Taken from Canadian Mortgage Broker News
Friday, 3 December 2010
A poll released by Reuters reveals that primary dealers and global forecasters unanimously agree the Bank of Canada will hold interest rates at its next policy announcement, but the timing of the next hike in 2011 is up for some debate.
The Reuters poll, released on Dec. 2 showed 93% median probability that the Bank of Canada will keep its key rate at 1% at its policy announcement on Dec. 7, with all 44 forecasters polled predicting no move.
Among the 42 that forecast the central bank’s next hike, the majority saw it happening in the first half. The median forecast for the May 31 policy date has the rate rising to 1.25%.
But among the 12 Canadian primary dealers — the institutions that deal directly with the central bank to help it carry out monetary policy — the majority forecast rate hikes in the second half with a median prediction of a first hike in July.
When compared with a similar poll taken in October, the more recent survey showed rate hike forecasts had been moved deeper into 2011.
Thirty of the 44 forecasters surveyed say the central bank will still be at 1 percent after March 1, a more pessimistic view than the last poll.
Martin Marshall, Ontario Sales Manager with Homeguard Funding Ltd. (Verico) is firmly on side with the Canadian forecasters and thinks continued low rates could be a boon for brokers.
“The economy has still not fully recovered from the recession, both here in North America and in Europe,” he says. “To raise rates at this time would be premature and therefore I do not see rates rising until the second half of 2011,” he said.
“This is great news for prospective home buyers and even existing home owners. Rates are at historic lows and we may never see them this low again.”
Morgan Vaughan, a mortgage broker with The Mortgage Group Ontario sees a steady stream of business for brokers in 2011.
“With recent numbers coming out, I don’t see any reason to raise interest rates and I believe it means brokers will continue to be busy next year, especially with refinancing.
“The spring real estate market will be strong and even if there’s a one per cent increase in interest rates I don’t see it affecting too many people because of the recent changes that require buyers qualify for the five-year posted rate.”
“Given that the Bank of Canada had indicated that they didn’t want to see that great a divergence with U.S. rates and the Fed was actually doing quantitative easing, it made sense to push out the Canadian rate hike as well as opposed to adamantly defending a Q1 move,” David Watt, senior fixed income and currency strategist at RBC Capital Markets told Reuters.
“We’ve had a lot of recovery and we’re seeing some fade at the present time, so you get that caution that maybe the domestic side of the economy is not strong enough to offset the still sizable trade hit and currency strength.”
A report earlier this week from Statistics Canada showed the economy disappointed in the third quarter with the weakest growth rate in a year, while the economy shrank outright in September, adding pressure on policy makers to safeguard the patchy recovery.
Bank of Canada Governor Mark Carney in October gave a blunt assessment of the global and Canadian economic recoveries, saying the central bank would plot its next move with extreme caution.
According to CIBC World Markets senior economist Benjamin Tal at the recent CAAMP Forum, massive new monetary stimulus by the U.S. Federal Reserve to support a sagging U.S. economy also prolongs low rates south of the border, and Canada is seen not wanting to race too far ahead of its largest trading partner.
– John Tenpenny, Editor, CMP
Showing posts with label mortgage brokers. Show all posts
Showing posts with label mortgage brokers. Show all posts
Wednesday, December 8, 2010
Wednesday, August 4, 2010
Mortgages can have downside
Published: August 03, 2010 3:00 PM in the Comox Valley Record
“Beware of more than just the rates when you’re shopping for a mortgage,” say mortgage brokers Paul Healey and Karen Ewing, partners at Invis in Comox Valley.
With rates near all-time lows, many people are now seeking mortgages for a home purchase, to help with debt consolidation through a home equity loan, or even for an investment property purchased during this buyer’s real estate market.
Unfortunately, too many people are wooed by low rates and don’t realize there are huge differences between one company’s mortgage and another — differences that can be costly if a consumer is not careful.
Consumers should talk with a mortgage broker who will ask the right questions before researching the best mortgage products available for each individual’s unique situation.
For instance, the terms of some loans include huge penalties for pre-payment, even if someone is selling the property.
Most mortgages charge the borrower the greater of three months’ interest or the “interest differential,” which is the difference between what the borrower would have paid in interest and what the lender can get by relending the money to a new borrower for that time period.
These penalties can be substantial and truly blind-side a borrower. For example, when a borrower wants to sell his house two years into a five-year mortgage, the company can charge the difference between the rate on the mortgage and the rate being offered on new mortgages. This calculation can differ dramatically from lender to lender.
So, if prepayment or a future move may be in the picture, the broker will look for a mortgage that allows pre-pays or does not have an interest-differential penalty.
Pre-payment penalties are not the only mortgage trap. Some people are sadly surprised when they want to refinance for some reason, but the mortgage won’t allow it.
Another important term to consider is “portability.” That simply means that a borrower can take his or her mortgage with him upon selling the property, which is a significant perk if rates go up.
The rate and terms of the mortgage are simply moved over to the new property and carry on as it was. An experienced broker can review these with a borrower to be sure the loan fits the borrower’s needs.
Even when a mortgage is portable, there may be limitations. For instance, some lenders will only lend for a home in a certain geographic area. If the borrower has any thought of moving during the time of the loan, portability should be discussed with the broker to avoid being shocked when that is not allowed.
“Beware of more than just the rates when you’re shopping for a mortgage,” say mortgage brokers Paul Healey and Karen Ewing, partners at Invis in Comox Valley.
With rates near all-time lows, many people are now seeking mortgages for a home purchase, to help with debt consolidation through a home equity loan, or even for an investment property purchased during this buyer’s real estate market.
Unfortunately, too many people are wooed by low rates and don’t realize there are huge differences between one company’s mortgage and another — differences that can be costly if a consumer is not careful.
Consumers should talk with a mortgage broker who will ask the right questions before researching the best mortgage products available for each individual’s unique situation.
For instance, the terms of some loans include huge penalties for pre-payment, even if someone is selling the property.
Most mortgages charge the borrower the greater of three months’ interest or the “interest differential,” which is the difference between what the borrower would have paid in interest and what the lender can get by relending the money to a new borrower for that time period.
These penalties can be substantial and truly blind-side a borrower. For example, when a borrower wants to sell his house two years into a five-year mortgage, the company can charge the difference between the rate on the mortgage and the rate being offered on new mortgages. This calculation can differ dramatically from lender to lender.
So, if prepayment or a future move may be in the picture, the broker will look for a mortgage that allows pre-pays or does not have an interest-differential penalty.
Pre-payment penalties are not the only mortgage trap. Some people are sadly surprised when they want to refinance for some reason, but the mortgage won’t allow it.
Another important term to consider is “portability.” That simply means that a borrower can take his or her mortgage with him upon selling the property, which is a significant perk if rates go up.
The rate and terms of the mortgage are simply moved over to the new property and carry on as it was. An experienced broker can review these with a borrower to be sure the loan fits the borrower’s needs.
Even when a mortgage is portable, there may be limitations. For instance, some lenders will only lend for a home in a certain geographic area. If the borrower has any thought of moving during the time of the loan, portability should be discussed with the broker to avoid being shocked when that is not allowed.
Wednesday, July 14, 2010
Variable Rates Quite Relevant, Still
Whenever rate-hike talk starts heating up (like it has since Friday) questions about term selection become more frequent.
People increasingly want to know if the next prime rate increase is their cue to lock in.
The criteria for choosing between a fixed and variable rate have been covered here before, so we won’t bore anyone with repetition (see: Variable or Fixed Rate Mortgage, IDEAS for more on that).
As any mortgage professional will attest, it’s impossible to make a one-size-fits-all recommendation because the fixed/variable decision is so individual-specific.
What we can do, however, is show how things might shake out from a purely mathematical standpoint if economist forecasts are right (they often aren’t right, but that’s a separate conversation).
As noted this past weekend, big bank projections imply a 4.50% prime rate by year-end 2011 (see: Long-term Mortgage Rate Forecast). In our own models, we’ve been tacking on another 1/2 point increase as a safety measure, and to reflect what might happen after 2011. Incidentally, the 10-year average for prime rate is 4.72%.
As of July 14, 2010, our current fixed vs. variable model also assumes:
•A highly discounted variable rate (prime – 0.65%)
•A highly discounted fixed rate (3.99%).
•A well-qualified borrower with satisfactory credit, equity, savings, job stability, debt ratios, etc.
•A BoC rate hike pause in early 2011 (to let the U.S. Federal Reserve catch up to the BoC’s overnight rate).
As usual, rate-change assumptions are based on the projections of major analysts, who presumably have less chance of being wrong than the average Joe.
With these and a few other parameters, one can generate an amortization comparison between a fixed and variable-rate mortgage. That, in turn, can illustrate which of the two hypothetically saves you the most money over five years.
Based on the above assumptions, the variable-rate mortgage comes out ahead of the 5-year fixed, by about $498 over five years for every $100,000 of mortgage. (Sample Analysis)
Therefore, risk-tolerant homeowners (even semi-risk-tolerant homeowners) are potentially doing themselves a disservice by locking in 100% of their mortgage to a long term (like 4 to 10 years).
Granted, there are plenty of caveats. It’s therefore essential to talk things over with a mortgage professional and have him/her run these numbers using assumptions that each of you feel comfortable with.
As well, this article only compares two terms: a variable and a 5-year fixed. Your mortgage planner, however, might be able to suggest a shorter-term fixed mortgage that is even more preferable than a variable rate.
Suffice it to say, long-term fixed rates haven’t relegated variable rates to irrelevancy, despite the possibility of higher rates right around the corner. Most strong borrowers should still consider putting at least part of their mortgage in a variable or short-term rate.
This article was taken from canadianmortgagetrends(dot)com
People increasingly want to know if the next prime rate increase is their cue to lock in.
The criteria for choosing between a fixed and variable rate have been covered here before, so we won’t bore anyone with repetition (see: Variable or Fixed Rate Mortgage, IDEAS for more on that).
As any mortgage professional will attest, it’s impossible to make a one-size-fits-all recommendation because the fixed/variable decision is so individual-specific.
What we can do, however, is show how things might shake out from a purely mathematical standpoint if economist forecasts are right (they often aren’t right, but that’s a separate conversation).
As noted this past weekend, big bank projections imply a 4.50% prime rate by year-end 2011 (see: Long-term Mortgage Rate Forecast). In our own models, we’ve been tacking on another 1/2 point increase as a safety measure, and to reflect what might happen after 2011. Incidentally, the 10-year average for prime rate is 4.72%.
As of July 14, 2010, our current fixed vs. variable model also assumes:
•A highly discounted variable rate (prime – 0.65%)
•A highly discounted fixed rate (3.99%).
•A well-qualified borrower with satisfactory credit, equity, savings, job stability, debt ratios, etc.
•A BoC rate hike pause in early 2011 (to let the U.S. Federal Reserve catch up to the BoC’s overnight rate).
As usual, rate-change assumptions are based on the projections of major analysts, who presumably have less chance of being wrong than the average Joe.
With these and a few other parameters, one can generate an amortization comparison between a fixed and variable-rate mortgage. That, in turn, can illustrate which of the two hypothetically saves you the most money over five years.
Based on the above assumptions, the variable-rate mortgage comes out ahead of the 5-year fixed, by about $498 over five years for every $100,000 of mortgage. (Sample Analysis)
Therefore, risk-tolerant homeowners (even semi-risk-tolerant homeowners) are potentially doing themselves a disservice by locking in 100% of their mortgage to a long term (like 4 to 10 years).
Granted, there are plenty of caveats. It’s therefore essential to talk things over with a mortgage professional and have him/her run these numbers using assumptions that each of you feel comfortable with.
As well, this article only compares two terms: a variable and a 5-year fixed. Your mortgage planner, however, might be able to suggest a shorter-term fixed mortgage that is even more preferable than a variable rate.
Suffice it to say, long-term fixed rates haven’t relegated variable rates to irrelevancy, despite the possibility of higher rates right around the corner. Most strong borrowers should still consider putting at least part of their mortgage in a variable or short-term rate.
This article was taken from canadianmortgagetrends(dot)com
Tuesday, July 13, 2010
First Time Home Buyers Do Their Homework
Canada NewsWire
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. This is according to the first TD Canada Trust Home Buyers Report which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten are worried about being able to afford their home if interest rates rise.
"It's only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time," says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. "I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed have or plan to have a fixed-rate mortgage. "Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. This is according to the first TD Canada Trust Home Buyers Report which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten are worried about being able to afford their home if interest rates rise.
"It's only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time," says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. "I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed have or plan to have a fixed-rate mortgage. "Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
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