What does it mean when RBC lowers it's fixed-rate mortgages?

Driving to work today, I listened to CBC radio announce that RBC has, "quietly" reduced rates on it's fixed-rate mortgages. I listened with a smugness, since most wholesale mortgage lenders in Canada, had already lowered their rates. Those following the Canadian bond market have noticed a trend of lower yields, which directly impact fixed rate mortgages (see the chart below...thanks to the Bank of Canada for this information).

For consumers, it means that the bank's posted rates are decreasing by 0.10%, but when negotiating a mortgage rate directly with a bank, it's difficult to determine the lowest rate.  That's were we can help. As mortgage brokers we work to negotiate the best rates for you, in conjunction with the best features.

On a side-note, if you want to accelerate paying-off your mortgage in the next three years, you'll likely want to choose a variable-rate mortgage. Then you don't have to worry about what's happening in the bond market.

Please contact me directly at lastovic.s@mortgagecentre.com if you need help negotiating a better mortgage rate.

Government of Canada benchmark bond yields - 5 year

GRAPH PERIOD: 17 January 2013 - 17 January 2014

Date	Yield
2014-01-17	1.69
2014-01-16	1.71
2014-01-15	1.76
2014-01-14	1.76
2014-01-13	1.72

5-year fixed rates up by 10 bps

Some news for the New Year! Over the last few days most mortgage lenders have raised their five-year fixed rates up by 10 bps points and are priced on average at 3.69%. If you're buying a house or renewing a mortgage in the next 4 months ensure you re-lock your mortgage rate hold.

The pricing on variable-rate-mortgages remains the same at prime -.4% to prime -.5%.

Government of Canada benchmark bond yields - 5 year

GRAPH PERIOD: 28 December 2012 - 30 December 2013

Date	Yield
2013-12-30	1.92
2013-12-27	1.96
2013-12-26	NA
2013-12-25	NA
2013-12-24	1.90

What's up for 2014?

I’ve recently heard one of my favourite economists, Benjamin Tal of CIBC World Markets speak about the outlook for the global economy in 2014. How do world affairs affect the housing market? Global events impact people’s inflation expectations. Inflation has a direct impact on the bond market, which is correlated to fixed-rate mortgages. If rates go up, there is less demand for housing as the monthly carrying costs are higher. 

The overall mortgage rates message is relatively boring for 2014: low stable rates. However Benjamin Tal highlighted some interesting bits that are worth sharing:

•  2013 was a year in transition. There is real and sustainable recovery in the U.S. and the Canadian and the U.S. economy are still tied closely together. So as rates remain stable south of the border, they will also remain stable in Canada.

• There will be fewer first-time home buyers in 2014. Young people in Canada are more educated than ever before, but also less financially sound. Those graduating from college or university have higher student debt and lower income as compared to previous generations. The lift in the housing market for those homes appealing to “first-time buyers” will not be the same in the near future.

• Opportunities for real estate investing rest with properties that appeal to a younger demographic who can’t purchase a home, but want to rent a reasonably nice home or condo.

• The demographic trend for those who are 55 or up is easy to follow; investing in this market is a sound decision.

• Facebook and twitter are not driving forces in the economy and should be considered cautiously when long-term investing. However, technological innovations are a key factor in increasing productivity around the world. The U.S. continues to make great strides in this area, while Canada lags behind.

•  The consumer debt Canadians are acquiring through mortgage debt will continue to be a drag in the Canadian economy.

•  The increase in a bank’s prime rate isn’t forecast to move until the first quarter of 2015. This is significant for those who have variable rate mortgages.

It’s critical for those who work in the real estate industry to understand how the global economy affects the housing market. 

Whether you’re a client of a bank or mortgage brokerage, if you’re interested in reviewing your own home purchase or sale and how it will impact you financially please contact me by phone at 519-763-3900 ext. 1001 or via e-mail at lastovic.s@mortgagecentre.com.

Leave your comments below!

It seems there's just no shaking Canadians' faith in real estate.

It seems there's just no shaking Canadians' faith in real estate. There was more proof of that over the past week.

The latest report from Statistics Canada shows that the rate of household debt to income has topped-out again. It hit nearly 164% for the third quarter of 2013. Most of that is mortgage debt, which rose 1.8% and now stands at $1.13 Trillion.

The Bank of Canada and the Finance Minister continue to call the high level of indebtedness the single biggest domestic threat to the economy, but Canadian consumers don't seem worried. The latest read on consumer confidence by Bloomberg-Nanos shows an increase to 59.3, up from 58.9 a week earlier. Pollster Nik Nanos says most of that is based on a positive view of real estate.

Consumer confidence is getting some support from a forecast by one of Canada's biggest credit union cooperatives. Citing an expanding population and a contracting supply of development land, it expects the price of housing in the country's biggest market, Toronto, to double over the next 25 years. 

 Thanks to our mortgage-lender partners at First National Financial for this analysis today.

It’s No “Charlie Brown” Christmas Tree for The Mortgage Centre

Landon Mitchell, age 6 of Guelph, Ontario has just gotten $250 richer, thanks to the money he’s won through The Mortgage Centre’s Holiday Card Contest. 

“We wanted to do something fun that would engage our clients and their families,” says Christopher Bisson, president of The Mortgage Centre in Guelph. “We held a contest and asked for entries from children to help design our company’s holiday card this year. We’ve mailed nearly 1500 Christmas cards this year with the design by Landon Mitchell.

The design of the Christmas card is one of the purest and simplest images of the holiday, the Christmas tree. The brightly coloured tree was made of colourful dots, which were stamped with Q-tips and paint. The Mitchell family has an artistic flair, with Landon, the artist, commenting, “My older brother won a contest two years ago for his drawing, now I’ve won a drawing contest too!”.

The Mortgage Centre (Guelph) is the region’s top mortgage brokerage house and has been in business since 1999. It’s helped hundreds of families each year with their mortgage-financing needs. Their reputation is built on giving their clients better advice and better mortgage rates to help them save money and achieve their home-ownership goals.

Sometimes I just need to "take a pill"....

This week my Blackberry died and I've had a flutter of anxiety since then. They're sending me a new device, but it's going to take seven to ten business days to get. I don't think that's acceptable, but in the meantime I'm looking at the bright side.

I'm actually now able to live better in the moment, without the worry of missing a phone call or text. Hey, I even have time to write a blog post! So here it goes. I know that mortgages aren't always top of mind (isn't Christmas coming?), but there's some great opportunities to save money on interest.

A few years ago, those clients who chose variable rate mortgages (VRMs) priced at over the prime rate, should consider refinancing their mortgage to get a better rate. While we're offering a five year fixed rate mortgage between 3.39% to 3.69% (depending on the features you want), the variable rates are attractive at prime -.4% to prime -.6%. The prime rate's at 3%, which means you could get a VRM at 2.6%. Variable rate mortgage also can have significantly lower penalties, with most lenders only charging three months interest, which can easily be wrapped into the mortgage.

For example if you have a $250,000 mortgage the interest savings per year by making this change is $1625 per year, not to mention your mortgage payments will be lower!

If you have a VRM that's at three percent or higher, please give me a call or message me and I can run the figures to help you make an informed choice.

Is now the right time to choose a Variable Rate Mortgage?

“Should I take a variable- or fixed-rate mortgage?” is the question I get asked most by clients.  While we work with our customers to help them come to a decision on what’s best for their financial circumstance, here are a few questions to consider when deciding on a mortgage type.

Can you qualify for the mortgage you want?

The criteria to qualify for a variable-rate mortgage (VRM) is different than a fixed-rate mortgage. Remember the housing crisis in the U.S.A. almost five years ago? It had a significant impact on the qualifying criteria for people who now want VRM’s. VRM’s are more difficult to qualify for under the debt ratio guidelines because the government has built a buffer for borrowers should rates go up. For VRM’s, borrowers qualify based on the Bank of Canada’s qualifying rate of 5.34%. The impact is that it lowers ones ability to qualify for a certain mortgage amount by about $40,000 less in mortgage money compared to a five-year fixed rate. Many first-time home buyers would like the lower rate of a VRM, but can’t qualify for the mortgage on the home or condo they want to purchase because of the qualifying restrictions of a VRM.

What’s your budget?

Your current money-management practices have an impact on your choice of a VRM or a fixed mortgage. If the only reason you’re choosing a VRM and a lower payment is because it will allow you to spend more in other areas, the VRM is not the best choice for you financially. If you’re a saver and have money set aside if rates go up (and can make the difference in mortgage payments) you’re a good candidate for a VRM.

What’s the forecast?

Historically, borrowers who have a VRM tend to pay less in interest over the life of their mortgage, than a fixed rate. The interest rate on a five-year fixed mortgage is currently in the mid-three percent, while a five-year VRM is below three percent. The Bank of Canada’s overnight lending rate has an impact on a Bank’s prime rate, which is the indicator that VRM’s are based on. The current forecast is that rates may rise in mid-2015. Until then, those who choose VRM’s now should be aggressive in paying down the principal on their mortgage and take advantage of the lower rate.

I'd love to hear how you make your own decisions on the type of mortgage you choose. Please e-mail me at lastovic.s@mortgagecentre.com or visit my blog at www.lastovic.s@mortgagecentre.com and offer your comments. If you're on twitter follow me @Sandra_lastovic.