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.