Mortgage Rates & Mortgage Broker News in Canada

U.S. Rescue Planners Back At It

Congressional leaders probably never expected the market to react as bad as it did to their failed vote.  Given yesterday's stock market debacle, however, lawmakers are now back to the drawing board to draft a new bailout bill, much sooner than expected.

The market has responded positively to this news, with the TSX up 4.73% as we speak.  Bonds have now retraced almost all of their move from yesterday.  The 5-year yield is back up to 3.14%.

With today and tomorrow being a Jewish holiday, the earliest a new resolution could now be voted on is Wednesday night.

Major Whipsaw Moves

Lately, the bond market has been making one and two-week moves in a single day. 

The 5-year bond yield fell .24% yesterday with the world seemingly about to end.  Today it's rose .21%, as stocks rebounded and Canada's GDP jumped higher than expected.

These are really big moves in yields.  We report these moves because mortgage professionals like to follow them (the 5-year bond influences fixed mortgage rates).  It's good to remember, though, that reading into them too deeply is somewhat risky.  You never know what will drive the market tomorrow.

The current yield on the 5-year bond is 3.11%.

More Variable Rate Discounts Disappear

Popular lenders ING and MCAP are now the latest to announce they are eliminating discounts for variable rate mortgages.  After midnight tonight they will be at prime.

There are now exceedingly few places to get good discounts on variable-rate mortgages.  Hopefully this is a short-term phenomenon but there is no way to know when the big discounts will come back. 

If you need a variable rate mortgage in the next 120 days call a mortgage planner now.

Bailout Dead. Markets Plunging.

U.S. lawmakers shot down the proposed bank bailout plan.  The vote was 228-205 against.  Global equity markets are now in freefall, with the Dow Jones Industrials down 669 points (-6.01%) and the TSX down 912 (-7.52%).

Government bonds are rocketing higher as traders rush to safety.  Canada's 5-year yield is now 2.90%, having dropped almost 1/4% since Friday.

A new bailout plan is not expected soon, but we'll see.  For now, the markets are on their own.

"Failure was not an option," says RBC strategist T.J. Marta, who predicts the dead rescue plan will cause a financial markets breakdown. (CEP)

Major Changes to Open Variable Rates

Variable-rate funding costs have soared in recent days.  As a result, almost all lenders have now moved to prime rate on open variable mortgages.  As of this writing, however, there may be one last bank still clinging to prime - .50%.  Call any mortgage planner for the latest rates and information.

Monday Market Mayhem

It's a volatile Monday in the markets so far...

• Wachovia, America's 4th largest bank was taken over to prevent its collapse. (CNN)
• The $700 billion bank salvation plan passed its first vote in Congress this morning.  The final vote is set for 1pm ET today.  If passed, it then goes to the Senate on Wednesday.  (Reuters)
• The TSX is down 547 points (4.51%) as we speak.
• Traders are scurrying to the safety of Canadian bonds. The 5-year yield dipped 0.13% earlier today to fall below 3.00% once again.

Congressional Rescue Plan Goes for Vote

United States lawmakers will vote on the biggest government bailout in American history on Monday.  This link has the gist of the plan, which is designed to keep credit flowing by sheltering U.S. financial institutions from bad mortgages.

We'll watch closely to see how the treasury markets react to tomorrow's vote.  Uncertainty surrounding the bailout has helped drive both short and long-term yields higher lately, and that's had a very negative effect on Canadian mortgage rates.

Mortgage Rate News

The latest skinny on Canadian mortgage rates...

• When markets take a beating the Bank of Canada notices.  The Canadian stock market lost $100 billion in value this week.  It's now off about 20% from its June high.  The deteriorating wealth effect could materially impact consumer spending if this trend continues. That's on top of the general weakening economy and tightening credit conditions out there. All of this has got a number of analysts thinking the Bank of Canada will cut rates 1/4% as soon as October 21.
• Borrowers next week will be asking, "Where's the discount?"  Lenders have been eliminating variable rate discounts left and right.  Among others, FirstLine, TD, First National, and Merix have each raised their variable rates to prime rate.  This has all happened in the last week or so.  Very few in the industry thought the increases would be this big.
• Several more lenders boosted mortgage rates today.  Gone for now are the days of big discounted variables--at least temporarily.  Whereas prime - .50 was an average variable rate a few weeks ago, now it's a great rate--and fairly rare.
• “It is costing banks more to get the money they lend to you. If they want to maintain profit margins, they have to transfer this extra cost to the consumer." - CIBC senior economist Benjamin Tal (Globe)
• "Overnight indexed swaps are pricing in a 76% chance of a quarter point interest rate cut by the Bank of Canada at its Oct. 21 meeting." (CEP)
• FirstLine is one of the more popular lenders with brokers.  FirstLine, however, surprised a lot of us today when they cut their variable rate mortgage discount to zero.  Meanwhile, FirstLine's parent (CIBC) still shows prime - .37 for branch customers.
• In general, we don't recommend fixed mortgages over variables too often.  Yet, if lenders are going to charge prime for a variable, borrowers should look very hard at the 4.99% fixed-rate mortgages currently out there. (Yes 4.99% fixed rates still exist, for now).
• Lenders continue to pay above-normal rates for the money they lend out.  The cost of this money is reflected partly in today's wider mortgage spreads. The Globe reports that back in December 2006 the spread (i.e.  difference) between 5-year mortgage rates and government bond yields was 2.59%, near its 10-year average average. Now it's 4.05%!
• "We've seen, by a number of measures, credit conditions deteriorate and some of the interbank markets tighten up significantly...We've gotten to levels we haven't seen before in this cycle and some of that's hit Canadian borrowing costs." - BMO economist Doug Porter (CNBC)
• "The cost of funding has increased quite considerably for the majors over the last few months - even last week." - Rejean Robitaille, Laurentian Bank CEO (TheStar)
• 30-day bankers' acceptance yields (which influence variable mortgage rates) continued their ascent today.  They closed at 3.45%, up 0.35% from a few weeks ago.  Lenders, especially non-bank lenders who get funding from banks, are feeling the pinch--and passing the pain to borrowers.

TD Raises Rates

If you're a homeowner and need a mortgage approval, get it in soon.  If you're a broker who's floating a rate for a client, take note.

TD has hiked rates 0.35% on 3-5 year fixed mortgages, effective tomorrow.  Expect other big banks to follow.

TD also reduced their discount on a variable mortgage to zero!

On the short side of the rate curve, TD did the opposite and cut their 1-year rate by 3/10%.

CP Story

Mortgage Bytes

• Does disaster loom for Canadian real estate? Merrill Lynch economist David Wolf thinks so. He issued a report today warning that Canadians have a higher debt ratio than the Brits or Americans (at their 2005 debt peak).  Canadian debt is now 6.3% of disposable income on average. Wolf says "it may simply be a matter of time" before Canada's housing market plummets.  However, PM Stephen Harper countered, "I do not accept this conclusion, not at all."  Harper said Canada has strong domestic demand and little subprime exposure.
• We're seeing a lot of applications for 100% financing as the Oct. 14 deadline approaches.  A good number of these borrowers don't qualify and most are completely unaware of the 680 minimum credit score for most no-down-payment mortgages.
• A laptop with National Bank's mortgage database was stolen from the company's headquarters on Friday.  (Canada.com)
• BMO's Sherry Cooper says banks have been "short sighted" by not providing good enough advice to consumers.  She says mortgage customers, for example, should "not just (be) presented with one mortgage option" by banks. (The Gazette)
• Over 40% of Canadians feel banks complicate their financial decision making, instead of clarifying it. - BMO Poll
• AIG has accepted the U.S. government's $85 billion loan offer, at 11.5% interest.  (CEP story)  AIG will repay it by selling assets. A list of these assets should be available next week.  Here's how AIG got in this trouble in the first place.
• Inflation rose 3.5% in July, the fastest rate in 5 years.
• "'You can’t just blame the banks, you also can blame the people that took out mortgages." - NY Mayor Mike Bloomberg on the U.S. Banking Crisis (CBC)
• The BC Real Estate Association expects the Bank of Canada to keep rates unchanged through early 2009.
• 70% of Canadians still opt for the security of a fixed rate. (Chronicle Herald)
• Canada's priciest condo.
• The U.S. credit panic has rubbed off on Canadian banks and made them more stingy with their lending. To get money flowing, the Bank of Canada stepped in on Tuesday and added $2 billion for banks to lend out.
• U.S. President Bush says "America could slip into a financial panic" if congress doesn't pass the Treasury's $700 billion bank bailout plan. (Washington Post)  Congress may or may not pass it, but the real questions are, do taxpayers want it, and is it worth the price, and would credit really dry up without it?  At a cost of $2300-$7000 per every American (estimates vary), it's debatable.
• A cause worth writing about
• Abode Mortgage Corporation is now a CMHC approved lender.  On Oct. 1 they will launch their Preferred Program, with faster approvals, online deal tracking, and full finders fees on renewals.
• Merix Financial should be CMHC approved soon as well. Merix is celebrating its three year anniversary.
• Merix has axed its PrimeBuster ARM and Interest Only ARM due to "lack of interest."  On the other hand, Merix is seeing tremendous interest in its 100% financing and 40-year amortization products.  It's one of few lenders who still offer these products.