed to holding rates low, conditional on the outlook for inflation, and has not yet documented any persistent inflationary trends that would force it to deviate form this ….”The risks to the outlook for inflation continue to be those outlined in the January MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar. The Bank judges that the main macroeconomic risks to the inflation projection are roughly balanced.”

We think that the bank is being very careful to not commit in either direction, by not extending its current commitment beyond the end of the second quarter.

We’ll continue to watch for new news leading up to the next BoC meeting on 22 April 2010.

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Mar 02

Bank of Canada meeting tomorrow!

By Steve All Posts, Interest Rates, Mortgage Policies No Comments »

The Bank of Canada meets again tomorrow and is widely expected to keep rates unchanged, in line with their commitment to hold rates steady until June 30th of 2010.

Pressure is mounting on the Central Bank to raise interest rates.  In fact, the C.D. Howe Institute issues a report calling for the Bank of Canada to “…..keep its conditional commitment, thereafter raise the overnight rate sharply by 50 basis points at every announcement date until mid-2011.”

Although there has been some indication of inflation in Canada, we noted then, and we still think now that this increase is not enough data to indicate that there is a long term inflationary trend.  Meanwhile, the Consumer Price Index in the U.S. actually decreased in January.

There is no doubt that sometime after June 30th rates will increase.  We don’t think that the Bank of Canada will be inclined to raise rates dramatically, but we will continue to monitor their report.  In the meantime, there are several other factors that people should consider relative to their mortgage financing in the short term:

1.  Recent changes to the Mortgage rules may make it desirable to address your mortgage needs before April 19th.

2.  The HST Transition will start impacting purchases starting on July 1st, 2010.

3.  Interest rates are at all time lows, and they will increase at some point, so now is the time to lock them down.

We help our clients navigate these issues all the time, and offer no obligation reviews to ensure that you are on the right path.  Contact Us if you have any questions.

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Feb 25

Jobs vs Mortgage Arrears

By Steve Uncategorized No Comments »

The other day we commented on Mortgage Arrears, and although the Canadian market has seen an increase in mortgages that are in arrears during the past year, in absolute terms, only a very small portion (less then 0.5%) of Canadian mortgages are in arrears.

Chart Source: CanadianMortgageTrends.com

There have been accusations in the marketplace that the historically low interest rates we have today are the cause of this problem, but Canadian Mortgage Trends recently uncovered another correlation that we think is equally to blame.

The chart to the right clearly shows the relationship between employment and the mortgage arrears rate, implying that as the economy continues to improve, job creation will also help to relieve the rate of mortgage arrears.

We continue to believe that the recent rule changes announced by the Government of Canada are prudent, and that low interest rates (when applied wisely) should be considered a positive in the context of the Canadian Mortgage market, not a negative!

Feb 23

Mortgage Arrears – The Canadian Perspective

By Steve All Posts, Mortgage Policies 1 Comment »

A recent report from the Vanier Institute noted that the average Canadian’s debt-to-income ratio is now an all time high 145%.  This debt ration is based on home prices which are now five times the average after-tax income, while the long-term average has been only 3x.   The report also indicates that mortgage arrears (defined as being late on payments by 90 days or more) have increased 50%  over last year.

No doubt this will be interpreted by many as an indication that we are heading for a mortgage meltdown like the one that occurred in the U.S.  We don’t think so.

In Canada, the government continues to implement measures to ensure that the mortgage market remains healthy, and that policies are in place to prevent situations that will promote defaults (see the changes announced last week).

Although is it easy to promote a 50%  increase (the latest data inidicates a 44% increase) as very substantial, the absolute data brings fears back down to earth.  In absolute terms, less than 0.5% of Canadian mortgages are in arrears.

Although this is a trend that should be watched carefully, we think that the low percentage of mortgages that are in arrears is indicative of the tighter regulation that has kept the Canadian Mortgage market healthy through the crisis of the last few years

Overall consumer debt is of course another debate, and should be a source of concern.  In addition to tightening the rules governing a borrowers qualification for a mortgage (to ensure that the borrower can afford higher future rates), we think that the government should consider the qualification process for other consumer credit sources that may require consumers to pay in excess for 20% interest for debt that they build up.

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Feb 20

US Federal Reserve Rate Changes and Inflation Outlook

By Steve All Posts, Interest Rates 5 Comments »

U.S Discount Rate Increase

On Thursday the US Federal Reserve took the first step towards the eventual increase in interest rates, by raising the so called ‘discount rate’, i.e. the rate it charges banks on emergency short-term loans to 0.75% (from 0.50%).

The move is considered mostly symbolic, signalling and end to the credit crisis that caused the spread between the discount rate and the bank’s main interest rate – the overnight federal funds rate – to decrease.

The overnight federal funds rate remains at zero to 0.25%.  Analysts don’t expect the U.S. central bank to raise that rate until late this year, or even 2011.

“While the change in the cost of borrowing via the seldom-used facility signals that the interbank funding market is effectively back to normal, the action does not signal anything about the course of monetary policy from here,” according to CIBC.

BMO Nesbitt Burns economist Michael Gregory said the move is “designed to end an emergency liquidity measure, and is not a herald of higher policy rates.”

See the complete Globe and Mail report.

U.S Inflation Cools

Meanwhile, yesterday saw the core U.S. consumer price index, which excludes volatile food and energy prices, fall in January for the first time since the 1982 recession, by 0.1 per cent.  This first hint of deflation in 25 years implies higher interest rates for most borrowers are still months away!

Over all, prices increased a modest 0.2 per cent last month, primarily held back by falling prices for housing, new cars and air fares, the U.S. Labour department reported yesterday, in contrast to the increase seen in the Canadian CPI for the same period.

The Fed has said repeatedly in recent weeks that it plans to keep the overnight federal funds rate exceptionally low “for an extended period.”

See the complete Globe and Mail report.

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Feb 18

Inflation jumps to 1.9% in January

By Steve All Posts, Interest Rates 2 Comments »

Statistics Canada today announced that the Consumer Price Index for the 12 months ending in January 2010 jumped 1.9%, up from 1.3% in December.

The bulk of the increase is said to be due increases in gasoline prices, while the cost of mortgages (as we well know), natural gas, women’s clothing and fresh vegetables have in fact decreased.

The worry of course from our perspective is that rising inflation will force the Bank of Canada to raise Prime Interest rates that it has been holding steady contingent on the outlook for inflation.

“But economists, who had expected a January rise in the inflation rate, say Bank of Canada governor Mark Carney is unlikely to read the sharp increase as an underlying trend that would cause him to raise interest rates before July.” says a CBC report.

Stay tuned for more reaction and impact from this announcement.

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