Typically a lender’s biggest fear is an informed consumer,” says mortgage planner, Peter Majthenyi. (See this Q&A with Rob Carrick)
That’s because informed consumers are more likely to make choices that are less profitable for lenders.
Going variable is one choice that’s yielding less lender profit these days. For many lenders, gross margins are currently over 20 basis points better in fixed-rate mortgages than in variables.
The big banks salivate at the thought of homeowners paying elevated 4.65% 5-year bank rates. (We’re talking discretionary fixed rates here. The banks’ publically disseminated “special offer” rate is even higher: 4.85%.)
At 4.65%, the average 5-year fixed bank mortgage is 156 basis points over the GoC bond yield (based on Thursday’s close). That’s a succulent spread for a lender. Remember: Five weeks ago, some lenders were selling mortgages at spreads of half that.
Not everyone’s biting, though.
The 2.9 percentage point gap between fixed and variable rates is wide enough to drive a truck through. Informed and well-qualified consumers are therefore comparing today’s fixed rates to prime - .50% variables—and many are taking their chances in a floating rate.
Read the full article at http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/04/views-on-variables.html
Friday, April 30, 2010
Monday, April 26, 2010
RBC at it again pushing rates up!
Even though bond yields are taking a breather from their recent steady advance, the Royal Bank has seen fit to raise their fixed rates yet again. As of tomorrow their 5 year posted rate is increasing to 6.25% giving the discounted rate a 15 basis point rise to 4.85%.
My question is this....why do all the banks follow RBC? Just imagine if other lenders actually followed the free market system and determined their own rates based on their business parameters? Then consumers would have genuine choices in the market instead of the monopoly that is the Canadian banking system. Oh we receive praises from around the world for our banks, but there is a reason they are so profitable, we pay for it!!
My soapbox aside, be prepared for all the other members of our financial system to follow the leader and raise rates this week. Get those rate holds in place! Today's 4.59% may seem like a steal in a month or so the way things are heading!
My question is this....why do all the banks follow RBC? Just imagine if other lenders actually followed the free market system and determined their own rates based on their business parameters? Then consumers would have genuine choices in the market instead of the monopoly that is the Canadian banking system. Oh we receive praises from around the world for our banks, but there is a reason they are so profitable, we pay for it!!
My soapbox aside, be prepared for all the other members of our financial system to follow the leader and raise rates this week. Get those rate holds in place! Today's 4.59% may seem like a steal in a month or so the way things are heading!
Tuesday, April 20, 2010
BoC Holds Rates,but opens door for June hike
The Bank of Canada held the overnight rate target at 0.25%, but surprised markets by removing the conditional commitment to keep rates there until the end of the second quarter of 2010. This increases the likelihood of a rate increase in June.
The Bank of Canada has recognized stronger-than-expected near term growth in both the global and Canadian economic recovery, but remains cautious about the great amount of uncertainty that remains as monetary and fiscal stimulus unwinds.
Peter McKinnon
www.peterlmckinnon.com
peter_mckinnon@centum.ca
The Bank of Canada has recognized stronger-than-expected near term growth in both the global and Canadian economic recovery, but remains cautious about the great amount of uncertainty that remains as monetary and fiscal stimulus unwinds.
Peter McKinnon
www.peterlmckinnon.com
peter_mckinnon@centum.ca
Friday, April 16, 2010
So you've got a great rate approval.....BUT
It has come to my attention that a lot of people in the market right now who are shopping for a property purchase may be in for a rude awakening when it comes time to remove financing subjects.
For example, I met a couple at a recent open house who have a great rate from a lender that is good for 90 days and they are looking a properties in the $450,000 range based on figures provided by their mortgage specialist. When I asked if this figure was based on the old qualifying rate or the new rules which come in effect on the 19th? They weren't sure.
What realtors working with their clients and purchasers need to understand is that under the new guidelines, which many lenders are already using, the amount of money one can qualify for will be based on the Bank of Canada Contract rate, NOT the rate they will receive on their mortgage. For example, I have clients with a 3.89% rate hold, but when they make an offer to purchase and we submit the deal the lender will use the current 5.85% contract rate!
How does this effect their purchasing power?
On an income of $100,000 this couple could get a $430,000 mortgage at 3.89%, but with the 5.85% contract rate, this income will only allow a $355,000 mortgage. That's a $75,000 reduction in purchase price.
So if you or your clients have been given a price range to work with, I would strongly suggest you contact your mortgage specialist and get an update based on the coming changes.
Peter
For example, I met a couple at a recent open house who have a great rate from a lender that is good for 90 days and they are looking a properties in the $450,000 range based on figures provided by their mortgage specialist. When I asked if this figure was based on the old qualifying rate or the new rules which come in effect on the 19th? They weren't sure.
What realtors working with their clients and purchasers need to understand is that under the new guidelines, which many lenders are already using, the amount of money one can qualify for will be based on the Bank of Canada Contract rate, NOT the rate they will receive on their mortgage. For example, I have clients with a 3.89% rate hold, but when they make an offer to purchase and we submit the deal the lender will use the current 5.85% contract rate!
How does this effect their purchasing power?
On an income of $100,000 this couple could get a $430,000 mortgage at 3.89%, but with the 5.85% contract rate, this income will only allow a $355,000 mortgage. That's a $75,000 reduction in purchase price.
So if you or your clients have been given a price range to work with, I would strongly suggest you contact your mortgage specialist and get an update based on the coming changes.
Peter
Tuesday, April 13, 2010
Tips for First time buyers
I have mentioned some great web resources for mortgage information and articles, one of my daily reads is www.canadianmortgagetrends.com
Here are some great things to consider when entering the mortgage market!!
1) Allow five business days for financing in your purchase offer. Realtors sometimes ask buyers to get preapproved and write "clean" offers without conditions. But preapprovals don't guarantee a "final" approval. Preapprovals are often just glorified rate holds. Proper financing conditions give you time to arrange an iron-clad approval before you commit to buy.
2) Start with the term. The term you pick often effects the total interest you pay more than the rate itself. Consult a professional to pick the right term from the start. Have him or her run a rate simulation to show which term would save you the most money over five years.
3) Negotiate wisely.If your credit is strong, use the Globe's mortgage rate table at tgam.ca/mortgagerates as a starting point for rates. Ask your mortgage planner to find a lender who will beat the best rate for your province. Use a mortgage professional who compares all lenders; not just a handful.
4) Go short. Don't consider a long-term amortization (such as 30-35 years) unless you are confident you'll later have spare funds to make prepayments. A 35-year amortization will lower your monthly payments 16 per cent on a 4-per-cent, $250,000 mortgage. However, the total interest you'll pay increases 32 per cent versus a 25-year amortization.
5) Tap your RRSPs for a down payment. If you qualify as a first-time home buyer, you and your spouse can each use up to $25,000 from your RRSP as a down payment. CRA will not deem that money taxable income as long as you annually repay 1/15th of the amount withdrawn.
6) Don't pay for what you don't need. Paying extra for an open mortgage, a "capped" variable rate, cash back, large prepayment options, or a 10-year term is often unnecessary. Have your mortgage professional compare the estimated interest cost of the alternatives.
7) Consider a hybrid. Hybrid mortgages are part fixed and part variable. You determine how much of your mortgage goes in each part. Since no one knows how high rates will climb, hybrids nicely diversify your interest-rate exposure.
Here are some great things to consider when entering the mortgage market!!
1) Allow five business days for financing in your purchase offer. Realtors sometimes ask buyers to get preapproved and write "clean" offers without conditions. But preapprovals don't guarantee a "final" approval. Preapprovals are often just glorified rate holds. Proper financing conditions give you time to arrange an iron-clad approval before you commit to buy.
2) Start with the term. The term you pick often effects the total interest you pay more than the rate itself. Consult a professional to pick the right term from the start. Have him or her run a rate simulation to show which term would save you the most money over five years.
3) Negotiate wisely.If your credit is strong, use the Globe's mortgage rate table at tgam.ca/mortgagerates as a starting point for rates. Ask your mortgage planner to find a lender who will beat the best rate for your province. Use a mortgage professional who compares all lenders; not just a handful.
4) Go short. Don't consider a long-term amortization (such as 30-35 years) unless you are confident you'll later have spare funds to make prepayments. A 35-year amortization will lower your monthly payments 16 per cent on a 4-per-cent, $250,000 mortgage. However, the total interest you'll pay increases 32 per cent versus a 25-year amortization.
5) Tap your RRSPs for a down payment. If you qualify as a first-time home buyer, you and your spouse can each use up to $25,000 from your RRSP as a down payment. CRA will not deem that money taxable income as long as you annually repay 1/15th of the amount withdrawn.
6) Don't pay for what you don't need. Paying extra for an open mortgage, a "capped" variable rate, cash back, large prepayment options, or a 10-year term is often unnecessary. Have your mortgage professional compare the estimated interest cost of the alternatives.
7) Consider a hybrid. Hybrid mortgages are part fixed and part variable. You determine how much of your mortgage goes in each part. Since no one knows how high rates will climb, hybrids nicely diversify your interest-rate exposure.
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