Posts Tagged ‘Rates’
Why Are Fixed Mortgage Rates Rising?
Over the past week fixed mortgage rates in Canada have been on the rise. In fact, in most cases, lenders have increased their 5 year fixed rate by up to 35 basis points (.35%). What causes Mortgage Rates to increase? As I have mentioned in previous posts, Canadian mortgage rates use 5 year bond yields as a benchmark. The graph above illustrates bond yields over the last couple of weeks and as you can see, it has been a steady climb. As bond yields increase, Lenders' profits decrease. Most lenders like to keep their margins around 1.25%. In many cases deeply discounted rates were being offered at 3.69%. With a bond yield of close to 2.90% they were far from their desired margins. So where are rates going? It is hard to say. I can see the current upward trend softening and possibly seeing a slight retreat. It is important to remember that even though rates have seen a recent increase, we are still at historically low levels. Be sure to get your Pre-approvals to protect yourself from any further ...
Bank of Canada Raises Rates – What Next?
Yesterday the Bank of Canada (BOC) finally made good on their promise to raise rates and they bumped the overnight lending rate up by .25%. If you are not familiar with the overnight lending rate....it is the rate the Bank of Canada charges Canadian banks to borrow money. In turn the banks use this as a benchmark for setting their prime lending rate. As a result of the BOC increase Canadian lenders have raised their prime rates from 2.25% to 2.50%. Can We Expect A Drastic Increase in Mortgage Rates? No. Sure we are going to see rates go up....after all we can't expect to keep rates at recent low levels indefinitely, but it is most likely not going to be a quick rise. Do Recent Events in the European Economy Have an Impact on Canadian Rates Yes. In today's global economy what happens in Europe, Asia, the US...etc does have an impact on Canada's economic decisions. In fact the reason we are expecting variable rates to climb slowly in the coming years is due to the impact of the US's financial situation. Although their economy appears to be recovering, ...
Variable VS Fixed Mortgages
One of the main considerations when getting a mortgage if whether to lock in your rate or choose a variable rate mortgage. I always educate my clients on the pros and cons of each mortgage type and then help them make a decision that will be best for their financial situation and risk profile. I have mentioned before that historically a client you chooses a variable rate will be better off in the long run. Sure, there are ups with the downs, but on average they are paying less interest than their counterparts who lock in for extended terms. I think the graph below illustrates this point nicelyTo see what I mean, pick a point on the green line (fixed rates) and then draw a line straight across the page (to the right). See how many times the orange line crosses above the line you drew. This will tell you how many times the variable rate would have been equal to or greater than the fixed rate mortgage you chose. Most of the time the variable rate is well below. It will be interesting to see ...
Bond Yields Are Up – Will Mortgage Rates Follow?
We have been enjoying falling mortgage rates over the last few weeks, but we might be in for a reversal. Strong economic data released on Friday in Canada and the US has resulted in bond yields increasing by .14%. As I have explained before fixed rate mortgages in Canada are driven by government bond yields so it is probably only a matter of time before we see lenders start to increase rates. At the very least we will see a halt to the falling rates and we will probably hover where we are for the remainder of the year. Right now 5 year rates are slightly below 4% which is well off the 10 year average of almost 5.5%. The Bank of Canada will be holding its last rate announcement of the year tomorrow and it is expected they will leave the prime lending rate were it is. The Bank of Canada has pledged to keep rates where they are until mid 2010, but if we see continued positive job creation in the coming months they might be forced to start increasing rates.
8 Economic Insights from Benjamin Tal
CIBC's chief economist, Benjamin Tal spoke at a Mortgage industry event last week. He is always an interesting speaker and provides insight on not only the Canadian economy, but how the ripple effect of world economies will impact us. I have summarized Benjamin's key points below. The recession is over, but we will pay for what the US Fed is doing. Interest rates will rise and deficits will drag on Canada's economy The next wave of US mortgage resets will peak in 2011, but fortunately these mortgages mostly sit on lender's balance sheets and have not been securitized. This will help limit the global impact. We will see consumers spend and borrow less over the next five years. Part of this is due to fear and part is due to lending criteria becoming more strict The bank of Canada will have no choice, but to wait for the US to start raising their interest rates. If Canada were to increase rates earlier it would cause our dollar to appreciate and put our already fragile recovery in jeopardy We do not have the evidence to support we are in a housing bubble. The fact that people are taking advantage of low interest rates shows the government's ...
Why Bank of Canada is leaving rates alone
There has been alot of talk recently about the Bank of Canada and whether or not they should start raining interest rates. As the news we are hearing is starting to become more positive (strong Canadian dollar, Stock market rallies, Recession is over...etc), some are suggesting the Bank of Canada is going to start raising rates in order to keep the Canadian economy from experiencing extreme inflation. For those of you that read my site to keep on top of recent rates and pick up a few homebuying tips.....you can probably stop reading now. But for those of you that are interest to hear why interest rates and the economy are so closely linked, keep on reading. There was recently an article in the Globe and Mail that summarized this topic nicely so I thought I would talk about some of the main points in the article. As you will see, the Bank of Canada has quite a few good reasons why they are still holding to their promise to keep the prime lending rate where it is until next summer. Borrowing is still weak - Although interest rates are at all time lows, the demand for money is still weak. In ...
Bank of Canada Keeps Prime Rate Unchanged
The Bank of Canada announced today that it will leave its key interest rate unchanged and restated its commitment to holding this rate steady until mid-2010, conditional on the outlook for inflation. The Bank noted in its statement that a recovery in economic activity is under way in Canada, “supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence.” However the Bank expects a high Canadian dollar to offset recent favourable developments in the economy. Lenders are expected to keep their prime lending rate steady. Variable-rate mortgages, variable-rate credit cards, and home equity lines of credit are typically linked to a lender’s prime rate. Over the past week, the pricing of new variable-rate mortgages in relation to the prime rate has improved. A couple of lenders have started offering a slight discount to the prime rate on 3 year variable mortgages. While pricing for fixed-rate mortgages is not directly affected by today’s announcement, rates on some fixed products have been increasing in the past week.
Bank of Canada Keeps Rates Steady
The Bank of Canada announced this morning that it will leave its key interest rate unchanged and restated its commitment to holding this rate steady until mid-2010, conditional on the outlook for inflation. In its statement the Bank declared that “recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets.” Lenders are expected to keep their prime lending rate steady. Variable-rate mortgages, variable-rate credit cards, and home equity lines of credit are typically linked to a lender’s prime rate. However, in recent weeks the pricing of new variable-rate mortgages in relation to the prime rate has improved, especially in the case of 3-year and 4-year variable products. While pricing for fixed-rate mortgages is not directly affected by today’s announcement, rates on certain fixed products have been declining recently.
50/50 Mortgage offers great 5 year mortgage rate
As i have posted many times on this blog, the first question out of most people's mouths when I first start speaking to them about their financing needs is "what's the best five year rate you can get me?" In an industry that is driven by competitive pricing of its product, I can understand where that question comes from. As i ahve also mentioned on this site several times....there is more to a mortgage than just a low rate. Well, in this post I am happy to say I am going to talk about....low rates. In fact I am going to talk about a mortgage rate lower than any other 5 year rates I have seen advertised. I am now offering my clients a 5 year rate of 3.47%. How can I offer a rate that low? Well, notice I didn't say it is a 5 year "fixed" rate. This is a unique product that allows you to take advantage of the low rates of a variable mortgage while maintaining some of the security of a fixed mortgage. It is called a 50/50 mortgage. Basically 50% of the funds are locked in at today's low 5 year fixed rate of 4.29% while ...
Mortgage Rates
For those of you who have been shopping around for the lowest mortgage rate, your mortgage broker may have offered you a mortgage with a non-standard term. Usually fixed mortgages come in 1, 3, 4, 5, 7, 10 year terms....atleast those are the most common. However, recently a few lenders have been offering mortgages with unusual terms such as 42 months or some other odd number that probably does not make much sense to the average consumer, and possibly not even the average mortgage broker. The one thing most people will notice is the interest rate on these unique term mortgages is quite attractive. The question remains, why are lenders offering lower mortgage rates on these particular products and why are they venturing outside the normal mortgage terms? I am going to try to explain how these products came about. First, you need to realize that most mortgages in Canada are securitized. This means after you get your mortgage the lender packages your mortgage with hundreds of others and sells them into the Canadian Mortgage Backed Securities market (CMBS). Units of these mortgage backed securities are then sold off to investors who receive a monthly cashflow from their investment. Your lender still ...
