Friday, April 24, 2009

Don't jump the gun on mortgages

Globe and Mail Update
April 23, 2009 at 6:00 AM EDT
What a sweet time to be arranging a mortgage – we've got the lowest rates anyone can remember and they'll be around for months to come.
So don't rush into any decisions regarding a new mortgage, a renewal or an existing mortgage you're thinking of breaking. The great recession mortgage sale isn't even close to being over.
The Bank of Canada has records going back to 1950 on average fixed-rate, long-term mortgage rates and the best deal was 5 per cent back in early 1950. Today's posted five-year mortgage rate at the big banks is 5.45 per cent – low, though not the lowest. But discounted five-year rates today are commonly under 4 per cent, which suggest the best on record.
Variable-rate mortgages are even cheaper. The Bank of Canada rate announcement earlier this week took mortgages taken out in the past eight months or so down to about 3.05 per cent, and to less than 2 per cent or thereabouts on older, variable-rate mortgages set up before the financial crisis started to bite.
With a recession raging, the consensus among rate watchers is that there's no reason for mortgages rates to move higher any time soon:
Eric Lascelles, chief economics and rates strategist at TD Securities: “My inclination is to say mortgage rates are likely to remain unusually low for some time.”
Will Dunning, chief economist for the Canadian Association of Accredited Mortgage Professionals: “I don't really see rates moving a whole lot.”
John Panagakos, mortgage broker in Toronto: “My best guess is that rates will stay where they are for the next 12 months.”
If anything, rates could fall slightly in the months ahead thanks to signs of a thaw in the financial market freeze-up that has raised the cost of mortgages and lines of credit in the past six to eight months.
Mr. Dunning said rates on five-year mortgages are typically pegged at 1.1 to 1.2 percentage points more than the five-year Government of Canada bond yield. The spread between the two ballooned out to an average of 3.07 points in 2008 and has since fallen closer to two points.
“There is room for further compression, which could bring mortgage rates down a bit more,” he said.
Mr. Panagakos has noticed something similar happening with variable-rate mortgages, which 18 months ago could be had at your bank's prime lending rate minus 0.7 to 0.8 of a point or so. Hard-pressed banks started offering variable-rate mortgages at prime plus 1 per cent last fall, but lately there are some lenders offering these loans at prime plus about 0.6 per cent.
Historically low five-year rates prompt a question if you've got a variable-rate mortgage: Is now the time to use the escape clause in your loan agreement and lock into a five-year mortgage?
If you've got one of those great old variable-rate mortgages with a discount off prime, the answer is no. Borrowing costs would have to rise close to two percentage points to put you on par with a five-year mortgage today at a great discounted rate.
Rates will eventually start to rise, but it's worth noting the Bank of Canada's comments in this regard. Facing a worse-than-expected economy, the central bank said it would keep its benchmark lending rate steady for as long as a year if need be. If the bank's overnight rate stays put, expect the prime rate at the major banks to more or less do likewise.
The question of whether to lock in more recent variable-rate mortgages – those sold at prime plus a markup – requires more thought because of the cheapness of five-year rates right now.
“If you're looking at the bottom of the market and you want five years of security, there's definitely nothing wrong with a 3.95-per-cent rate,” said Gary Siegle, regional manager with the mortgage brokerage firm Invis in Calgary.
Low mortgage rates also offer an opportunity for people to break their existing loan agreements and slash their interest costs. Mr. Panagakos believes the penalties are prohibitively expensive for people who are only a year or two into mortgages they want to break. If you have money to cover the penalty, he suggests you use it to pay down your principal.
Another approach to breaking a mortgage: Wait until you have 12 months or less until maturity and ask to renew early at no cost. Still another: Inquire about a blend-and-extend, where you roll an existing mortgage into a new loan at a rate that blends your existing rate with current rates.
Whatever you do, enjoy the rare luxury of time afforded by these recessionary, low-rate times. Shop your new mortgage and your renewal around, and remember that a few years from now today's rates will look freakishly low.

Tuesday, April 21, 2009

CHRONOLOGY-Bank of Canada rate changes since 2000

TORONTO, April 21 (Reuters) - The Bank of Canada lowered its overnight rate by 25 basis points on Tuesday to a historic low of 0.25 percent. The central bank also took the unusual step of providing guidance on rates, saying it will keep the key overnight rate at 0.25 percent until mid-2010. In addition, it made no explicit commitment to taking unconventional measures to spur the economy even as it forecast a deeper recession than it had previously expected. The central bank's next rate announcement is due June 4.

BOCFAD The following is a chronology of the Bank of Canada's
changes to the overnight rate since 2000. Moves are measured in
basis points (bps), each of which equals one-hundredth of a
percentage point:

April 21 - Cut 25 bps to 0.25 pct
March 3 - Cut 50 bps to 0.50 pct
Jan. 20 - Cut 50 bps to 1.00 pct
Dec. 9 - Cut 75 bps to 1.50 pct
Oct. 21 - Cut 25 bps to 2.25 pct
April 22 - Cut 50 bps to 3.00 pct
March 4 - Cut 50 bps to 3.50 pct
Jan. 22 - Cut 25 bps to 4.00 pct
Dec. 4 - Cut 25 bps to 4.25 pct
July 10 - Raised 25 bps to 4.50 pct
May 24 - Raised 25 bps to 4.25 pct
April 25 - Raised 25 bps to 4.00 pct
March 7 - Raised 25 bps to 3.75 pct
Jan. 24 - Raised 25 bps to 3.50 pct
Dec. 6 - Raised 25 bps to 3.25 pct
Oct. 18 - Raised 25 bps to 3.00 pct
Sept 7, - Raised 25 bps to 2.75 pct
Oct. 19 - Raised 25 bps to 2.50 pct
Sept 8 - Raised 25 bps to 2.25 pct
April 13 - Cut 25 bps to 2.00 pct
March 2 - Cut 25 bps to 2.25 pct
Jan. 20 - Cut 25 bps to 2.50 pct
Sept. 3 - Cut 25 bps to 2.75 pct
July 15 - Cut 25 bps to 3.00 pct
April 15 - Raised 25 bps to 3.25 pct
March 4 - Raised 25 bps to 3.00 pct
July 16 - Raised 25 bps to 2.75 pct
June 4, - Raised 25 bps to 2.50 pct
April 16 - Raised 25 bps to 2.25 pct
Jan. 15 - Cut 25 bps to 2.00 pct
Nov. 27 - Cut 50 bps to 2.25 pct
Oct. 23 - Cut 75 bps to 2.75 pct
Sept. 17 - Cut 50 bps to 3.50 pct
Aug. 28 - Cut 25 bps to 4.00 pct
July 17 - Cut 25 bps to 4.25 pct
May 29 - Cut 25 bps to 4.50 pct
April 17 - Cut 25 bps to 4.75 pct
March 6 - Cut 50 bps to 5.00 pct
Jan. 23 - Cut 25 bps to 5.50 pct
May 17 - Raised 50 bps to 5.75 pct
March 22 - Raised 25 bps to 5.25 pct
Feb. 3 - Raised 25 bps to 5.00 pct
(Compiled by Ka Yan Ng)

Friday, April 17, 2009

Canada Mortgage Rates Not Likely to Fall, Soper Says

By Sean B. Pasternak
April 14 (Bloomberg) -- Mortgage rates in Canada, which have plunged by almost 50 percent in the last year, aren’t likely to fall further, said Phil Soper, chief executive officer of Brookfield Real Estate Services Fund.
“Certainly with the Bank of Canada’s target rate set at virtually zero, there’s very little room,” Soper said today at a conference in Toronto on Canada’s real estate market. The rate is “the lowest it’s been in anyone in this room’s lifetime.”
Rates for home loans have been dropping during the biggest financial crisis since the Great Depression, with some lenders offering mortgages approaching 4 percent, Soper said. That compares with an average posted five-year rate of 7.5 percent a year ago, according to the Bank of Canada. He added that home prices in Canada aren’t likely to rise “sharply” over the next two years.
Bank of Montreal, which sponsored the conference, lowered its rate for a five-year fixed-rate mortgage this month to 4.15 percent.
“We are approaching almost zero interest rates,” at the Bank of Canada, said John Turner, the Toronto-based bank’s director of mortgages. “The question becomes, how much upward pressure will there be as we come out of this recession?”
The Bank of Canada last month cut its benchmark lending rate to 0.5 percent, its lowest ever, and said it’s preparing to use policies beyond interest rate moves to revive an economy hit by a recession and tight credit markets. The next rate announcement is April 21.
Canadian existing home sales rose in February for the first time since September as buyers took advantage of lower mortgage rates and prices, according to the Canadian Real Estate Association’s Multiple Listing Service. Sales of existing homes rose 8.6 percent from January to 28,669 units.
Bank of Montreal senior economist Sal Guatieri predicted that Canada’s housing market will decline further this year, without the “crash” experienced in the U.S.
To contact the reporter on this story: Sean B. Pasternak in Toronto at Last Updated: April 14, 2009 11:42 EDT
Article link

Wednesday, April 15, 2009

Genworth's New Underwriting Guidelines

There have been some major changes to qualification guidelines offered by Genworth Financial in response to the changes in the Canadian economy and housing markets. We expect that CMHC will soon follow suit and match these new guidelines.

Here is a breakdown of the changes:

1. New Recommended Credit Scores High Rise Condo’s (4+ Floors):
5%-10% down: 700 beacon score (no previous minimum)
10%-15% down: 660 beacon score (no previous minimum)

2. New Recommended Credit Scores for Refinance:
5%-10% equity: 700 beacon score (increased from 650)
10%-15% equity: 660 (increased from 600)

3. The New Recommended Maximum GDS/TDS Ratio is 35/42% for all Credit Scores and All Products. Previously, if an applicant had a credit score over 680 they could qualify with ratios of GDS/TDS 44/44%.

4. Investment Properties (Rentals) and the Credit Assist Program are no longer Eligible for High Ratio Mortgage Insurance.

5. The New maximum Loan-to-Value and Recommended Credit Scores for the Business for Self (Stated Income) Program are as follows.
Loan to Value Recommended Credit Score
90.01%-95% No longer available!!!!
85.01%-90% 700+ (previously 650)
80.01%-85% 680+ (previously 650)

These changes take effect on April 18th 2009. If you have any questions/concerns or require clarification please contact me directly.

Tuesday, April 14, 2009

Four Points to Ponder

Here is a video on BNN featuring Rob McLister from Canadian Mortgage Trends (he's a mortgage broker in Ontario).

He has some interesting points regarding shopping for your mortgage:

1. Only give your bank/broker one shot to give you their lowest rate. As their loyal customer, shouldn't you expect that your bank would give you their best rate upfront? If they don't, why stay with them? According to Greg MacPherson, banks have "invited this haggling by only revealing the lowest mortgage rate they will give you when you absolutely force them to by coming up with a better competing rate from across the street."
If a mortgage broker gives you their best rate upfront with no haggling, why not give them your business? I disagree with taking a mortgage broker’s great rate and then running back to your bank and asking them to match it. Why would you reward the bank for not offering their best rate upfront?

2. Find a broker that works with all lenders. Mortgage brokers do not deal with RBC or BMO but most of the time we can get you a deal that's as good, if not better.

3. Ask about "No Frills" or "Quick Close" mortgages. No frills products will give you a lower rate but will limit the amount you can pay back every year. If you don't think you'll be making any extra payments on your mortgage, this may be a good option. Another great (and increasingly popular) product offered by lenders is the 30 day "quick close special". Many lenders will give you a lower rate on a five year fixed term if your mortgage closes within 30 days of your mortgage application.

4. Don't try to time interest rates (no one has a crystal ball).

Watch the video HERE.

Friday, April 10, 2009

Remain Calm, not all is lost

From Friday's Globe and Mail
April 10, 2009 at 1:29 AM EDT
Recent figures on the Canadian economy show a more varied and complex picture than the one many people would fear. Not everything is going from bad to worse.
Though in December, for the first time since 1976, Canada recorded a trade deficit, which deepened in January, the downward trend was reversed in February, the latest month for which Statistics Canada has published the data on this country's international merchandise trade. A $1.2-billion deficit in January has become a small $126-million surplus in February.
It is good that both exports and imports are up, signs of demand for Canadian goods and of healthy demand from Canadian businesses and consumers. Across the world, there has been an unsettling tendency to deglobalization; symptoms to the contrary are welcome.
The makeup of the rise in exports is striking. Despite the troubles of the automobile industry, the production of auto makers was up in February. As a result, exports of automotive products rose 20 per cent in February, after reaching a low point in January; exports of trucks and motor-vehicle parts rose 28 per cent and 19 per cent respectively. Similarly, imports of automotive products rose by 3.2 per cent, especially parts, which were up 7.6 per cent.
Aircraft and machinery and equipment also moved quite vigorously back and forth across the Canada-U.S. border, belying the prevailing sense of doom about North American manufacturing.
While unemployment continues to rise in most of the country, its regional distribution is not what many would expect. Despite the woes of Ontario, the job losses are proportionately much worse in Alberta and British Columbia, provinces that may be ultimately more secure, thanks to commodities.
Likewise, the surprising 13.7-per-cent rise in housing starts in March, reported this week by Canada Mortgage and Housing Corporation, largely consisted of new condominiums in Ontario and Quebec, the very provinces where manufacturing has long predominated.
As for Canadian investment abroad, for the first time in statistically recorded history, Canada had a net asset position of $17-billion at the end of 2008 vis-à-vis the United States, as opposed to a net liability of $62-billion in 2007. In relation to all countries, our foreign investments rose by 24 per cent, mostly because the fall of the Canadian dollar raised the value of those assets in Canadian terms – but in any case the larger dividends and bond interest flowing into this country give Canadians more purchasing power.
The global recession is by no means over, but looking at the diversity of economic trends is a good remedy against panic.

Wednesday, April 8, 2009

Important Questions to Consider

This is an excerpt from an email that I received from one of my lenders this morning and asks some good questions to potential or current home owners:

2009 has been referred to as “Back to the Basics” in changes in lender guidelines, product offerings, and managing expenses. No one expects to get behind in their mortgage payments, however as 2009 can bring an unexpected change in circumstance to many Canadians, it’s important to get back to the basics with many of your homebuyers as well.
Have your homebuyers asked their employers if their job is secure before entering into the largest purchase of their life?
If they are attracted by ARM (adjustable rate mortgage) rates, can they afford the mortgage payment if their rate should jump by 1% over the next year?
Have they created a household budget?
Many may not even know how."A budget is a plan to help you live within your means".
Attached is an easy to use, household budget:
I hope you find the above links helpful!

Monday, April 6, 2009

Low rates not the only factor:

By Helen Morris, Financial Post

March 30, 2009

As mortgage rates remain low, homeowners looking to renew their mortgages can get some great deals. However, those people who are hoping to secure a good rate are also likely to be assessing their own wider financial well-being, what with increasing job losses, stock-market routs and the recession.
"If you [are] in a market sector that may be subject to layoffs or you believe that your employer may have issues and may not be there for you tomorrow," says Peter Veselinovich, vice-president, banking and mortgage operations at Investors Group, "you may want to adjust the amount of your payments to reflect what a reduced cash flow or revenue flow into your home might look like."
This could mean looking at a longer amortization period.
Mr. Veselinovich says it is crucial not to look at your mortgage in isolation but as part of your overall financial plan. Mortgage professionals suggest shopping for rates well before your renewal date.
"I would consult with a mortgage broker 120 days prior to your renewal date because we can hold a rate for you," says Heather Paterson, mortgage specialist with Invis in Toronto, an independent mortgage brokerage. "If rates go down, we can get you a lower rate; if rates go up, then we've got you protected at today's rate."
The sub-prime fiasco aside, there are many products and lenders operating in what's known as the conventional mortgage market in Canada. These are the lenders who provide mortgages for individuals with regular jobs and decent credit ratings.
"The overall mortgage rate environment in Canada is exceedingly good. You can get a five-year fixed mortgage for less than 5% ... there have been increases in the variable rate product -- it used to be there was a discount up to 1%," says Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP). "Today the best you can do is probably prime plus 0.6%."
This means that as the prime rate has fallen, variable customers could be looking at a rate as low as 3.6%.
"The difference in those rates is really the insurance premium for peace of mind you're going to get by locking in your rate," Mr. Veselinovich says. "I like to call it the insomnia factor ... if you're going to be concerned that ... any material movement in interest rates could reflect a payment that you could no longer afford ... then you should be looking at a fixed-rate mortgage."
Many economists expect rates to continue to decline.
"Going into the second half of this year, we will start to see a lower mortgage rate," says James Marple, economist in economic forecasting at TD Economics. "Going into 2010, we're starting to see signs of an economic recovery ... We start to see inflation picking up and we will see short-term interest rates rise."
Mr. Murphy says it is crucial to ask lots of questions and not only about the rate. If you are thinking of moving house in the near future, check whether your mortgage is portable without penalty if, for example, you move to another province. Most national lenders will be happy to do this but some smaller regional institutions may not be able to. Each mortgage deal has many varied aspects, so analyzing it in detail is crucial. For example, many have penalties associated with early repayment or early exit from the deal.
"If you're not satisfied with the answers you're getting, go to somebody else," Mr. Murphy says. "The rate environment itself is low and going lower. I think the lenders are trying to provide the best products they can in uncertain times."
© Copyright (c) National Post
Article LINK

Friday, April 3, 2009

CAAMP's March Statistics

Here's the April 2009 edition of the CAAMP statistics. CAAMP (Canadian Association of Accredited Mortgage Professionals) is a national association and publishes this great statistics page every month which shows a quick overview of the real estate market across Canada. The stats include a one year history of the Bank of Canada rate announcements, Government of Canada bond rates, total new housing starts across the country (compared to one year ago) as well as the change in Canadian house prices in each major city over the last year.
If you want to stay on top of the real estate market this is a great resource!

Review CAAMP's statistics HERE.

Thursday, April 2, 2009

First Quarter Housing Prices Hover Around $350,000

The Realtors Association of Edmonton just released the housing market statistics for March. The price of the average single family home is hovering around $350,000 with little change in the last three months.

According to Charlie Ponde, President of the Realtors Association, "with price stability, low interest rates, spring weather and pent-up demand, it appears that Realtors are starting to get busy again". I agree with Charlie, the market does seem busier in the last few weeks. Five year closed mortgage rates are hovering around 4%, we may not see rates this low for a long time. Why wait when, NOW is a good time to get out there and buy real estate?

Read the full statistics article HERE.