In the last week the big banks have increased their 5 year fixed mortgage rates by 30 basis points. The bond rates have increased by only 10 basis points.

It looks like the banks are trying to increase their earnings by charging their clients more when it doesn’t look like they need to. How much more do they need to make?

The credit unions have reduced their rates.

Now there is a 74 basis point difference in the 5 year fixed rate between the big banks and our credit unions.

For a $300,000 mortgage amortized over 30 years, there is a $11,452 difference in interest over 5 years. That is a large amount to be losing out on by using a bank.

This is creating a very good opportunity for those high interest mortgage holders right now.

The penalties for refinancing into a lower rate mortgage will be calculated on the increased rates, reducing them ,but your new rate will be much lower increasing the potential savings.

If the penalties were scaring you off before, this is a good time to take another look.

Please contact me if you have any questions or comments.

The Bank of Canada held its lending rate this morning as expected. The state of the rest of the world’s economy being the most significant reason for not tightening up the monetary policy. The quote below leaves the decision unknown for April’s meeting. It was expected that they would increase their lending rate in April but now it looks to be uncertain.

“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. “

The remaining article is available at

http://www.bankofcanada.ca/en/fixed-dates/2011/rate_010311.html 

Harbourview Mortgages first draw for Great Payment Giveaway!

EVENT DETAILS
Date:  Tuesday March 1st 2011
Time: 6:00-8:00 PM
Place: Oyster Bar, 618 Humboldt St.

Free Mortgage Payments for a year, what a great deal. You have 4 chances to win. Draws will be done quarterly, first draw will be March 1st.

If your mortgage funds with me between Dec 1, 2010 and Feb 28, 2011, you will be entered in the March 1st draw and the next 3 consecutive draws. Mortgages funded between March 1st and May 31st, you will be entered in the draw on June 1st draw and the next 3.

Refinances and purchases both qualify. Let anyone you know that may be thinking about a mortgage to give me a call or check out my website, rules at the resources link on the left.

Good Luck!!

The Bank of Canada held their lending rate steady today, stating “the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.” This along with “a significant source of uncertainty” from the worldwide market is keeping our Prime rate at 3%.

At the same time, measures introduced Monday by Finance Minister Jim Flaherty to clamp down on household debt, by making it harder for people to take on more obligations than they can afford, will likely give the central bank more flexibility to wait until it makes sense to raise rates throughout the economy rather than doing so to discourage a small subset of borrowers.

Governor Mark Carney hinted that if he could raise rates he would. Most economists are expecting the next increase to come in the second quarter.

Any questions or comments? Please email or give me a call any time.

The Honourable Jim Flaherty, Minister of Finance, and the Honourable Christian Paradis, Minister of Natural Resources, today announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada’s housing market and support hard-working Canadian families saving through home ownership.

“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” said Minister Flaherty. “The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”

“The economy continues to be our Government’s top priority,” continued Minister Paradis. “Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada’s housing market.”

The maximum amortization for insured mortgages is now 30 years, down from 35.

The maximum loan to value for refinances is now 85%, down from 90%.

They have withdrawn government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs.

The previous changes made in 2008 did not affect the market too drastically. I think these changes will strenghten our ecomony more and secure it down the road.

If you have any questions, please do not hesitate to call or email me.

Last week I sat in on a Firstline seminar and had the chance to listen to Benjamin Tal, the senior economist for CIBC. He made some very good points about the mortgage market, the global economy and where it is all headed.

He started off by saying the international markets used to affect our economy 2-6 months after the fact. That has completely changed and we are seeing the affects almost instantly.

Some the factors from other countries that are affecting us are from China, Europe and of course, the US.

China has increased their rates recently to slow down their economy. Their debt is actually quite higher than they are showing. They were using some creative ways to get government funding. Now the government doesn’t want it to get out of hand so they increased rates.

The US is showing some positive news but the numbers may not be as accurate as they are saying.

Most of the improvements in the economy have been due to the cash the Fed is injecting into the markets. There is not a lot of improvement in the economy and it will mostly likely stay that way for another 12 months so the Fed will have to continue to inject cash until the economy gets it footing.

The States is saving more and the debt to income ratio is falling which is good. Their income seems to be increasing as well but it is not from wages, it is from tax deductions.

Europe is still having their problems as well and it is not going to be over soon.

These factors will be affecting our markets and it will be very difficult for the Bank of Canada to increase rates until these international economies start to recover on their own without continuous help from their governments.

The bond market, which directly affects fixed rates, will also see the affects of these situations that are occurring in other countries and should stay low as well.

He concluded by saying that rates, both Prime and fixed, will be holding steady with minor increases over the next year.

Any questions of comments please feel free to let me know.

Chris

Now that rates are extremely low the IRD (interest rate differential) penalties are in full force.

Penalties from the big banks are calculated based on posted rates and discounts given at the creation of the mortgage.

They are calculated differently throughout the lenders. Most of the non-branch lenders use the rate on the mortgage, less the current rate of the term closest to what is remaining on your term, to calculate the differential.

The big banks calculate the differential. The first number is found by using the posted rate less your discount. The second is the current posted rate closest to what is remaining on your term less the original discount you received. The 2 numbers are subtracted and that is your differential. Sounds confusing.

For example;

Non branch lenders 5 year rate 2 years ago 4.99%

Big Banks posted rate 2 years ago 6.85% and discounted by 1.86% to equal 4.99%

Non Branch lenders current 3 year rate is 3.60%

Big Banks current posted 3 year rate is 4.1% less discount received 2 years ago, 1.86%, = 2.24%

That is a big difference when calculating a penalty.

For a $300,000 mortgage, the penalty for non branch lender, based on IRD of 4.99-3.60=1.39% is $12,500.

Same mortgage with HSBC is 4.99-2.24=1.75% is $24,750.

The discounts are higher with the longer term mortgages. So when they are used to calculate the penalties on shorter term mortgage rates the difference is substantial. That is how they tighten their grip on you. It limits your options.

The banks rarely explain this to you, and even if they did, there are very few people that would understand.

Options and knowledge are your friends. Using a bank limits them incredibly from the start of the mortgage to the finish because they are looking out for themselves.

They keep you because they limit your options by not giving you the knowledge. Using a broker like myself gives you both. I choose what is best for you with unlimited resources.

http://www.rbc.com/economics/market/pdf/house.pdf

You may have heard the report that RBC published and was televised Monday night. I have attached the link to the actual report below.

 RBC red flagged Vancouver due to the lack of affordability.

 Since when has Vancouver been affordable? Why red flag it now? Why is only there only negative news coming from the big banks.

The say affordability is decreasing in Vancouver and I guess that would transfer over to Victoria a little, if it were the case.

 The reasons they used are recent increasing rates and increasing values.

 The percentage of household income taken up by ownership costs is not as high as it was in 2007-08 and the market is softening, prices are reducing.

 The fixed rates have decreased almost a full percentage since they started increasing prime this summer. And even though Prime has gone up to 3%, the variable rate mortgages have stayed the same due to the better discounts that are being offered.

 6 months ago the big banks released a publication saying that Prime rate and fixed rates are going up, and fast. Banks do not make as much money on variable mortgages as they do fixed. Since then, fixed rates have decreased substantially and prime is increasing slowly, so far, but looks like it won’t be going anywhere anytime soon.

It is hard to take these types of articles seriously when it looks like they only have their own best interests in mind.