Harper says no need for action in housing market, as rate wars rage

“We continue to watch the housing market and the lending and borrowing situation very carefully," Prime Minister Stephen Harper said Wednesday.

“We continue to watch the housing market and the lending and borrowing situation very carefully," Prime Minister Stephen Harper said Wednesday.

CANADIAN PRESS/Sean Kilpatrick

Prime Minister Stephen Harper said Wednesday Ottawa is closely watching developments in the still-hot housing market, but there’s no need for another intervention.

“I’m not saying I’m unconcerned. We are watching it. We’re not planning to take any immediate action,” Harper told reporters after an event in Mississauga, Ont.

“We continue to watch the housing market and the lending and borrowing situation very carefully,” he said.

 

The Prime Minister made the remarks as Canada’s big banks made fresh cuts to mortgage lending rates, with the Bank of Montreal leading the market lower by slicing its 5-year, fixed rate to 2.79 per cent.

That should help rev up home sales across the country this spring, even as buyers confront affordability constraints in big centres — namely Vancouver and Toronto.

There are also concerns though that Canadians have piled on too much debt and that some pockets of the housing market have become “overheated.”

MORE: Spring real estate market heats up in Toronto, Vancouver, realtors say

But with borrowing rates edging back toward all-time lows, Harper said debt-servicing costs are falling and default rates remain extremely low.

Harper said Wednesday he believes Canada’s financial institutions remain strong and well capitalized.

The last time the big banks cut mortgage rates to their current levels, in 2013, then-Finance Minister Jim Flaherty publicly criticized lenders for their “race to the bottom” approach. Lenders raised rates after the warning.

Flaherty’s public criticism was preceded by a series of mortgage-tightening rules were implemented, chiefly in 2012 when amortization periods for insured home loans were capped at 25 years.

MORE: IMF warns over Canada’s ‘overheated housing market’ — again

Lending re-accelerates

While the moves created a lull in lending growth, experts have noted a re-acceleration in recent months.

“Following a sustained period of stable year-over-year increases, mortgage growth accelerated for the third consecutive month in January,” RBC economists said in a research note published earlier this month.

Total outstanding home loans grew by 5.4 per cent from the year-ago level to mark the fastest rate of growth since November 2013, RBC said.

Prices cooling

The faster pace of lending appears to be concentrated to within a dwindling number of markets, though, namely — again — Vancouver and Toronto.

Resale and pricing data published by the Canada Real Estate Association last week show the country’s two most expensive markets propping up national figures, which otherwise would be far weaker.

“The national average home price remains skewed by sales activity in Greater Vancouver and Greater Toronto, which are among Canada’s most active and expensive housing markets,” the association said.

MORE: Home prices are cooling everywhere but red-hot Vancouver, Toronto

The average benchmark price for a home in Canada continued to rise at a surprisingly strong pace last month, climbing 6.3 per cent, to $431,812. But excluding those two markets, the average price gain would have come in at a much tamer 1.5 per cent, to an average price of $326,910.

Calgary, formerly the hottest housing market in the country as higher oil prices bolstered an active market, still saw average prices climb nearly 6 per cent last month, according to CREA. But “the increase was far smaller than gains posted last year and the smallest since December 2012,” the association said.

“In other markets from West to East, prices were up compared to year-ago levels by between two and two-and-a-half per cent in the Fraser Valley, Victoria, and Vancouver Island, while holding steady in Saskatoon, Ottawa, and Greater Montreal, and falling in Regina and Greater Moncton,” CREA said.

– With files from the Canadian Press

jamie.sturgeon@globalnews.ca

Read full post

Major banks like RBC have finally lowered interest rates on home loans in tandem with the Bank of Canada’s rate cut made last week.

 

Big lenders have begun offering fixed-rate mortgages at rock-bottom rates of as little as 2.84 per cent, while smaller lenders can be found providing fixed-rate loans at as low as 2.69 per cent.

 

Meanwhile home loans with variable rates – i.e. with an interest rate that’s not set but instead floats up and down – have edged below 2 per cent.

 

The renewed mortgage rate wars sparked by the Bank of Canada’s surprise cut are sure to draw out house hunters in the weeks and months ahead. But can you afford that mortgage, even at the current ultra-low levels of interest?


Rule of thumb


The historical rule of thumb among mortgage experts is that no more than about 32 percent of household pre-tax income should be spent on housing costs, like your mortgage, utilities, condo fees and property taxes.

A record boom in housing prices however has thrown that threshold out the window for more than a few Canadian households. Royal Bank of Canada suggests the average family who owns a home dedicates 42.6 per cent of their income to covering the mortgage, utilities, property taxes as well as fees for condominium owners.

 

In some centres – notably Vancouver (83.6 per cent) and Toronto (56.3 per cent) – the percentage is far higher.

 

How much house can you handle? Use this calculator to find out.


For condo owners, simply lump monthly fees into property taxes. (And to determine your potential monthly payment, use this calculator to find out.


Affordability Calculator

Mortgage experts suggest no more than 32% of household income be spent on housing costs. Whether you're looking for a home or already have one, use this calculator to determine your affordability reading.

 

Original Article by Global News

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by Chris O' Sullivan - cosullivan@mortgagwriters.ca

The answer to this question depends on one two things: One’s current financial situation and do you want to save on paying the interest part of the mortgage.

I will go over the different payment options available and provide a chart on how much a mortgage will cost you depending on the payment option you decide on.

The Monthly Mortgage Payment:

This is the most standard payment. You pay your mortgage once a month. This is the most expensive option, since you don’t save anything on interest fees. You will have 12 payments for the entire year.

Semi-Monthly Mortgage Payment:

This option requires two equal payments ( 50% on the monthly payment), which makes 24 payments for the entire year. This is a better option than the monthly payment. It will save you more on the interest payments.

Bi-Weekly Mortgage Payment:

This option requires the borrower to make mortgage payments every two weeks on the same day. You will pay a total of 26 payments for the year.  You make half the monthly payment every two weeks. So you will make 13 full payments for the entire year. This will save you a bit more on the interest then the semi-monthly option.

Accelerated Weekly Mortgage Payment:

This will give you slightly better interest rate savings then the accelerated bi-weekly payment option. You will make 52 payments per year. This results in an additional monthly payment for the year.

This chart will assume a mortgage of $200,000, for a 5 year fixed term at 3.39%, with amortization of 25 years.  Below are the different payment options and the savings associated with each from a monthly payment option.

 

Total Payments

Total Interest Paid

Time To Payoff Mortgage

Savings 

Monthly Mortgage Payment

$296,088

$96,088

300 months

(25 yrs.)

N/A

Semi-Monthly Mortgage Payment

$295,765

$95,765

300 Months (25 yrs.)

$323.00

Bi-Weekly Mortgage Payment

$283,606.59

$83,606.59

266 months

(22 yrs. and 2 months)   

$12,483.21

Weekly Mortgage Payment

$283,470.10

$83,470.10

266 months

(22yrs. And 2 months)

$12,619.71

 

This chart will assume a mortgage of $450,000, for a 5 year fixed term at 3.39%, with amortization of 25 years.  Below are the different payment options and the savings associated with each from a monthly payment option.

 

Total Payments

Total Interest Paid

Time To Payoff Mortgage

Savings 

Monthly Mortgage Payment

$666,200.36

$216,200.36

300 months

(25 yrs.)

N/A

Semi-Monthly Mortgage Payment

$665,471.25

$215,471.25

300 Months (25 yrs.)

$729.10

Bi-Weekly Mortgage Payment

$638,114.83

$188,114.83

266 months

(22 yrs. and 2 months)   

$28,065.52

Weekly Mortgage Payment

$637,804.92

$187,804.92

266 months

(22yrs. And 2 months)

$28,395.44

 

If you can, it is well worth to use a bi-weekly or weekly payment structure to pay down your mortgage.
Chris O'Sullivan
 
Chris O'Sullivan is a mortgage agent for The Mortgage Writers and can be reached at cosullivan@mortgagewriters.ca
 
 
 
  
Read full post

This is the question that I get most asked: Should I go with a fixed or variable mortgage?

In the past, when the spread between the variable and fixed rates were way farther apart, it was an easy answer, as long as the client didn’t mind their monthly payments fluctuating. I would always answer: Go with the variable.

This was because, historically, the variable has saved homeowners money more than 85% of the time. However, times have changed and the spread between the variable and fixed rates has become a lot closer, since banks are not discounting the variable rates as much,  the best variable now is prime – 0.35%, that equates to 2.65%. The best fixed rate right now for a five year term is 3.29%. The spreads have come closer primarily because banks are losing money on the variable side and are trying to direct borrowers to the fixed side with lower spreads.

So back to the question: Should I go with the variable or fixed mortgage?

With the fixed rate mortgage, homeowners lock in their mortgage for a period of time, the most popular being the five year fixed-rate mortgage. Since rates can arguably only go up from the rates we are at, it seems like a logical decision to go with a fixed mortgage.

The difference between today’s variable rate, which is 2.65% and the four year fixed, 2.99%, is a difference of 34 basis points or just over one rate hike.

This is a small difference to have the security knowing that you won’t have to pay more if rates were to rise.

Moshe Milevsky, professor at York University and an author of mortgage studies says that the savings that one may get from variable rates in the future will be a lot lower then what was once enjoyed.

However, a person’s circumstances should dictate if they should go with a fixed or variable mortgage. If a person can take on the fluctuation of monthly payments, then the variable is ok for them.

One must remember that a mortgage is only one piece of a person’s total financial plan.

However, if you are still struggling to decide which mortgage is right for you, these are the top considerations to think about:

1.     Your Financials

Since variable – rate mortgages take on more risk, a person needs to know whether they are able to take on a fluctuating variable – rate mortgage. A person’s income should be stable, their debt should be low, a person’s sensitivity to risk should be low, and any assets a person has, are able to be turned into cash if cash flow tightens.

2.     Spreads

This is the difference between the variable – rate mortgage and the fixed rate mortgage. When this difference tightens, the variable losses some advantage. When the spread is less than one percentage point and the economy is at the bottom of an economic cycle, like we are now, the fixed has a higher probability of outperforming. Today’s spread between a five year fixed and a variable mortgage is half a percentage point. Based on this, a fixed is likely to outperform.

3.     Breaking Your Mortgage Early

One bank study pegged the duration of a five year mortgage is 3.3 years. This is because people break their five year mortgage early to refinance, sell, divorce, or just change to a mortgage with a better rate. Penalties on variables tend to be less, only three months interest, compared to breaking a fixed rate mortgage. Penalties for breaking the fixed rate can be a lot more expensive because of lenders interest rate differential penalties. If there is a chance you will break your mortgage, a variable may cost you less.

4.     Flexibility

Variables give you the option of changing your mind and locking into a fixed rate option. However, a lender’s rate to convert is about a fifth to a half a percentage point above its best fixed rate.

5.     Alternatives

The five year fixed and the variable mortgages are not the only options; look at shorter fixed terms. Today, you can find a two year fixed rate at 2.49%, where most variables are at 2.7% - 2.90%. You can diversify risk by using a hybrid mortgage. This is part fixed and part variable.

6.     Knowing Your Rate

There is comfort to know what your monthly payments will be from month to month. Variable rate borrowers don’t have this comfort and may have to tolerate some anxiety if rates start to rise.

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Well, we finally have some details and insight for the 2011 housing market, and it's about to get tougher for new home owners, and even those currently in the market.

There have been significant announcements this week for everyone interesting in buying or selling a home.  Timing is everything, and it appears that once again, there will be some significant changes that you need to be aware of. 

Considering the forecast for the Calgary Housing market to start increasing in pricing, and the tighter mortgage rules that will be coming into force in 60 days, now might be a vital window for home owners that are currently considering a move.

It is especially urgent for homeowners who are currently wishing to sell their current homes and lock in a new mortgage rate on a newly purchased home.  With only 60 days to finalize before the new rates come into effect, it will be a challenge to get a home on the market and sold in time to take advantage of the current status.  The up side is that over the next two months, the market may get very fluid with those who need to take advantage of the current mortgage rules.

I received the following details from one of my mortgage specialists advising that there will be some major changes in how mortgages are approved. This is a significant tightening for those of you who are currently considering purchasing a new home.

1.       No more 35 year amortizations

 

As of March 18, 2011 all insured deals will be allowed a 30 year amortization. Any fully signed contracts whether it be a purchase or refinance committed to by CMHC on or before March 18 will be honoured over 35 years.  You cannot have an increase in price after this date - if you do, you will be subject to the 30 year amortization.

2.       Refinancing has been scaled back to 85%.

 

As of March 18th,  home owners will have access to 85% of the value of a home instead of the current 90%. This will affect  you as a  home buyer when you take equity out of your home for a down payment.  In this case, you won’t be able to get as much funding up front and your monthly  payments will be higher.

Current and potential buyers please note that the magic date is March 18th, 2011.

On a $450,000 purchase with 5% down, this would save you $200.00 per month in mortgage payments and your affordability increases by 3%.

For those who are considering a home purchase requiring an insured mortgage (less than 20% down payment), you will want to complete pre-approval and possession of home prior to March 18 2011.

If you are currently sitting on the fence as to whether or not to make your move it is important to understand that buying today will save you money in the long run. After March 18th, this window will be closed.

If you are currently considering a home purchase and would like to speak to a mortgage specialist, I have excellent resources who are very talented in obtaining financing.  Please feel free to call me at 403-399-0809 and I will put you in touch with someone who can assist you according to your current circumstances.

For further information on these changes, and the background associated, here are a few links you can visit:

The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada’s Housing Market

Backgrounder: Supporting the long-term stability of Canada’s housing market

CALGARY HERALD ARTICLE: FeDERAL GOVERNMENT TIGHTENS MORTGAGE RULES AGAIN

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Clarifications on Canada Mortgage Changes

Finally!  Here are some clarifications on mortgage changes The Bank of Canada announced almost a month ago!

Effective April 19th, all terms less than 5 years that are high ratio insured mortgages (anything less than 80% Loan to Value) will be qualified using the greater of the chartered bank 5-year posted rate (5.39% currently), or the term rate (some banks have fixed rates on 5 – 10 year terms that are higher than 5.39%).  Currently most banks are qualifying right around 4% on variables and will only qualify higher on fixed terms less than 3 years.  So what does this mean?  Until CMHC changes its mind again, 5 year fixed rates are the only rates that you won’t have to qualify on the highest rate.    

The posted qualifying rate will be published by the Bank of Canada each Monday.  Here’s the link:  Posted Mortgage Rate  (Look for series V121764.)

More not-so-good news for Canadians – Fixed rates look like they will be going up right away!  How do we know?  Because Canada’s 5 year government bond jumped up 18 points last week, the most in almost five months.  (Bond yields guide fixed-rate mortgage pricing.)  Yes, you may have heard that the Bank of Canada has kept the prime rate the same, but variable rates and fixed rates are usually influenced by different factors. 

Some reasons why fixed rates may be rising very shortly:

·         stronger-than-forecasted U.S. employment data

·         new June maturity as the 5-year benchmark, asset rotation into stocks

·         20% increase in debt issuance announced in last week’s budget

·         Increased consumer confidence

·         More people spending money

A reason why rates might hold off a bit:

·         Canadian employment data that usually comes out the same day as U.S. data has been held off until this week.  If jobs are up, then we’ll be seeing interest rates jump up once again. 

Here are some more changes happening in the industry because of the 2010 Federal Budget.

  • Pre-payment Penalties: The Government will attempt to “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. (This applies to federally regulated lenders.)  This is mainly to help inform the average Canadian about clauses in their mortgages papers like Interest Rate Differential (IRD) penalties. 
  • Credit Unions:  The Canadian government will begin “legislative framework to enable credit unions to incorporate and continue federally.”  This could help Credit Unions have more of a chance to compete with big banks so that they could do other provinces then just the ones they are located in. 
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Harper says no need for action in housing market, as rate wars rage

“We continue to watch the housing market and the lending and borrowing situation very carefully," Prime Minister Stephen Harper said Wednesday.

“We continue to watch the housing market and the lending and borrowing situation very carefully," Prime Minister Stephen Harper said Wednesday.

CANADIAN PRESS/Sean Kilpatrick

Prime Minister Stephen Harper said Wednesday Ottawa is closely watching developments in the still-hot housing market, but there’s no need for another intervention.

“I’m not saying I’m unconcerned. We are watching it. We’re not planning to take any immediate action,” Harper told reporters after an event in Mississauga, Ont.

“We continue to watch the housing market and the lending and borrowing situation very carefully,” he said.

 

The Prime Minister made the remarks as Canada’s big banks made fresh cuts to mortgage lending rates, with the Bank of Montreal leading the market lower by slicing its 5-year, fixed rate to 2.79 per cent.

That should help rev up home sales across the country this spring, even as buyers confront affordability constraints in big centres — namely Vancouver and Toronto.

There are also concerns though that Canadians have piled on too much debt and that some pockets of the housing market have become “overheated.”

MORE: Spring real estate market heats up in Toronto, Vancouver, realtors say

But with borrowing rates edging back toward all-time lows, Harper said debt-servicing costs are falling and default rates remain extremely low.

Harper said Wednesday he believes Canada’s financial institutions remain strong and well capitalized.

The last time the big banks cut mortgage rates to their current levels, in 2013, then-Finance Minister Jim Flaherty publicly criticized lenders for their “race to the bottom” approach. Lenders raised rates after the warning.

Flaherty’s public criticism was preceded by a series of mortgage-tightening rules were implemented, chiefly in 2012 when amortization periods for insured home loans were capped at 25 years.

MORE: IMF warns over Canada’s ‘overheated housing market’ — again

Lending re-accelerates

While the moves created a lull in lending growth, experts have noted a re-acceleration in recent months.

“Following a sustained period of stable year-over-year increases, mortgage growth accelerated for the third consecutive month in January,” RBC economists said in a research note published earlier this month.

Total outstanding home loans grew by 5.4 per cent from the year-ago level to mark the fastest rate of growth since November 2013, RBC said.

Prices cooling

The faster pace of lending appears to be concentrated to within a dwindling number of markets, though, namely — again — Vancouver and Toronto.

Resale and pricing data published by the Canada Real Estate Association last week show the country’s two most expensive markets propping up national figures, which otherwise would be far weaker.

“The national average home price remains skewed by sales activity in Greater Vancouver and Greater Toronto, which are among Canada’s most active and expensive housing markets,” the association said.

MORE: Home prices are cooling everywhere but red-hot Vancouver, Toronto

The average benchmark price for a home in Canada continued to rise at a surprisingly strong pace last month, climbing 6.3 per cent, to $431,812. But excluding those two markets, the average price gain would have come in at a much tamer 1.5 per cent, to an average price of $326,910.

Calgary, formerly the hottest housing market in the country as higher oil prices bolstered an active market, still saw average prices climb nearly 6 per cent last month, according to CREA. But “the increase was far smaller than gains posted last year and the smallest since December 2012,” the association said.

“In other markets from West to East, prices were up compared to year-ago levels by between two and two-and-a-half per cent in the Fraser Valley, Victoria, and Vancouver Island, while holding steady in Saskatoon, Ottawa, and Greater Montreal, and falling in Regina and Greater Moncton,” CREA said.

– With files from the Canadian Press

jamie.sturgeon@globalnews.ca

Read full post

Major banks like RBC have finally lowered interest rates on home loans in tandem with the Bank of Canada’s rate cut made last week.

 

Big lenders have begun offering fixed-rate mortgages at rock-bottom rates of as little as 2.84 per cent, while smaller lenders can be found providing fixed-rate loans at as low as 2.69 per cent.

 

Meanwhile home loans with variable rates – i.e. with an interest rate that’s not set but instead floats up and down – have edged below 2 per cent.

 

The renewed mortgage rate wars sparked by the Bank of Canada’s surprise cut are sure to draw out house hunters in the weeks and months ahead. But can you afford that mortgage, even at the current ultra-low levels of interest?


Rule of thumb


The historical rule of thumb among mortgage experts is that no more than about 32 percent of household pre-tax income should be spent on housing costs, like your mortgage, utilities, condo fees and property taxes.

A record boom in housing prices however has thrown that threshold out the window for more than a few Canadian households. Royal Bank of Canada suggests the average family who owns a home dedicates 42.6 per cent of their income to covering the mortgage, utilities, property taxes as well as fees for condominium owners.

 

In some centres – notably Vancouver (83.6 per cent) and Toronto (56.3 per cent) – the percentage is far higher.

 

How much house can you handle? Use this calculator to find out.


For condo owners, simply lump monthly fees into property taxes. (And to determine your potential monthly payment, use this calculator to find out.


Affordability Calculator

Mortgage experts suggest no more than 32% of household income be spent on housing costs. Whether you're looking for a home or already have one, use this calculator to determine your affordability reading.

 

Original Article by Global News

Read full post

by Chris O' Sullivan - cosullivan@mortgagwriters.ca

The answer to this question depends on one two things: One’s current financial situation and do you want to save on paying the interest part of the mortgage.

I will go over the different payment options available and provide a chart on how much a mortgage will cost you depending on the payment option you decide on.

The Monthly Mortgage Payment:

This is the most standard payment. You pay your mortgage once a month. This is the most expensive option, since you don’t save anything on interest fees. You will have 12 payments for the entire year.

Semi-Monthly Mortgage Payment:

This option requires two equal payments ( 50% on the monthly payment), which makes 24 payments for the entire year. This is a better option than the monthly payment. It will save you more on the interest payments.

Bi-Weekly Mortgage Payment:

This option requires the borrower to make mortgage payments every two weeks on the same day. You will pay a total of 26 payments for the year.  You make half the monthly payment every two weeks. So you will make 13 full payments for the entire year. This will save you a bit more on the interest then the semi-monthly option.

Accelerated Weekly Mortgage Payment:

This will give you slightly better interest rate savings then the accelerated bi-weekly payment option. You will make 52 payments per year. This results in an additional monthly payment for the year.

This chart will assume a mortgage of $200,000, for a 5 year fixed term at 3.39%, with amortization of 25 years.  Below are the different payment options and the savings associated with each from a monthly payment option.

 

Total Payments

Total Interest Paid

Time To Payoff Mortgage

Savings 

Monthly Mortgage Payment

$296,088

$96,088

300 months

(25 yrs.)

N/A

Semi-Monthly Mortgage Payment

$295,765

$95,765

300 Months (25 yrs.)

$323.00

Bi-Weekly Mortgage Payment

$283,606.59

$83,606.59

266 months

(22 yrs. and 2 months)   

$12,483.21

Weekly Mortgage Payment

$283,470.10

$83,470.10

266 months

(22yrs. And 2 months)

$12,619.71

 

This chart will assume a mortgage of $450,000, for a 5 year fixed term at 3.39%, with amortization of 25 years.  Below are the different payment options and the savings associated with each from a monthly payment option.

 

Total Payments

Total Interest Paid

Time To Payoff Mortgage

Savings 

Monthly Mortgage Payment

$666,200.36

$216,200.36

300 months

(25 yrs.)

N/A

Semi-Monthly Mortgage Payment

$665,471.25

$215,471.25

300 Months (25 yrs.)

$729.10

Bi-Weekly Mortgage Payment

$638,114.83

$188,114.83

266 months

(22 yrs. and 2 months)   

$28,065.52

Weekly Mortgage Payment

$637,804.92

$187,804.92

266 months

(22yrs. And 2 months)

$28,395.44

 

If you can, it is well worth to use a bi-weekly or weekly payment structure to pay down your mortgage.
Chris O'Sullivan
 
Chris O'Sullivan is a mortgage agent for The Mortgage Writers and can be reached at cosullivan@mortgagewriters.ca
 
 
 
  
Read full post

This is the question that I get most asked: Should I go with a fixed or variable mortgage?

In the past, when the spread between the variable and fixed rates were way farther apart, it was an easy answer, as long as the client didn’t mind their monthly payments fluctuating. I would always answer: Go with the variable.

This was because, historically, the variable has saved homeowners money more than 85% of the time. However, times have changed and the spread between the variable and fixed rates has become a lot closer, since banks are not discounting the variable rates as much,  the best variable now is prime – 0.35%, that equates to 2.65%. The best fixed rate right now for a five year term is 3.29%. The spreads have come closer primarily because banks are losing money on the variable side and are trying to direct borrowers to the fixed side with lower spreads.

So back to the question: Should I go with the variable or fixed mortgage?

With the fixed rate mortgage, homeowners lock in their mortgage for a period of time, the most popular being the five year fixed-rate mortgage. Since rates can arguably only go up from the rates we are at, it seems like a logical decision to go with a fixed mortgage.

The difference between today’s variable rate, which is 2.65% and the four year fixed, 2.99%, is a difference of 34 basis points or just over one rate hike.

This is a small difference to have the security knowing that you won’t have to pay more if rates were to rise.

Moshe Milevsky, professor at York University and an author of mortgage studies says that the savings that one may get from variable rates in the future will be a lot lower then what was once enjoyed.

However, a person’s circumstances should dictate if they should go with a fixed or variable mortgage. If a person can take on the fluctuation of monthly payments, then the variable is ok for them.

One must remember that a mortgage is only one piece of a person’s total financial plan.

However, if you are still struggling to decide which mortgage is right for you, these are the top considerations to think about:

1.     Your Financials

Since variable – rate mortgages take on more risk, a person needs to know whether they are able to take on a fluctuating variable – rate mortgage. A person’s income should be stable, their debt should be low, a person’s sensitivity to risk should be low, and any assets a person has, are able to be turned into cash if cash flow tightens.

2.     Spreads

This is the difference between the variable – rate mortgage and the fixed rate mortgage. When this difference tightens, the variable losses some advantage. When the spread is less than one percentage point and the economy is at the bottom of an economic cycle, like we are now, the fixed has a higher probability of outperforming. Today’s spread between a five year fixed and a variable mortgage is half a percentage point. Based on this, a fixed is likely to outperform.

3.     Breaking Your Mortgage Early

One bank study pegged the duration of a five year mortgage is 3.3 years. This is because people break their five year mortgage early to refinance, sell, divorce, or just change to a mortgage with a better rate. Penalties on variables tend to be less, only three months interest, compared to breaking a fixed rate mortgage. Penalties for breaking the fixed rate can be a lot more expensive because of lenders interest rate differential penalties. If there is a chance you will break your mortgage, a variable may cost you less.

4.     Flexibility

Variables give you the option of changing your mind and locking into a fixed rate option. However, a lender’s rate to convert is about a fifth to a half a percentage point above its best fixed rate.

5.     Alternatives

The five year fixed and the variable mortgages are not the only options; look at shorter fixed terms. Today, you can find a two year fixed rate at 2.49%, where most variables are at 2.7% - 2.90%. You can diversify risk by using a hybrid mortgage. This is part fixed and part variable.

6.     Knowing Your Rate

There is comfort to know what your monthly payments will be from month to month. Variable rate borrowers don’t have this comfort and may have to tolerate some anxiety if rates start to rise.

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Well, we finally have some details and insight for the 2011 housing market, and it's about to get tougher for new home owners, and even those currently in the market.

There have been significant announcements this week for everyone interesting in buying or selling a home.  Timing is everything, and it appears that once again, there will be some significant changes that you need to be aware of. 

Considering the forecast for the Calgary Housing market to start increasing in pricing, and the tighter mortgage rules that will be coming into force in 60 days, now might be a vital window for home owners that are currently considering a move.

It is especially urgent for homeowners who are currently wishing to sell their current homes and lock in a new mortgage rate on a newly purchased home.  With only 60 days to finalize before the new rates come into effect, it will be a challenge to get a home on the market and sold in time to take advantage of the current status.  The up side is that over the next two months, the market may get very fluid with those who need to take advantage of the current mortgage rules.

I received the following details from one of my mortgage specialists advising that there will be some major changes in how mortgages are approved. This is a significant tightening for those of you who are currently considering purchasing a new home.

1.       No more 35 year amortizations

 

As of March 18, 2011 all insured deals will be allowed a 30 year amortization. Any fully signed contracts whether it be a purchase or refinance committed to by CMHC on or before March 18 will be honoured over 35 years.  You cannot have an increase in price after this date - if you do, you will be subject to the 30 year amortization.

2.       Refinancing has been scaled back to 85%.

 

As of March 18th,  home owners will have access to 85% of the value of a home instead of the current 90%. This will affect  you as a  home buyer when you take equity out of your home for a down payment.  In this case, you won’t be able to get as much funding up front and your monthly  payments will be higher.

Current and potential buyers please note that the magic date is March 18th, 2011.

On a $450,000 purchase with 5% down, this would save you $200.00 per month in mortgage payments and your affordability increases by 3%.

For those who are considering a home purchase requiring an insured mortgage (less than 20% down payment), you will want to complete pre-approval and possession of home prior to March 18 2011.

If you are currently sitting on the fence as to whether or not to make your move it is important to understand that buying today will save you money in the long run. After March 18th, this window will be closed.

If you are currently considering a home purchase and would like to speak to a mortgage specialist, I have excellent resources who are very talented in obtaining financing.  Please feel free to call me at 403-399-0809 and I will put you in touch with someone who can assist you according to your current circumstances.

For further information on these changes, and the background associated, here are a few links you can visit:

The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada’s Housing Market

Backgrounder: Supporting the long-term stability of Canada’s housing market

CALGARY HERALD ARTICLE: FeDERAL GOVERNMENT TIGHTENS MORTGAGE RULES AGAIN

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Clarifications on Canada Mortgage Changes

Finally!  Here are some clarifications on mortgage changes The Bank of Canada announced almost a month ago!

Effective April 19th, all terms less than 5 years that are high ratio insured mortgages (anything less than 80% Loan to Value) will be qualified using the greater of the chartered bank 5-year posted rate (5.39% currently), or the term rate (some banks have fixed rates on 5 – 10 year terms that are higher than 5.39%).  Currently most banks are qualifying right around 4% on variables and will only qualify higher on fixed terms less than 3 years.  So what does this mean?  Until CMHC changes its mind again, 5 year fixed rates are the only rates that you won’t have to qualify on the highest rate.    

The posted qualifying rate will be published by the Bank of Canada each Monday.  Here’s the link:  Posted Mortgage Rate  (Look for series V121764.)

More not-so-good news for Canadians – Fixed rates look like they will be going up right away!  How do we know?  Because Canada’s 5 year government bond jumped up 18 points last week, the most in almost five months.  (Bond yields guide fixed-rate mortgage pricing.)  Yes, you may have heard that the Bank of Canada has kept the prime rate the same, but variable rates and fixed rates are usually influenced by different factors. 

Some reasons why fixed rates may be rising very shortly:

·         stronger-than-forecasted U.S. employment data

·         new June maturity as the 5-year benchmark, asset rotation into stocks

·         20% increase in debt issuance announced in last week’s budget

·         Increased consumer confidence

·         More people spending money

A reason why rates might hold off a bit:

·         Canadian employment data that usually comes out the same day as U.S. data has been held off until this week.  If jobs are up, then we’ll be seeing interest rates jump up once again. 

Here are some more changes happening in the industry because of the 2010 Federal Budget.

  • Pre-payment Penalties: The Government will attempt to “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. (This applies to federally regulated lenders.)  This is mainly to help inform the average Canadian about clauses in their mortgages papers like Interest Rate Differential (IRD) penalties. 
  • Credit Unions:  The Canadian government will begin “legislative framework to enable credit unions to incorporate and continue federally.”  This could help Credit Unions have more of a chance to compete with big banks so that they could do other provinces then just the ones they are located in. 
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