According to the Canadian Mortgage Broker News . . .

Five of Canada’s major banks reduced many of their posted mortgage rates by one-tenth of a percentage point, effective today.

The posted five-year closed mortgage rate is now 5.49 per cent annually for the Royal Bank of Canada, Bank of Montreal, scotiabank, CIBC and Laurentian Bank.

RBC was the first to announce the rate cuts on Monday. It is the second time major banks have trimmed their rates this month, and follows the report from the Canadian Real Estate Association that home sales were down 6.8 per cent in July from the previous month.

According to a CREA (Canadian Real Estate Association) “home sales activity and new listings in Canada declined in May.

Seasonally adjusted home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards declined nationally by 9.5 per cent in May from near-record level activity the previous month. While activity declined in more than 70 per cent of local markets, the lower national figure resulted largely from fewer sales in Toronto, Vancouver and Ottawa.”

For more information check out the CREA News Release

Today the Bank of Canada made a decision that SHOULD have many of you calling us  to consider locking in while rates are still somewhat at historic lows.  It’s only going up from here.

The central bank raised its key interest rate by a quarter point yesterday, and most lending institutions are expected to respond by increasing their prime lending rates by a quarter point to 0.5% (Prime = 2.5%).  This marks the first rate increase by the Bank since 2007.

This means that if you have a 400,000.00 mortgage your payment will increase by as much $60/monthly.  With every 25 basis point increase, you can expect an increase of $12-$15 dollars per 100,000.00 on your mortgage (depending on your amortization).

In its statement, the Bank noted, “the economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed. Going forward, household spending is expected to decelerate to a pace more consistent with income growth. The anticipated pickup in business investment will be important for a more balanced recovery.”

Yesterday’s announcement means an increase in the rate for a variable-rate mortgage.  However, lenders do vary as to when they adjust their rates for variable-rate mortgages.  Some lenders adjust the following day and some at the beginning of the following month. Only a few adjust quarterly (eg.  ING) based on your mortgage start date. Check your mortgage statement for details on your adjustment period or contact us.

Many of you called in March and early April to get a rate-hold for 90 to 120 days. Good for you! You have likely saved .65+ in interest costs for the next 5 years.  Back then, the going rate for 5 year fixed mortgages were 3.69 to 3.79%. Today, the best available is 4.35%.

There is a clear indicator that the big banks are pushing  consumers to consider going variable as the deeper discounts are suddenly reappearing.  In October of last year, the best variable rate was at Prime only. Now it’s as low as Prime minus .60 at a couple lenders and one even at minus .65% for a 3 year term. The reason for this is obvious; Variable Rate Mortgages are about to get much more profitable and most likely you’ll lock into a 3 to 5 year term.  It’s a win-win situation for them. That being said, now is not the time to get into a new Variable Rate Mortgage. We are at the very beginning of the increase cycle and the savings window is extremely short.

In our professional opinion, if you can get in to a great fixed rate now at less than 4.5%, you will have locked in your savings for the next 5 years. Furthermore, many of you have VRM’s that are expiring within 2 years. There is a big risk to riding it out since we don’t know where rates will be in 6 months, let alone 2 more years. One thing is for sure though; they will be higher!

If you are a true believer in the VRM, the likely scenario is that by the time your current VRM reaches maturity in 2011/12, the discount from Prime should reach its bottom again at Prime minus .90. Conversely, Prime should be back at or close to its peak of 6%+. Tit for tat.

Link to the fixed rates currently being offered: http://averbachmortgages.com/rates.php

I’ve been warning of another mortgage rate hike for months … and today it became a reality.  The Bank of Canada increased raised its key interest rate by a quarter point today.

As a result, I was interviewed on CTV News with the topic being Fixed vs Variable rate mortgages.

Check out our mortgage rates page:  http://averbachmortgages.com/rates.php

The major news agencies reported record employment numbers with “the largest gain yet in absolute terms and the biggest percentage increase since 2002.”

According to financial experts this pretty well ensures that there will be a rate hike increase in June 2010.  The only snag could be a financial meltdown stemming from the Greek financial crisis.

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“Unless the world economy experiences serious contagion effects stemming from the European situation, a rate hike in June is a done deal in Canada,” said Yanick Desnoyers, assistant chief economist at National Bank Financial.

Here’s a market update from our friends at Macdonald Realty; Simon Clayton, Kristie Marsden, Jason Low, Sandra Ens, Jason Feinstadt and Jenny Stephanson.

May 2010 Market Update

Last week, the Royal Bank boosted its mortgage rates for the third time in a month. The move increased RBC’s posted 5-year closed rate to 6.25% (Note: the posted rate is rarely paid. A good mortgage broker or even your own negotiating skills will often result in a lower rate being offered by a bank) and this has come amid overtures that the Bank of Canada will be looking to raise its overnight rate starting June 1st. That said, as of this writing, there are still some very competitive rates out there.
Fixed vs. Variable

The reason that fixed-rate mortgages have moved up even though the Bank of Canada (BoC) has yet to increase their overnight rate is a function of how the Big Banks fund their mortgage products.

Fixed-rate mortgages are usually funded via the bond market, which fluctuates and is forward-looking, like most markets. Therefore, as prices for bonds increase in anticipation of the BoC’s expected rate increases in the summer, fixed-rate mortgages that rely on their funding via these instruments must also increase.

Variable rates, on the other hand, are funded via the BoC’s overnight rate and therefore follow its fluctuations. That’s why today’s variable rate has remained unchanged despite three hikes in its fixed-rate brethren.

So which instrument should you use?

This question effectively boils down to risk-aversion. Historically, since 1975, variable rate mortgages have proven to be more financially beneficial 82% of the time. Risk and reward go hand in hand, so if you are willing to take on additional risk and have the financial wherewithal to weather potentially higher interest rates, a variable mortgage may be for you.

If, however, you want cost-certainty in your life and have lower financial flexibility, it may be worthwhile to pay more in return for a full night’s sleep.

May 2010 Market Update

If you would like to learn more, please feel free to contact us by phone or by clicking on one of the links below:

Simon Clayton 604-764-0711

Kristie Marsden 778-836-4389

Jason Low 604-790-5276

Sandra Ens 604-263-1911

Jenny Stephanson 604-675-6214

Jason Feinstadt 604-263-1911

MacDonald Realty 604-263-1911