| Qualifying Rate | 5.79% |
| Prime Rate | 2.75% |
| Next BOC Mtg. | Sep 8 |
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Earlier today, 5-year bond yields broke above 2% for the first time in 8 weeks.
Keep an eye on the chart. A further 10-20 basis point increase might prompt certain lenders to start lifting fixed mortgage rates.
If you’re considering a new fixed-rate mortgage or pre-approval, there has never been a better time to apply.
(Chart data courtesy of the Bank of Canada. Please note: This is not a prediction or recommendation. Market conditions can change at any time.)
If you’re hunting for a mortgage and you’re able to put down 20%, you’ve now got one more option. Street Capital has just launched a new line of conventional fixed and variable-rate mortgages.
As most in the industry are aware, Street Capital Financial Corporation is a Canadian wholesale lending company. It’s worked hard to build a name for itself with nicely discounted rates and broker-friendly policies.
Street is especially competitive with 1-4-year terms, where it is currently offering among the lowest rates in the industry (e.g., near 3% on a 3-year fixed!).
Street’s new conventional mortgages are very similar to it’s high-ratio lineup. Key benefits include:
One minor difference compared to its high-ratio products is that rental and BFS applicants incur a slight (0.15%) rate premium on Street’s conventional mortgages.
Other Product details:
Street’s new conventional offerings are portfolio insured at CMHC. That means applicants need to meet CMHC’s general lending criteria. (The client pays no CMHC insurance premium. Street covers it.)
In addition, there’s usually no human appraisal required unless CMHC explicitly requests one. That can sometimes save a bit of money as well.
As with any mortgage, other conditions apply. For more information:
RBC, BMO, and TD have all dropped their posted 5-year fixed rates to 5.25%.
RBC and BMO also lowered their advertised 5-year fixed “special offer” rates to 3.95%. (Usually, with a bit of negotiation, you can save a bit more.)
In the broker channel, 5-year fixed mortgages currently range from 3.59% for a no-frills mortgage to 3.89% for a full-featured mortgage with 120-day rate hold—with several options in between.
The above rates apply to well qualified borrowers with approved credit.
(Chart data courtesy of the Bank of Canada)
MCAP has entered the no-frills mortgage market with a brand new product. It’s called the MCAP Value Mortgage.
The Value Mortgage is designed for folks without the desire or means to pre-pay their mortgage. First-time homebuyers are a prime example.
The product will be launched on Monday at a rate of 3.59%. That’s at least 1/4% below typical 5-year fixed rates. Over five years, this equates to an interest savings of roughly $1,189 on a $100,000 mortgage with 25-year amortization.
So what’s the tradeoff? To get the rate down, MCAP had to throw out some extras. Specifically:
Generally speaking, no-frills mortgages have slowly been picking up steam. Industrial Alliance (INALCO) has a version that is advertised around the web for under 3.65%. That’s given the limited number of INALCO-approved brokers a huge marketing advantage. MCAP has now leveled the playing field a bit, enabling far more brokers to market rock-bottom rates.
Here are more details on the product:
MCAP is Canada’s largest independent mortgage company, with over $30 billion in assets under administration. MCAP mortgages are available only through MCAP-approved mortgage planners.
One of the biggest time-takers for a mortgage planner is all the paperwork to be dealt with.
It never ends, and all we can hope for is a way to make this tedious process easier.
That’s where Filogix hopes to come in. Filogix, Canada’s leading mortgage technology provider, recently launched a product called Exchange 2.0. The company calls it a “secure, browser-based, collaborative document management and archiving solution.” That’s a mouthful, but from what we’ve seen so far, Exchange 2.0 is the real deal.
With it, a broker can:
Other interesting features:
In the future, it would be great to receive notification of when lenders open the documents you send them. Lenders with poor response times might not like it, but brokers would love it. (For the record, Filogix says it’s working hard on improving “real-time deal and status updates.”)
So far, Concentra Financial is the first lender using the system. Other lenders have displayed considerable interest and are expected to go live in “coming months,” says Filogix Marketing Specialist, Kate Bruyea.
On the broker side, Invis was the first to get onboard. Executive Vice President, Gord Dahlen, believes that Exchange “will effectively decrease the time for a deal to go from application to funding."
Filogix was very wise in one key respect. It doesn't require lenders to participate in Exchange 2.0 in order to receive documents from brokers. Brokers can fax or email paperwork to any lender, directly from the system. That means brokers have plenty of reason to sign up even if no lender ever joined the network.
Bruyea says the set-up process is simple. “Lenders and Brokers simply need to sign-up for the service,” she says. We haven’t seen the sign-up process so we can’t comment on it. We do know that individual agents are not able to sign up directly at this point. Subscription must be done at the firm level.
With slick new technology, the biggest hurdle to adoption--besides users’ fear of change--is often cost. No pricing has yet been publicly announced, but Filogix assures it will be “reasonable” and “consistent with other mortgage service providers for subscription services.”
“Exchange 2.0 clients pay for their unique usage of the solution,” says Bruyea. “The lender pays for what the lender uses and the brokerage pays for what the brokerage uses.”
For brokerage houses, “the firm would pay a reasonable monthly fee for every agent, following a low-cost per user model,” she says. If that’s the case, the product could easily pay for itself through higher deal throughput and reduced labour costs.
Indeed, Exchange 2.0 has the potential to be the single biggest catalyst for paperless transactions that the industry has ever had. It all depends on cost and how fast lenders and brokers adopt it. If and when they do, brokers and lenders alike may find it a whole lot easier to keep organized and efficient.
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More information on Exchange 2.0
The Bank of Canada has cut its key interest rate 1/4%.
The overnight target rate is now a record-low 0.25%.
More importantly, the BoC stated today that it “commits to hold (the) current policy rate until the end of the second quarter of 2010.” It is making this uncharacteristic pledge in order to “influence rates at longer maturities.” (Which impacts things like 5-year mortgages.) The Bank did include the necessary caveat that this is “conditional on the outlook for inflation.”
The Bank also made several other points of note in its prepared statement:
The Bank of Canada has cut rates 4.25% since it started this cycle in December 2007. Its next interest rate announcement is June 4.
A sample of predictions from around the media on tomorrow’s Bank of Canada meeting:
Despite the above, “markets are pricing in a 60% chance of a 25 basis point (1/4%) cut” according to Forex.com.
People know that mortgage rates are at all-time lows. What people don’t know is how long it will last.
There is going to be a time (perhaps sooner than some think) when bond yields run up and take fixed mortgage rates with them. This inevitably will be followed by throngs of homeowners rushing to lock in their mortgages.
Few can tell in advance when that time will come. The only way most people can time the market is with hindsight—when it’s clear by looking at a chart that rates have bottomed.
If you wait until then, however, you’ll probably miss the lowest fixed rates by 1/4% to 1/2% or more. So what do you do?
Assuming you don’t have a discounted variable rate, like prime – 0.50% (those are keepers), one option is to take a good fixed-rate deal when you can get it.
People already in a variable or 1-year convertible mortgage can lock in at tremendous rates today. Typical conversion rates are roughly 3.95%-4.15% at the moment. Compare that to posted fixed rates over the last 58 years (illustrated in this chart above). 4% is pretty darn good. If bond yields bolt above 2.00%-2.15% (they closed at 1.97% Friday) no one can be faulted for locking in at today’s low rates.
There are also some amazing bargains out there for purchases, switches, and refinances. One non-bank lender, Merix Financial, launched a new 5-year fixed promotion on Wednesday. This mortgage has all the bells and whistles--20% prepayment options, portability, skip-a-payment, etc.--for a historically low rate of 3.69%. That’s only 0.39% to 0.44% above most variable rates. [This mortgage must close by May 29, 2009. No pre-approvals.]
No-frills fixed-rate mortgages--with only 5% pre-payment privileges--are also available at slightly better rates (but only in certain provinces).
Of course, if you’re shopping for a new mortgage you will come across alternatives to a 5-year fixed. Some people are still advocating:
In general, the current alternatives are not overly compelling; however, exceptions do apply. Speak with a mortgage professional about your specific situation.
From a macro economic standpoint there are additional reasons to consider a long-term rate lock:
Indeed, yields on the 5-year bond have been somewhat suspect as of late. See the chart on the left (it shows 5-year yields over the last 12 months). Yields have been lingering quietly below the 2% mark for weeks now. They’re seemingly coiled like a spring--ready to leap higher at the first sign of economic strength.
Whatever the case, there is one simple question people should ask themselves: “If bond yields run up from here, is it worth staying in a variable or 1-year mortgage?”
If economists are right, this gamble might save you 0.39% to 0.44% over today’s fixed rates for 6-12 months. If they’re wrong (or you don’t time your rate lock properly), you could conceivably end up paying over 0.50% above today’s low rates…for the the following 4 to 4 1/2 years!
(Chart data courtesy of the Bank of Canada)
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Update (April 21, 2009):
The Bank of Canada announcement today will undoubtedly affect the rate-lock picture. Their unusual and very public commitment to keep rates low until June 2010 (contingent on inflation) may help depress bond yields further for the short-to-medium term. With yields now well under the key 2.00-2.15% area there is less urgency to consider locking in existing variable-rate mortgages--but keep an eye on that range.
Mortgage defaults have been in the press a bit more as of late. In the link that follows, lawyer and Realtor, Brian Madigan, offers up suggestions for “Putting the Brakes on a Power of Sale.”
On a related note, there’s been publicized cases lately where subprime borrowers have had perfect mortgage repayment histories, but are not being offered renewals.
In many cases, it’s because subprime capital sources have dried up and lenders don’t have money to lend, even if they wanted to. It’s no fault of the mortgage company. Most would love to be able to lend again in the high-margin subprime market--if they could.
Examples of lenders who are currently not offering subprime renewals (at all, or to some extent) include: Accredited, First National Excalibur, HSBC Finance, GE Money, Resmor, and Xceed. Some of these lenders are out of the Canadian market completely.
Only a small number of Canadians are affected by all this, but for those who are, it’s a scary position to be in. If this is your situation, and you are facing foreclosure because your lender won’t renew you, there may still be some limited options. For another subprime or private lender to rescue you, however, it’s got to be a solid deal for them. Among other things (and depending on the lender):
For the best advice, consult with a mortgage planner who specializes in subprime financing (many don’t).
Starting July 1, 2010, Ontario’s tax harmonization plan will add 8% to the price of new homes over $500,000.
(22.7% of new homes sales in Ontario were over $500,000 in 2008.)
Homes under $400,000 will not be subject to the tax.
We asked various lenders if they expect to allow borrowers to finance the new tax (as is the case with the GST now). Most expect it to be possible, but no one knew for sure.
If homebuyers do finance the tax, it will raise mortgage payments hundreds of dollars a month for buyers of new $1/2-million+ homes, costing several thousands in extra interest over a 5-year term.
The new tax will also increase the cost of Realtors' commissions, appraisal fees, home inspections, and legal fees by 8%.
Commentary
Mortgage News
Rates and the Economy
Mortgage Broker News
Miscellaneous
Remember, if a suite is illegal, you can’t use its rental income to qualify for a CMHC-insured mortgage.
Banks invite haggling by “only revealing the lowest mortgage rate they will give you when you absolutely force them to by coming up with a better competing rate from across the street.”
That’s according to Manulife Financial Advisor, Greg MacPherson. MacPherson’s point equates getting a mortgage at the bank with buying a car or bargaining at a garage sale.
But why should it be like this? What do you say?
Should fiduciaries put their best foot forward from the outset? What if your financial advisor marked up his management fee, only to lower it after you revealed a competitors offer? What would that say about this advisor’s integrity, concern for your time, or belief in the value of his/her services?
Look at the rates on these pages:
“Special” or not, if you’re well qualified, these are not the best rates you can get at these banks.
So why the games? Cmon. Let’s see the real rates on “special offers” pages.
The same goes for brokers. If you’re a broker quoting a 4.09% 5-year fixed, and then lowering it to 3.89% when a competitor outguns you, that’s kind of sad. If your service and advice are truly valuable, you don’t need to play that game.
Up to an estimated 25,000 Canadians may lose their homes--despite making all of their mortgage payments, says the Globe.
A dozen subprime (and former subprime) lenders are now asking for government assistance with the problem. The Globe says these lenders are unable to renew mortgages for higher-risk borrowers because funds for uninsured mortgages have dried up.
The lender lobby apparently wants the government to pony up (or guarantee) lending capital as a result.
While serious enough, this is far from a crisis. It affects a very small percentage of homeowners—many of whom have other options not touched on in the Globe story (like other alternative lenders, private lending, etc.).
The homeowners it does affect are mostly people who have not improved their credit since getting their last subprime mortgage. Many of these folks have dug their own grave. Subprime borrowers must rebuild credit. It’s their obligation. Non-prime mortgages, with their high rates and restrictive terms, are simply not meant for long-term borrowing.
Genworth Financial, Canada’s 2nd biggest mortgage default insurer, is reportedly making several key changes to its insurance offerings, effective April 18.
The changes will affect new borrowers with less than 20% equity/down-payment, who use a lender that insures with Genworth.
Among other things, Genworth is reportedly:
Genworth did not previously have credit score minimums specific to high-rise condos.
Genworth said it will accept applications for the above programs (under the old guidelines) until April 17.
Collectively, these are significant changes for Genworth. So far, the only explanation we’ve seen from them is that the moves were due to “changes in the Canadian economy and housing markets.” We’re hoping to get a bit more clarity next week on the “why” factor.
One thing seems clear: If CMHC keeps it’s own guidelines as-is, Genworth will likely lose additional market share to the country’s number one insurer.
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Sidebar: When evaluating an applicant against the above credit scores, Genworth will “average the scores pulled from both credit bureaus for each borrower, and the recommended score requirement will apply to all borrowers on the application.”
If TD is right, Canadian home prices will tumble 24% from their spring 2008 highs to 2010. TD’s reasoning? Overbuilding and speculation.
In a recent report, TD states: “This overbuilding will likely weigh on markets over the next few years.” However, TD “(doesn’t) envision a U.S.-style crash for Canada.” It says, “Unlike south of the border, the supply of new housing was absorbed by new owners, and Canada has more robust mortgage lending structures.”
A 24% drop would lower average home prices from their peak of $324,000, to $246,000.*
With discounted 5-year fixed mortgage rates falling from about 5.50% in April 2008 to 3.95% today, a mortgage on the average house could therefore drop from $1816 per month to $1170 per month by 2010 (assuming TD is right and that average mortgage rates stay around 4%).**
That’s a gigantic improvement in affordability. Barring massive unemployment, a improvement of that magnitude could very well light a fire under buyers and support the market.
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* Based on CREA’s non-weighted national price average. Arguably better price calculation methods do exist, such as weighted price averages.
** Assumes a 25-year amortization, a 10% down payment, and a 2% insurance premium.
The Independent Mortgage Brokers Association’s 2009 Conference and Expo is now in the books. It was a well-attended networking event filled with several practical learning opportunities.
Among the highlights:
We’ll do more in-depth stories on each of these seminars in the next week or two.
IMBA also had an exhibit hall with over 70 exhibitors. Many of the exhibitors were new this year.
While the drab lending environment curtailed new product introductions, there were various quoteables that we heard on the floor from the following companies:
The Independent Mortgage Brokers Association is a volunteer-based organization of independent Ontario mortgage brokers.
Canadian Mortgage Professional hosted the 3rd annual Canadian Mortgage Awards Friday night. It was a gala with no shortage of glitz and glamour, with over 400 industry professionals in attendance
There were a number of familiar names in the champions’ circle this year. Below is the official list. Congratulations to each and every one of the well-deserving winners and nominees.
2009 CMP Canadian Mortgage Awards Winners
1. The RateSupermarket.ca Award for Best Internet Presence TDMP.com
2. The Bridgewater Bank Award for Best Newcomer (Mortgage Brokerage Firm)
Axiom
3. The Genworth Financial Award for Best Newcomer (Individual)
Greg Martel, Dominion Lending Centres, Victoria, BC
4. The TDMP.com Award for Best Branding
Dominion Lending Centres
5. The Canadian Real Estate Magazine Award for Employer of Choice
CMHC
6. The Home Loans Canada Award for Best Community Service Effort
Bruce Coleman, Invis, Vancouver, BC
7. The Merix Financial Award for Best Customer Service from an Individual Office
Verico Premiere Mortgage Centre, Mississauga, ON
8. The Firstline Mortgages Award for Best Advertising
TDMP.com
9. The National Bank Award for Lifetime Achievement
Dave Nichol
10. The Home Trust Award for Best Alternative Lending Mortgage Broker of the Year
Paul Bath, Centum Hewmac Mortgage Centre, Newmarket, ON
11. The MortgageBrokerNews.ca Award for Commercial Mortgage Broker of the Year
Dale Bilton, Mortgage Intelligence, Kitchener, ON
12. The CanadianMortgageTrends.com Award for Best Industry Service Provider
Genworth Financial Canada
13. The Solidifi Award for Best Lender Underwriter
Anne Warner, Scotia Mortgage Authority, Oxford Mills, ON
14. The Mortgage Centre Canada Award for Best Lender BDM
John Simmons, ING Direct Broker Team, Kitchener, ON
15. The AGF Trust Company Award for Mortgage Broker of the Year (Independent/Non Franchise)
Dave McNabb, Regional Mortgage Corporation, Red Deer, AB
16. The Macquarie Financial Award for Mortgage Broker of the Year (National Network)
Greg Williamson, Canada Mortgage Direct (Verico), Calgary, AB
17. The CMHC Award for Mortgage Brokerage of the Year (Independent/Non Franchise)
Monster Mortgage
18. The Scotia Mortgage Authority Award for Mortgage Brokerage of the Year (National Network)
Verico
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“We Can't Go Any Lower”
Lascelles was referencing the Bank of Canada’s all-time low 0.25% overnight target rate in his quote.
Canada’s most important banker, Marc Carney, seems to agree. Last week on BNN he said rates were at the "lowest possible level.” He said going from 0.25% to 0.00% is not an option because it would cause technical problems with the functioning of the money market.
Most now see two possible outcomes from here: sideways or up.
If inflation stays at bay, our current sideways interest-rate market could last up to 14 months—the duration Carney hopes to keep the Bank of Canada rate steady.
On the other hand, an uptrend could start as soon as the bond market anticipates a recovery. Bond yields have historically risen well in advance of economic recoveries.
Interestingly, very few people are predicting an imminent jump in bond yields. They feel it’s too unlikely with Canada’s GDP shrinking at the fastest pace on record.
Nonetheless, a short-term yield increase can happen for many reasons besides economic output and inflation. There can be technical reasons (e.g., technical analysts see a nice double-bottom on yield charts right now), supply reasons (if the government issues new debt to finance its activities), and asset allocation reasons (i.e., investors moving out of bonds to higher returning alternatives).
Because of these factors, we’re keeping an eye on the 5-year yield. If it breaks above 2.10 to 2.15% there is always the chance it could pull fixed rates up with it.
Posted at 11:49 PM in Mortgage Commentary, Mortgage Rate Trends | Permalink | Comments (5)