This mornings interest rate announcement.... a disappointment?

There have been predictions that the prime rate will drop again before spring, however it looks like we'll have to wait a little longer to see if another cut actually comes to fruition. The Bank of Canada announced this morning that they will be maintaining their overnight rate, which is the rate prime is based on. The announcement came at 10am this morning. (March 9, 2016). There has been much speculation that there would be a cut this time around with many economists predicting a 50/50 chance. I interpret that as them telling us that our guess is as good as theirs!

There is still a chance that we will see a decrease to prime before the spring time, although I would say chances of this are dwindling. One of the reasons for their decision this morning is due to their expectations that global growth will continue throughout the year and into the next. 

For now, the prime rate remains 2.70%. 

While the discounts off prime have been shrinking since late summer, you can still get a variable rate as low as prime -0.60%.

Prime rate and fixed mortgage rates are unrelated. While variable rate mortgages and lines of credit are affected by prime rate, fixed mortgage rates are determined by bond yields which have declined steeply since the beginning of the year.

5 year fixed mortgages have now fallen as low as 2.39%

You can read about the announcement here:  http://www.bankofcanada.ca/2016/03/f...se-2016-03-09/

The next interest rate announcement will be on April 13th, 2016

The first of the year and most anticipated interest rate announcements in recent years came this morning at 10:00am  (January 20, 2016).  The decision is that the Bank of Canada will be maintaining it's overnight rate, which means there will be no changes to prime rate.  There was much speculation that there would be a cut this time around with many economists predicting a 50/50 chance.  Really just another way of them saying that your guess is as good as theirs. 

There is still a good chance that we will see a decrease again to prime before the spring time.  Even if they were to cut the rate, it will be interesting to see how banks react. There is some speculation that banks will simply ignore another rate cut.  We'll see. There were two cuts to prime rate early in 2015 and banks have yet to match the full cut.

For now, the prime rate remains 2.70%. 

There has not been an increase to prime rate since September 2010 which is the longest streak in history.

This discounts on variable rate mortgages have been shrinking since August, likely do to anticipation of another rate cut.  You can still get a variable rate as low as prime -0.60% with most banks being at around prime -0.10%.  A huge gap.

Prime rate and fixed mortgage rates are unrelated. While variable rate mortgages and lines of credit are affected by prime rate, fixed mortgage rates are determined by bond yields which have declined steeply since the beginning of the year.

5 year fixed mortgages are available as low as 2.49%

With mortgage rates at such ridiculously low levels, now may also be a great time to consolidate any higher interest debt into your mortgage to take advantage of such low rates and lowering your overall monthly payment and amount of interest you are paying significantly.

 

You can read about the announcement here:  http://www.bankofcanada.ca/2016/01/fad-press-release-2016-01-20/

The next interest rate announcement will be on March 9th, 2016

Changes to down payment regulation

Rumours surrounding changes to minimum down payment requirements has now been finalized.  Finance minister Bill Morneau announced today that the changes will be implemented effective February 15th. 

The minimum down payment will remain 5% for any purchase up to $500,000.  For anything over $500,000, it will be 10%, but only on the amount exceeding $500,000. 

For example, if you are purchasing a home for $750,000, you'll need 5% for the first $500,000 and 10% on the remaining $250,000 making the minimum down payment on this purchase $50,000. 

You will still be able to purchase a home up to $1,000,000 with 5% down until February 15th.  Purchases over $1,000,000 still require 20% down.

The reasoning is to increase homeowner equity.  Personally, I think this move will have very little effect... other than making it more difficult for first time homebuyers especially.  

Fixed mortgage rates rising!

Yesterday, the bond yields hit their highest levels since January 14th where rates were higher (fixed mortgage rates are determined by bond yields).   On January 14, 2014, 5 year fixed rates were in the 3.39% - 3.49% range.     Compare that with today's lowest 5 year fixed of 2.84%.   This puts SERIOUS upward pressure on fixed mortgage rates.   If you haven't locked in a mortgage rate yet, now is a good time to do so without delay.

In addition to the 5 year fixed at 2.84% (for CMHC insured mortgages only - 2.89% for conventional), there is also a 3 year fixed at 2.49%, which is a great product and is also a great alternative to variable for those unsure.   The lowest variable rate is prime -0.65% (2.35%), so the fixed is only 0.14% higher.   A single increase, and you are behind on rate.  At the end of three years, THEN take a look at variable again to see if there are better options at that time.  It's a solid plan.

If you have a mortgage closing coming up, or are just starting to shop for a home, get a mortgage rate locked up as soon as you can to ensure you get the lowest rate possible.

Please visit www.easy123mortgage.ca for more information!

CMHC to raise mortgage insurance premiums

CMHC (Canadian Mortgage and Housing Corporation) announced today that they will be raising their premiums effective May 1st, 2014. 

This does not affect current homeowners, only those who will be purchasing with less than 20% down payment. 

Here is the link to the article: http://business.financialpost.com/2014/02/28/cmhc-mortgage-premiums/

The article doesn't state the percentage they will increase it, only that it will cost the average homebuyer requiring the insurance approximately $5 more per month.    It sounds like this will result in an increase of between 0.25% and 0.50% to me.     Currently, the premium with 5% down payment is 2.75%. 

I think it is very unlikely this will have any impact on the real estate market and it is still expected that we will have a strong 2014.  

For those looking to purchase and get in ahead of the increase, you will need to have your new mortgage set up prior to May 1st.   This means anyone who has not made a decision on a property will need to do so by this time.  The race is on!

Don't sign your mortgage renewal paper!

When your mortgage comes up for renewal, your bank sends you out a renewal agreement for you to sign to keep your mortgage with them.   There is a large percentage of borrowers that will just sign the paperwork and return it to their bank without even thinking twice.

The bank knows this, so it is likely you won't the lowest market rate on your renewal statement if you are with one of the big banks.  Often, they send it in at 'posted rates'.   It is not uncommon for posted rates to be a full two percent higher than the banks discounted rates!

If you take a $300,000 mortgage amortized over 25 years and compare the banks posted 5 year fixed rate of 5.34% vs. today's lowest 5 year fixed rate of 3.25%, you get a difference of $31,696.89 at the end of the 5 year term!   Can you say 'new car?'

You work hard enough for your money to just go and offer the bank a nice 'bonus' for essentially nothing.  Just because you didn't shop around or so much as pick up the phone to ask them if they could do better.    Just recently I had a client in the same situation where the bank was quoting them 1.5% higher than I was able to get them.... with the same bank!  

When your mortgage comes up for renewal, make sure you take the time to find out if you are being offered a fair rate or if your bank is trying to gauge you.  It can very often be the latter.

No change to prime rate, but fixed mortgage rates, whoa!

No surprise at all that the The Bank of Canada once again maintains it's overnight rate following their interest rate announcement at 10:00am this morning (Wednesday, September 4th, 2013).  The rate has been unchanged now since September 2010 adding to the longest unchanged streak since the 1950's.   This means the prime rate on your mortgage or line of credit will remain unchanged at 3.00% and your payment will not change.    

Here is an excerpt from the announcement made by the Bank of Canada and what they had to say about their decision:

"The global economy continues to expand broadly as expected, but its dynamic has moderated. In the United States, the process of normalization of long-term interest rates has begun in the context of stronger private domestic demand. Recent data, however, point to slightly less momentum overall than anticipated. In Europe, there are early signs of a recovery, and Japan's situation remains promising. In a number of emerging market economies, financial volatility has increased, adding uncertainty to growth prospects, although China continues to grow at a solid pace."
The past few reports have all talked about growth and continued growth in our economy which is definitely great news as it points toward recovery.  A light at the end of the tunnel!

This decision doesn't affect fixed mortgage rates, which have had significant increases over the past few months.  While variable rate mortgages and lines of credit are affected by prime rate, fixed mortgage rates are determined by bond yields which have been rising precipitously since the beginning of may. This is the reason for the increases.  You can still however you can still get a 5 year fixed mortgage for as low as 3.29% while market rates are between 3.59% - 3.69%. While these rates may even sound high due to where they were over the past year, they are still extremely low by historical standards.  Will fixed rates go higher?  If the bond yields continue to trend upwards, then for sure they will.

We are now starting to see deeper discounts to variable rate causing it to become popular once again.  You can now get a variable rate for as low as prime -0.45%.   It may also be a great time to consolidate any higher interest debt into your mortgage to take advantage of such low rates and lowering your overall monthly payment and amount of interest you are paying significantly.

You can read about the Bank of Canada's decision here:  http://www.bankofcanada.ca/2013/09/publications/press-releases/fad-press-release-2013-09-04/

Prime rate remains unchanged, but fixed mortgage rates to increase

The Bank of Canada once again (and to no surprise) maintains it's overnight rate following their interest rate announcement at 10:00am this morning (Wednesday, May29, 2013).  This means the prime rate on your mortgage or line of credit will remain unchanged at 3.00% and your payment will not change.   The rate has been unchanged now since September 2010 adding to the longest unchanged streak since the 1950's. 

Here is an excerpt from the announcement made by the Bank of Canada and what they had to say about their decision:

"In Canada, recent economic indicators suggest that growth in the first quarter was stronger than the Bank projected in April. For the year as a whole, growth is expected to remain broadly in line with the Bank's MPR forecast. Over the projection horizon, consumer spending is expected to grow at a moderate pace, business investment to grow solidly, and residential investment to decline further from historically high levels. Growth in total household credit is slowing and the Bank continues to expect that the household debt-to-income ratio will stabilize near current levels. Exports are projected to continue to recover, but to be restrained by subdued foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar."
The past few reports have talked about growth and continued growth in our economy which is definitely great news. 

This decision doesn't affect fixed mortgage rates, which remain as low as 2.69% for a 5 year fixed.  While variable rate mortgages and lines of credit are affected by prime rate, fixed mortgage rates are determined by bond yields which have been rising precipitously since the beginning of may. This places upward pressure on fixed mortgage rates, which have been virtually unchanged since early March, however some lenders have already made moves with some increases, and more may follow if this trend continues. The bond yields were up sharply yesterday pushing them through resistance.  We could see increases to fixed mortgage rates as early as this week.

Given this information, I would recommend anyone currently enjoying a deeper discount (prime -0.50 or more) to stay where they are, unless they are feeling uncomfortable with all the economic volatility.  Anyone with less of a discount may want to consider switching to take advantage of today's historical low rates, which may be very similar to what you are paying right now, however it will give you protection against future rate increases. It may also be a great time to consolidate any higher interest debt into your mortgage to take advantage of such low rates and lowering your overall monthly payment and amount of interest you are paying significantly.

The next interest rate announcement will be on July 17th, 2013, at which point I will be in touch once again.

It's mortgage rate war!

A mortgage rate war is enough to put a big smile on the face of anyone needing a mortgage for purchase, renewal or refinancing and that is exactly the situation we are in right now.  It's actually crazy out there right now!

Bond yields, which are how fixed mortgage rates are determined, have been trending downward steeply once again and have been doing so since mid-march and are just now starting to level off.  The drop in the yields has placed downward pressure on fixed mortgage rates and has sparked a new rate war amongst banks and other mortgage lenders. 

The problem banks are having right now as they can't promote lower rates without coming under scrutiny by our beloved finance minister Jim Flaherty (okay, maybe 'beloved' is a little strong).  He lashed out at Manulife Financial last month for offering 2.89% for 5 year fixed even though TD had dropped their 5 year fixed to the same rate weeks before.  Other lenders have had lower than the 2.89% even before that. 

By castigating banks for dropping their rates below the three percent threshold, it forces them to keep their rates artificially high which of course comes at the expense of many unsuspecting consumers and can significantly boost profits for banks. I am sure the banks aren't complaining.

2.99% for a 5 year fixed is something that many consumers still get excited about, however this is a rate that has been available for over a year now and is nothing special in today's market.  To the unsuspecting mortgage shopper, it can seem like their bank is giving them a 'discount' if they don't do their due diligence and at least take a small peak around.  It isn't hard to find rates much lower than 2.99% and can currently be found as low as 2.64% on a 5 year fixed.   Who would have ever thought we would have seen them quite that low?  

Why 10 year mortgages don't make sense

About a year ago, 10 year mortgages dipped below the 4% mark, which led many to jump towards 10 year mortgages. As mortgage agents and brokers, we get paid more for selling these mortgages, so if you are considering a 10 year mortgage, make sure your broker or mortgage banker lays all the numbers out for you so you can make an accurate decision and never just go on a 'recommendation' without getting all the facts. 

For example, let's say you are considering a 10 year fixed mortgage at 3.89% vs. a 5 year fixed at today's lowest rate of 2.84%. At the end of the first 5 years, you will already be $15,647.75 ahead with the 5 year mortgage than with the 10 year (assuming monthly payments and a 25 year amortization with no extra payments made).  Edit: Based on a mortgage amount of $300,000. 

The break even rate in the above situation is 5.41%. This means, for you to come out ahead with the 10 year mortgage, the 5 year fixed rate at the end of the first 5 years would have to be higher than 5.41%. If it is lower than that, then you lose. That is a pretty big gamble. If you end up breaking your mortgage at the 5 year mark (most don't even make it that far), then the 10 year mortgage just cost you over $15K PLUS your penalty to break the mortgage. 

While 5 year fixed mortgages very well may be higher in 5 years than the are now, I wouldn't expect them to start skyrocketing anytime soon. Given the state of the global economy, it is going to take years before we climb out of this mess. The situation in Europe isn't getting any better, an Europe is just taking the focus off of the United States, who are in equally in bad shape. Could 5 year fixed rates be higher than 5.41% at the end of 5 years? Anything can happen, but there is a good chance that they won't be. If they are, then there may be other attractive options open to us at that time as well. Perhaps variable rates will start looking better again (they are already improving with rates as low as prime -0.50%), or even shorter term mortgages may be an option as well. Time will tell, but a 10 year mortgage would be quite a big gamble. You 'may' win, but you would have to stay in for the full 10 years to get any benefit, and that alone is a big gamble.

Record streak continues for unchanged prime rate

The great news for variable rate mortgages and lines of credit is that the prime rate remained unchanged once again. This follows the Bank of Canada's rate announcement at 10:00am this morning (Wednesday, January 23, 2013). This was really no big surprised as there aren't any anticipated increases to prime rate until at least this spring or possibly even later. This means the prime rate on your mortgage or line of credit will remain unchanged at 3.00% and your payment will not change. The rate has been unchanged now since September 2010 adding to the longest unchanged streak since the 1950's. 

Here is an excerpt from the announcement made by the Bank of Canada and what they had to say about their decision:

"In Canada, the slowdown in the second half of 2012 was more pronounced than the Bank had anticipated, owing to weaker business investment and exports. Caution about high debt levels has begun to restrain household spending. The Bank expects economic growth to pick up through 2013. Business investment and exports are projected to rebound as foreign demand strengthens, uncertainty diminishes and the temporary factors that have weighed on resource sector activity are unwound. Nonetheless, exports should remain below their pre-recession peak until the second half of 2014 owing to a lower track for foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar. Consumption is expected to grow moderately and residential investment to decline further from historically high levels. The Bank expects trend growth in household credit to moderate further, with the debt-to-income ratio stabilizing near current levels.

Relative to the October MPR, Canadian economic activity is expected to be more restrained. Following an estimated 1.9 per cent in 2012, the economy is expected to grow by 2.0 per cent in 2013 and 2.7 per cent in 2014. The Bank now expects the economy to reach full capacity in the second half of 2014, later than anticipated in the October MPR."

While growth has been slower than expected, the keyword here is in fact 'growth', which is good to hear.

This doesn't affect fixed rates, which remain as low as 2.99% - 3.19% for a 5 year fixed through the mainstream market. If you know the right broker to call (wink wink), you may qualify for a 5 year fixed rate as low as 2.84% at the moment.

Given this information, I would recommend anyone currently enjoying a deeper discount (prime -0.50 or more) to stay where they are, unless they are feeling uncomfortable with all the economic volatility. Anyone with less of a discount may want to consider switching to take advantage of today's historical low rates, which may be very similar to what you are paying right now, however it will give you protection against future rate increases. It may also be a great time to consolidate any higher interest debt into your mortgage to take advantage of such low rates and lowering your overall monthly payment and amount of interest you are paying significantly.

The next interest rate announcement will be on March 6th, 2013. 

Here is the link to the announcement with the full details: http://www.bankofcanada.ca/2013/01/pres ... 013-01-23/

Just how long can the prime rate remain unchanged?

Not that this should come as any surprise to anyone, at 9:00am this morning (Tuesday, December 4th, 2012), the Bank of Canada did what we expected once again.....they maintained their overnight rate (which is what prime rate is based on).  This means the prime rate on your mortgage or line of credit will remain unchanged at 3.00%.  Anyone with a variable rate mortgage or line of credit will continue enjoying their low rate and low payment.   The rate has been unchanged now since September 2010 which makes it the longest unchanged streak since the 1950's.

Here is an excerpt from the announcement made by the Bank of Canada and what they had to say about their decision:

[i]"In Canada, economic activity in the third quarter was weak, owing in part to transitory disruptions in the energy sector. Although underlying momentum appears slightly softer than previously anticipated, [u]the pace of economic growth is expected to pick up through 2013[/u]. The expansion is expected to be driven mainly by growth in consumption and business investment, reflecting very stimulative domestic financial conditions. Housing activity is beginning to decline from historically high levels. While the household debt burden continues to rise, growth in household credit has slowed. It is too early, however, to determine whether the moderation in housing activity and credit growth will be sustained.  Canadian exports are [u]expected to pick up gradually[/u] but continue to be restrained by weak foreign demand and ongoing competitiveness challenges.  These challenges include the persistent strength of the Canadian dollar, which is being influenced by safe haven flows and spillovers from global monetary policy."[/i]

Some of the key points in there are the mention of 'growth' and 'expected to pick up', which is always good to hear in these reports.  Some economists are predicting that rates will remain unchanged until mid-2013, but I wouldn't be surprised at all if they were held until further into the year at least.

This doesn't affect fixed rates, which remain as low as 3.09% - 3.19% for a 5 year fixed, although I have 5 year fixed rates as low as 2.89% at the moment, which are actually expected to drop even further by the end of this week.

Given this information, I would recommend anyone currently enjoying a deeper discount (prime -0.50 or more) to stay where they are, unless they are feeling uncomfortable with all the economic volatility.  Anyone with less of a discount may want to consider switching to take advantage of today's historical low rates, which may be very similar to what you are paying right now, however it will give you protection against future rate increases. It may also be a great time to consolidate any higher interest debt into your mortgage to take advantage of such low rates and lowering your overall monthly payment and amount of interest you are paying significantly.

The next interest rate announcement will be on January 23rd, 2013.

The biggest mistake people make when looking for a mortgage.

One of the biggest mistakes mortgage shoppers make is selecting a mortgage professional without asking them any questions about themselves.  Whether you are dealing with a mortgage broker, or the mortgage specialist at your bank, it is important that you know you are dealing with someone who has a deep knowledge of the industry, and who is going to put your needs over their own (or the bank they work for).

You want to be dealing with a professional who is knowledgeable and going to take the time to listen to your needs and present your options to you based on your goals. As your mortgage is an important decision, make sure you are dealing with a professional that you feel comfortable with who is competent and can get your mortgage closed with as little stress to you as possible.

I had a client who left me to go to their bank, even though it was at a higher rate. They said that the specialist at the bank was telling them that they didn't need to have all the documents I was asking for and that they needed next to nothing. I tried to explain to them that the bank was still going to need all the same documents and that they just haven't asked for them yet. The clients didn't listen to me and went with their bank. I heard through my referral source that they were scrambling to come up with the documents the day before closing, which was when the bank rep starting asking for them. As a result, their home purchase ended up closing late, and the client incurred a lot of unnecessary stress.

My point is, competence is hugely important. Always ask questions before choosing someone to deal with.  One of the biggest mistakes someone can make is choosing a mortgage professional based on rate alone. It doesn't matter if you are going through a mortgage broker or through the mortgage specialist at a big bank.  Make sure you ask a lot of questions to ensure you feel comfortable with the individual who is handling your mortgage.  Some good questions to ask:

1.  How long have you been doing this for?

I would look for someone who has been in the business full-time for at least three years.  If they have been doing it less than that, then you may want to ask a few more questions.  You can also ask how many mortgages they have closed.  If it is less than 100, I would look for alternatives.

2.  Do you do this full or part time?

Don’t deal with anyone who is in the business part time. You want to ensure the person you are working with is committed to their profession and their mind is on YOU, and not on their primary income source.  It is also very unlikely that a part-timer would have that much experience.  They also may not be as available as you would like them to be.

3. Do you have any references or testimonials?

It is always good to know that the professional you choose has a history of satisfied clients.  If they have done a good job for their clients in the past, there is a better chance that they will do a great job for you as well.

4. What kind of education or licensing do you have?

Some professionals will have more education or training than others. Find out how well the person you are dealing with is trained before proceeding.

5. How easy are you to get a hold of? How quickly do you return calls or emails?

There are going to be times when you have questions, and you are going to want to have them answered quickly. 

6. What hours are you available?

It can be helpful to know that the person you are dealing with is can be flexible and is willing to work with YOUR schedule, not theirs.

7. How do you get most of your business?

Ideally, most of their business should come from referrals.  You want to know that their past clients are happy enough with their services that they are referring them to their friends and family.

8. How are fixed mortgage rates determined?

This is simply a question to gauge their competence level and is something that any quality mortgage professional will know right away.  If they can’t answer this, or if they have to ‘get back to you’, then I would move on to the next person.  (The answer is bond yields.)

Hope this is found to be helpful.

Just how low can fixed mortgage rates get?

The only thing more exciting than buying a new home is knowing that you were given a super low mortgage rate, and the only thing that can add to that excitement is knowing that they may be coming down even further.

Bond yields are what fixed mortgage rates are determined by, and after seeing some large increases to the yields throughout the month of August and early September, we saw fixed mortgage rates rise with some lenders.   That trend has reversed over the past few weeks, putting downward pressure on mortgage rates.    

While this trend has already encouraged some mortgage lenders to drop their rates, we can expect to see some further drops if the trend continues.

Right now, you can still get a 5 year fixed mortgage as low as 2.99%. Possibly even lower if you know the right people (wink wink), but I am confident we will start seeing some rates even lower than this over the next week to two weeks. Even at 2.99% for a 5 year fixed can be placed into the 'ridiculous' category given just how low it is by historical standards. The lowest I have been able to offer in the past was 2.79%. Let's see if the new trend can bring us back into that ballpark.

Last day for 30 year amortization and refinancing up to 85%

As everyone is already aware, the maximum amortization available will be dropping from 30 years to 25 years and the maximum refinance will drop from 85% of your homes value to 80%.  Although these changes don't become firm until this Monday, July 9th, the last day mortgage applications will be accepted will be by the end of day tomorrow, Friday July 6th.  Some lenders have already stopped accepting applications and have already fully implemented the new rules early, which was expected.

If you are looking at refinancing up to 85% and/or looking for an amortization of 30 years, make sure you don't delay any further in getting your mortgage applications submitted.   3 year fixed mortgage rates are currently as low as 2.69% and 5 year fixed as low as 2.94%.

The real truth behind the new mortgage regulations

Canadian Finance Minister Jim Flaherty introduced new, tighter regulation this morning in attempt to slightly cool our red hot housing market.  The first change is the maximum amortization will drop from 30 years to 25 years, making it harder to qualify for a mortgage for many people.  While amortization length really doesn't affect the amount of debt someone has, it does affect the amount of interest they pay.

But is it really going to affect qualification that much?  

One thing many people tend to forget is that mortgage rates are ridiculously low right now.   If we look back four years ago when we had a 40 year amortization available to us, 5 year fixed mortgage rates were 5.99%.  At this rate, a $300,000 mortgage with a 40 year amortization would carry a monthly payment of $1,633.23.   At today's 5 year fixed rate of 3.19%, the same $300,000 mortgage with a 25 year amortization would be only $1,449.14. (There are 5 year fixed rates as low as 2.94% right now, but 3.19% is more widespread).  Even with the lowered amortization, the lower payment still makes it easier for home buyers to qualify for mortgage today than it would have been 4 years ago.

That being said, I think the drop in amortization is a good idea overall.  It well help home owners build equity much quicker over the term of our mortgage.  

Another major change made today is the maximum refinance will drop from 85% of the homes value to 80%.  This I have mixed feelings about, as it can actually cost some people a lot more money than need be.  Rather than implementing this regulation across the board, I would just restrict it based on the use of the funds.  For example, if someone is refinancing their home to raise money to take the family to  Disney World, than they are just going into further debt unnecessarily. This type of equity take out is what should be restricted.  

What should be still allowed however, is equity take outs for debt consolidation.  

If John and Mary Homeowner have $40,000 in credit card debt at 19.99% interest, why not let them consolidate that into their mortgage at a 5 year fixed rate of 3.19% (or lower)?  Even if they had to go up to 90%, as long as the regulation required them to than cancel those cards, or at least lower their limits to a manageable $1,500 to allow them to maintain a healthy credit score.  If this were the case, instead of having a $1,200 MINIMUM monthly payment on their credit cards, John and Mary Homeowner would only have to pay an additional $193.22 per month as part of their mortgage, saving them $1,006.78.  

The regulation could even take it one step further and require them to put that savings toward their mortgage which would pay it down SIGNIFICANTLY saving them literally tens of thousands of dollars in interest in the first 5 years alone.  Under the new regulation, they are stuck with this debt and added strain on their finances. Hmmmmm... maybe I should be the finance minister? 

The third change in regulation is lowering the gross debt service ratio (GDS) to 39% from the current 44%.  The GDS is your principal, interest, property tax and heating costs divided by your gross income.  It will definitely affect some home buyers, but at the same time, gives them flexibility to carry other debts as well, without feeling any added financial strain.  It is the homebuyers with little to no current monthly debt obligations that this will affect the most. 

The fourth regulation is to limit CMHC insured mortgages to $1 million.  Definitely not something that is going to affect the masses by any means. 

One thing that we know, is that we will eventually see fixed mortgage rates increase.  History shows that 5 year fixed rates were often between 5 and 6%.  If the mortgage regulations continued to let people buy with extended amortization and higher qualifying ratios, many homeowners may find themselves in tough situations at time of renewal when they find out that their mortgage payment has now increased by several hundred dollars.  These tighter regulations open the door for them to loosen them back up again one the mortgages rates are higher, which will give people more options to keep their payments affordable at time of renewal.

[Edit] These new mortgage regulations will be implemented on July 9th.

Prime lending rate remains unchanged

As you know, a variable rate mortgage or line of credit is based on the prime rate. At 9:00am this morning (Tuesday, June 5th, 2012), the Bank of Canada did what we expected them to do once again.....they maintained their overnight rate (which is what prime rate is based on). What this means to you is that the prime rate on your variable rate mortgage or line of credit will remain unchanged at 3.00%. This is great news as anyone on a variable rate mortgage or with a line of credit can continue enjoying their low rate and low payment. Here is an excerpt from the announcement made by the Bank of Canada and what they had to say about their decision: "Although economic growth in Canada was slightly slower than expected in the first quarter, underlying economic momentum appears largely consistent with expectations. However, the composition of growth is less balanced. In particular, housing activity has been stronger than expected, and households continue to add to their debt burden in an environment of modest income growth. Despite external events, business and household confidence has held up and domestic financial conditions remain very stimulative. The contribution of government spending to growth is expected to be quite modest over the projection horizon, in line with recent federal and provincial budgets. The recovery in net exports is likely to remain weak in light of modest external demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar." While it states that economic growth in Canada was slightly slower than expected, the key word is is 'growth' which means we are not in recession. This growth is expected to continue, although we still may not see an increase in prime rate until well into 2013. When it does start to increase, it will be gradual, slow, controlled increases to be in line with economic recovery. Changes in prime rate are typically only 0.25% at a time and it has been this way since 1992. This doesn't affect fixed rates, which remain at 3.19% - 3.39% for a 5 year fixed, although I have 5 year fixed rates as low as 2.97% at the moment. Given this information, I would recommend anyone currently enjoying a deeper discount (prime -0.50 or more) to stay where they are, unless they are feeling uncomfortable with all the economic volatility. Anyone with less of a discount may want to consider switching to take advantage of today's historical low rates, which may be very similar to what you are paying right now. It may also be a great time to consolidate any higher interest debt into your mortgage to take advantage of such low rates and lowering your overall monthly payment significantly.

Don't make the variable rate mortgage mistake

In the past, mortgage borrowers have typically come out ahead by taking a variable rate mortgage.  However that was then and this is now.  Today’s market is an entirely different situation, making past performance irrelevant.  Right now, the ‘market’ 5 year fixed is between 3.29% and 3.39.    The lowest available 5 year variable is prime -0.25% , which is only 0.54% cheaper.  While this may sound like quite a savings, the difference was always around 1.50% - 2.00% when borrowers typically came out ahead with a variable rate mortgage.   A much narrower gap means elevated risk.  The Bank of Canada makes an interest rate announcement 7 times per year.  They only have to increase the prime rate twice (at 1/4 % each time) for the variable rate to equal the fixed in this example. That doesn’t leave much room for it to play.  We also know that it isn’t going to get any lower than what it is, so the only direction it can move is up.

For those die-hard variable rate seekers, here is what I am going to suggest for you.   Take out a 3 year fixed at 2.99% instead.  This is only 0.24% higher than the variable rate of 2.75%.  The Bank of Canada only has to increase the prime rate a single time for the two rates to be even, and that could come at any time.   At the end of the three year term, chances are that there will be deeper discounts on variable rate mortgages, and a larger gap between fixed and variable rates.  At this time, a variable rate mortgage may once again be the route to go.  In the meantime, this is not only the safest option, but most likely the one that will save you the most money over time as well.

The lowest rate doesn’t always mean the most savings for you.  Make sure you choose a mortgage professional who is going to take the time to put a plan together for you to ensure you are saving the most amount of money over the course of your mortgage, and not someone who will forget about your after your mortgage closes. 

How A Past Bankruptcy Affects Your Mortgage Approval

Just because you have a past bankruptcy, it doesn’t mean that you won’t qualify for a mortgage.   In order to qualify for the lowest market mortgage rates, and a minimal down payment of five per cent, your bankruptcy will have to have been discharged for a minimum period of two years.  CMHC (Canadian Mortgage and Housing Corporation), the leading provider of mortgage default insurance in Canada, also requires two re-established credit lines.  These can come in the form of a credit card, a car loan, a bank loan, or a line of credit from a bank.  These two credit lines need to have been established for a minimum period of one year, which doesn’t have to come after the two years of re-established credit. 

Not all credit lines are created equally, so it would be ideal to have at least one of them as a revolving credit account, such as a credit card or a line of credit.   These credit lines must have a minimum credit limit of $1,500 in order for them to qualify as sufficient enough for credit re-establishment for a mortgage in Toronto.   If you are able to set these limits over $2,000, then it will help your case even more so. 

So what happens if your bankruptcy has been discharged for less than two years?   It doesn’t mean that you can’t get approved for a mortgage, it just means that you will need to have a larger down payment and you will pay a higher rate.   How much more?  Typically a minimum down payment of 15-20% would be required in this particular case.   The mortgage term should be kept shorter as well for a couple of reasons.  The first would be to keep the rate as low as possible.   Shorter term mortgages carry lower interest rates.   Typically, these mortgages will be placed with an equity type lender, which is a lender that lends based on the ‘equity’ in the home, more so then on your credit.   You can expect to pay about 1% higher, give or take, on a one to two year term with an equity lender over the discounted five year fixed rate with an ‘A’ type lender, such as a bank.

The second reason for keeping the mortgage term as short as possible is that you will most likely want to refinance with an ‘A’ type lender at the time of your mortgage renewal in order to lock into a lower interest rate for a longer period of time, in order to keep your interest costs as low as possible.  It is best to discuss all these points with your mortgage broker to ensure that he or she understands your situation and puts a plan together to maximize your savings over time.

Bankruptcies sometimes happen to good people, and it certainly isn’t the end of the world.   It is good to know that there are options open to when seeking a mortgage after a bankruptcy.   

Is a 10 year mortgage term a good idea?

With 10 year mortgage terms now available for as low as 3.89%, they are now starting to catch the attention of many mortgage seekers.  But is taking out a mortgage for 10 years a good idea?   The answer is yes and no.  I really depends on the person borrowing the money.  For some, it will make sense, but for most it won't. 

One thing is for certain....mortgage rates won't always be this low.  We know they are going to go up as the economy improves.  In a healthy economy, 5 year fixed mortgage rates commonly fall between 5-6%.  Will someone save more money over a 10 year period if they take out a 10 year mortgage?  While anything can happen, it is a reasonably safe expectation that 5 year fixed mortgage rates will be higher in 5 years than they are today.  IF you stick with the 10 year mortgage for the entire 10 years, than the answer is yes, you will most likely save more money over that period in a typical situation.  But that is a very big 'IF', as 10 years is a long time, and we really don't know what our situation is going to be like down the road. 

Many people refinance their mortgage about 3 - 4 years into it, breaking their 5 year term early.  Why do they do this?  It could be to get a lower mortgage rate (unlikely in the future, as we are already rock bottom on rates).  It could be to withdraw money from the equity in their home for whatever reason, which is probably the most common reason for refinancing.  Maybe you choose to move and refinance at that time (although, MOST mortgages are portable and you can move your mortgage to your new home). 

My point is that the future is not set, and we cannot predict it.  Maybe 4 years from now you decide to start a new business and need to borrow money against your home? Or you decide to go back to school?  Or you need money for medical purposes not covered by insurance?   Maybe your employment gets transfered to another province or country and your mortgage can't be ported?  My point is, there are numerous curves life can throw at you that are unexpected.   After all, if homeowners thought they would need to refinance in 3-4 years, then they wouldn't have taken a 5 year mortgage to begin with.  

Life has unexpected changes.  I am not 'against' 10 year mortgages, but just make sure your mortgage broker or mortgage banker takes the time to explain the pitfalls, and doesn't just drop you into the mortgage term that makes them the most money (10 years).