Mortgage Rates & Mortgage Broker News in Canada

The Sting of Bank Penalties

Lenders like to keep you in their web as long as possible. If you’ve got a closed mortgage and try to escape, they sink their penalty fangs deep in your wallet.

To the surprise of many, there are dramatic differences in how those penalties are calculated, even at the same bank.

CIBC, for example, sells mortgages under multiple brands, with “CIBC” and “FirstLine” being the most popular.

Recently, we did an interest rate differential (IRD) penalty calculation for a FirstLine customer who wanted to refinance. This client was fortunate to have closed his mortgage at FirstLine instead of directly with CIBC.

Comparing New Amortization & Down Payment Rules

Government mortgage restrictions instituted from 2008-2011 have not achieved their goal, suggests Desjardins’ Senior Economist Benoit Durocher.

He wrote this on Thursday:

“…The third series of [government mortgage rules] was announced nearly a year ago now, and we must conclude that the tightening introduced to date has not
slowed the market enough.

Under these conditions, it is likely, and perhaps even desirable, that the federal government will shortly announce a fourth series of measures to further limit mortgage credit.”

It almost sounds like Durocher has some inside info.

Mortgage Career of the Week

 
Company: Pillar financial Services Inc.
Position Title: Business Development Officer
Years of Experience Required: 5-10
Licences or Registrations Required: Registered Mortgage Broker
Location of Positions: Ottawa, Ontario
Applicants may contact:  barb.neill@robinsonsgroup.com

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Click on the position title above for more information.

Advertise your mortgage job opening today! Click here to post. Or browse CMT's Mortgage Jobs Database.

1-Year Terms Looking Better With Latest Fed Forecast

On Wednesday, the Federal Reserve dished out good news to mortgagors holding short-terms or variable rates.

The U.S. central bank threw a curveball at financial markets by projecting “extraordinarily low levels” for American interest rates through “at least” 2014. That’s a full year and a half later than its prior forecast.

With an 83% correlation* between Canadian and U.S. policy rates, this news will certainly impact Canada’s mortgage market.

Pennying the Mortgage Competition

In the stock market, “pennying” (a.k.a. penny jumping) happens all the time.

Pennying is when a seller offers shares one cent below a competing seller in order to undercut them (and vice versa when buying).

The equivalent in the mortgage business is pricing under a rival lender or broker by one basis point. (A basis point = 1/100th of a percentage point.)

Lenders and brokers penny each other because they know that the lowest rate often generates the most inquiries. An example from this week is First Ontario’s new 4-year promo priced at 2.98%, one basis point below the big banks’ 2.99%.

This pricing relies on the same psychology that motivates people to drive two kilometres to save two cents a litre on gas. The difference is: Gas is a pure commodity. Not so with mortgage services.

Why CHIP Rates Remain High

Most interest rates have dropped to historic lows in recent years…but not all of them.

One that hasn’t is the rate on CHIP reverse mortgages.

On October 12, 2009, CHIP parent HomEquity Bank announced its receipt of bank status. Bank status helped it significantly cut rates down to 5.90% for a 5-year term in October 2009 (that compared to almost 9% a year earlier).

Today, CHIP’s 5-year rate is 5.95%, which at first glance seems unreasonable considering that interest rate benchmarks like the 5-year government yield have nosedived 1.46 percentage points since October 2009.

But, as is often the case, there’s more to the story.

Yields Perk Up

Fear gave way to hope in financial markets this week. That led traders to look past recent European downgrades and push Canada’s 5-year yield to a 6-week high.

The 5-year government bond (which typically leads fixed mortgage rates) ended the week at almost 1.40%, up 13 basis points.

(Click to enlarge)

Yields have had every opportunity to make new lows this year. Yet, despite distress in Europe and mixed economic messages domestically, they’ve held strong.

Lenders will watch bonds in earnest next week to see if the trend continues. A meaningful break above 1.50% on the 5-year yield could halt or reverse the rate reductions we’ve seen in the last 10 days.

Mortgage Term Review - January 2012

It's been quite a stretch since CMT's last term analysis. Given the slew of precedent-setting rate changes lately, it's high time we run another one.

For those in solitary confinement last week, the big news was BMO's 2.99% 5-year Low-Rate Mortgage. It made every major newspaper and newscast in the country. Even the CEO of competitor ING Direct, Peter Aceto, found it compelling. He told the Toronto Star:

“If you’re satisfied with everything else, take it, because 2.99 for 5-year money is a great rate…I had some of the people here look into it, and it’s definitely the lowest they’ve been able to find for as far back as it’s been tracked.”

(Aceto went on to suggest that 2.99% was “unsustainable” from a profitability standpoint.)

In any event, say what you will about the limitations of BMO's product (and there are many), but it sure did push down rates industry-wide. Here's a look at how the recent rate changes impact mortgage terms:

No BoC Rate Change for 16th Straight Month

Canada’s key interest rate will begin 2012 exactly where it’s been since September 2010 – unchanged at 1.00%.

It's the longest stretch on record without a Bank of Canada rate change.

Economists didn’t expect the BOC to move rates at this meeting. Instead, they were looking for any change of language in the Bank’s official statement. As usual, there were a handful of conspicuous statements in that release. The BoC said:

Mortgage Career of the Week

Company: Syndicate Mortgage Inc
Position Title: Business Development Manager
Years of Experience: N/A
Licences Required: N/A
Location of Position: British Columbia
Applicants may contact: info@smibroker.com

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Click on the position title above for more information.

Advertise your mortgage job opening today! Click here to post. Or browse CMT's Mortgage Jobs Database.