Mortgage Wars 2012

July 9th , Canada's finance minister changed the rules for getting and renewing mortgages for the 4th time in 4 years. We are now back to where we were before he changed the rules in 2006. What has happened each time he changed the rules was he cut out more potential home buyers and this resulted in a dip in mortgage applications. Moving from a 30 year amortization to a 25 year amortization made the monthly payments for a $300,000 home go up by $157. per month. It's not a huge amount but it took some buyers out of the market and meant that other buyers could not afford as much house as they could have bought in June.

   As Europe looks like its going to be suffering for some time to come, and China's economy is slowing down as well, the world economy looks like it will take some time to recover. Canada's mortgage lenders are responding to the economic slowdown and the mortgage rule changes by lowering mortgage rates again.. Will this mean another mortgage rate war?

 As of this week, the 5 year fixed rate mortgage has dropped with some lenders from 3.09% to 2.99%. This means that a mortgage for $300,000 with a 25 year amortization would have monthly payments of $1418. instead of $1433. What is even more interesting is the variable rate mortgage.
For the past year, rates have been at prime or slightly above it. Many lenders are at Prime + .20% or 3.20% . As of yesterday one lender has dropped their 5 year variable rate mortgage to Prime - .35% !
 This translates into a 2.65% rate which is amazing.
 

These are not big changes but they may result in lenders competing for market share . The one to benefit from mortgage wars will be you, the borrower. If you want to discuss how these  changes affect you, contact me through my website or call me at 403-836-1201.

   

More Canadians locking into low interest rates

An article in the Vancouver Province newspaper highlighted some changes going on in the Canadian mortgage market. People are slowly moving away from variable rate mortgages. At this time 29% of homeowners have variable rate mortgages but over time, they switch to fixed rates. Why? Interest rates are at all time lows, where will they be going? Up , of course. Another interesting trend is how people are taking advantage of pre-payment privileges. 23% of mortgage holders are increasing their monthly payments, and 19% of making lump sum payments. Is there an incentive behind this? Yes, every dollar that you pay down saves you $3. In interest over the term of the mortgage. Put down an extra $1000 from your Christmas bonus and save $3000. Canadians have also been bombarded by news reports about how average household debt is increasing. This is how many people are reacting. Personally I think that you should start with your high interest debts. Pay off your credit cards at 19% , follow that up with your car payments at 6-8% and then tackle your mortgage. You may wonder where you can come up with the money. Well, it's the time of year when we all get our tax refunds. Instead of spending it on sometime we don't need why not spend it on paying down debt and saving huge amounts of interest. That can be very rewarding and gratifying. Try it now and see how much more money you will have next year at this time. For more information on mortgages and credit visit visit your favourite Calgary mortgage broker at my website.

No Bank of Canada rate change

The Bank of Canada announced that it is maintaining its target for the overnight rate at 1 per cent. As a result, the prime rate will remain at 3.00%, much to the benefit of variable rate mortgage holders.



In a press release, the Bank of Canada gave the following reasons as to why they took another pass on a rate hike this time around:



"The outlook for the global economy has deteriorated (since October)."
"...very favourable financing conditions are expected to buttress consumer spending and housing activity."
"...the ratio of household debt to income is projected to rise further."
"The economy is only anticipated to return to full capacity by the third quarter of 2013, one quarter earlier than was expected in October."
"With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada."



The next Bank of Canada rate meeting is March 8, 2012. It is expected to continue with no rate change at this meeting too.
What does this mean for you , the average consumer? If you have a variable rate mortgage or a line of credit, your interest rate will remain the same at least until March 8th. If you have a fixed rate mortgage, this announcement does not affect you at all.
By the way, if you have an unsecured line of credit you are probably paying about 6% now. If you own a home, you can get a line of credit secured against your home and pay about 3.50%. This can be a considerable saving. Contact me for more information on how you can save money.

Fixed vs. variable mortgages: How to choose

I recently found the article below discussing variable vs. fixed rates. The article agrees with my point of view. First time home buyers need the security of a fixed rate while they get used to being home owners and the expenses that this entails. However, over time, a variable rate or an adjustable rate mortgage will save you money. In 95 of the past 100 years, the variable rate was the better choice.
Read below to find out more or check the rates out yourself at my website

The good news in the housing market these days isn’t just low interest rates.
Experts say that whether you choose a variable rate mortgage or a fixed rate for a set period of time, the difference over the long run is likely to be minimal.
“Rates have never been this low so Canadians are increasingly looking for advice when it comes to mortgages. The question of fixed versus variable takes on greater importance when you consider where rates are and the possibility that rates will start to increase towards the end of this year,” said Collette Delaney, senior vice-president of mortgages and lending at the Canadian Imperial Bank of Commerce.
Experts typically say that a fixed-rate might bring more peace of mind to first-time home owners, and that those who are further into their mortgage payments may like to try a variable rate to save some money.
But that may not be right for everyone.
“There is really no generic answer,” Delaney said. “What’s right for me may not be right for you or someone else because we’re all at different stages in terms of financial planning and lifestyle.”
The big advantage of fixed rate mortgages is that they offer a high level of stability. When you lock in a mortgage at a fixed rate, you’re locking in for the term of your mortgage so you will know, for each monthly mortgage payment, exactly how much is going to the interest and how much is going to the principal.
“You’ll know at the end of your term how much of your amortization you’ve paid off. The downside is that you can’t take advantage of lower interest rates. If rates do drop, you won’t have the ability to have more of your payment go towards the principle and less to interest,” said Bernice Dunsby, director of home equity financing at the Royal Bank of Canada.
With a variable rate mortgage, your monthly payments don’t change. What may fluctuate is your interest rate. That means when rates go down, an increased amount of your payment will actually go to your principal, and less to interest. That means when rates go down, you’re paying off your mortgage faster.
But when interest rates increase, so does the portion of your payment that goes to interest. With less going to cover the principal, it’s possible that your amortization period could be extended.
Research by Canadian economic experts shows that variable rate mortgages hold more benefits to consumers the vast majority of the time.
Moshe Milevsky, associate professor of finance at York University, studied mortgage rate data from 1950 to 2007 and found that choosing a variable rate mortgage would have saved Canadians $20,000 in interest payments over 15 years, based on a $100,000 mortgage.
He also found that Canadians would have been better off with a variable rate mortgage compared to a five-year fixed rate 89 per cent of the time.
The question is whether this other 11 per cent of the time when it is advantageous, is right now, said Benjamin Tal, senior economist with the CIBC World Markets.
“This is one of the few examples of times when it really doesn’t make much of a difference. If you take variable and I take fixed now and we meet five years from now, you would probably be able to buy me lunch, but it would be a cheap lunch.”
That’s largely because interest rates are so low right now. Economists are expecting rates to increase by about half a percentage point or more beginning in June, with further rate hikes to come in 2011.
Right now, variable rate mortgages tend to be about 1.75 percentage points cheaper than fixed rates. But interest rates will probably rise by more than that overall in the next couple of years.
“This will probably take variable rates, more or less to where fixed rates are now, maybe a bit higher. If you do the math, you would find the difference would not be very significant,” Tal said.
If you’re looking for peace of mind, he added, take the fixed rate.
“If you have a large mortgage vis-à-vis your income, I would go fixed and just relax about it. Learn the market, pay as much equity as possible but go fixed because you don’t want the volatility,” Tal said. “However, if you have been in the mortgage for a while and your mortgage is not as large relative to your income, pay with the variable and you will do better over five years from now but not significantly.”
Many banks have an array of mortgage products that combine the fixed and variable rates mortgages. These typically allow homeowners to combine the security of the fixed rates with the ability to take advantage of any interest rate declines.
But experts say that even if a variable rate mortgage could save you money in the long run, you still need to think about the risk.
“If a fluctuating interest rate is going to keep you up at night because you’re not sure how much is going to principle and interest, then maybe a variable rate mortgage is not right for you,” Dunsby said.