What’s up with interest rates?

In 2021 we saw interest rates for fixed term mortgage increase as the bond markets started to factor in a potential rate increases by the Bank of Canada.

So, what will happen in 2022?

With inflation looking more and more like it is not a transitory situation most analysts were forecasting that the Bank of Canada would start raising interest rates this year. Initially it was thought that these increases would not start until the 2nd quarter of the year. It is now looking like the Bank of Canada could start to increase as early as this month.

Looking at what most analysts are predicting the Bank of Canada is likely to increase their rate by between .75% to 1.25 %. At the same time the analysts are projecting that five-year bond rates will go up by between .3% and .45%.

What do these increases mean for mortgage rates?

For variable rate mortgage any time the Bank of Canada increase their rate the lenders are most likely to increase the prime rates by the same amount. Each time the Bank of Canada increases rates by ¼ the following month interest rate on the variable rate mortgage will increase by the same amount and in most cases the monthly payment will also be adjusted higher.

Fixed rate mortgages are not tied to the Bank of Canada rates. They more closely track the trends in the five-year bond rates. That trend at this time is upward so you can expect that by the end of 2022 the rate being offered on the five-year fixed term mortgages will be higher than what they are now. The increases to fixed term rates are not projected to increase by as much as the Bank of Canada rate.

Currently fixed year fixed term mortgages are price about 1.34% higher than variable rate mortgages. This spread has made it very attractive for people to pick variable rate mortgages over a fixed term option. You can expect this spread to narrow over the course of this year.

Should you consider going with a variable rate mortgage? The answer to this question will be different for each person. One of the things I can do for you is prepare fixed vs variable comparison that will give you the information you need to make a good decision. Please call me if you have any questions. And please pass this on to any family or friends who may have mortgage questions.

Will interest rates go up in 2021?

Will interest rates go up in 2021?

The British Columbia Real Estate Association has come out with their interest rate forecast which predicts that fixed term mortgage rates will start to go up in the 2nd quarter of 2021. They also indicate that variable rate mortgages will remain steady throughout 2021 and that they are not likely to move higher until 2023.

This forecast reflects that as the vaccine for Covid 19 becomes more available the economy will be able to open up a bit more and we will slowly get back to the new normal.

If you have a mortgage coming up for renewal or are thinking of making a purchase in 2021 it would be a good idea to start looking at setting up a rate hold to take advantage of the lower rates.

If your mortgage is not up for renewal this year and your lender allows it you may want to consider an extend and blend of your current mortgage. Depending on how much time is left on your current mortgage you will get a reduced rate somewhere between your current rates and today’s rates.

If you have any questions about your mortgage give me a call at 604-961-2400.

Lawrie

 

Is it better to rent or buy a home?

Living in the Vancouver lower mainland comes with many challenges when it comes to housing. Renters face high rental rates but if they look at buying a home the house prices look out of reach. But is it better to rent or buy a home?

I work with at a lot of first time buyers and most are trying to figure if they are better off renting than jumping into the real estate market. One of the challenges for first time buyers is that to purchase a home the amount they will have to spend on housing each month goes up so it looks like it costs more to own than it does to rent. I agree that for first time buyers their monthly cash outflow will increase when they buy a home but is it fair to say that their housing expense has increased?

What is sometimes missed is that your mortgage payment is made up of two parts. A portion goes towards the interest that the lender is charging to lend you the mortgage. The interest is the “rent” you pay to borrow the money. The rest of your mortgage payment goes towards paying off your mortgage. This can be looked at as savings since over time you will pay off your mortgage and then have an asset that could be sold to get your money back.

One of the things I do for the first time buyers is walk them through a simple calculator that let’s them see if the expense portion of the monthly payments is more or less than if they had continues to rent. If you would like to walk through your situation we can see what makes the most sense for you.

Give me a call at 604-961-2400 if you have any mortgage or real estate related questions.

Lawrie

 

Interest rates are changing!

Interest rates are changing!

These last two weeks have seen many changes in the financial markets and mortgage world.

At the end of the week the Bank of Canada dropped its’ key lending rate by .5%. This is on top of the .5% drop they had announced on March 4th. The current key lending rate is now .75%. Most lenders had dropped their prime lending rates to take into account the March 4th drop and we will have to wait and see if Fridays’ drop is also passed on to consumers.

These drops are good news for anyone in a variable rate mortgage or with lines of credit that are based off of bank prime rates.

The five year bond rates have also been in decline and dropped from 1.36% in mid-February to .55% on March 11th . With these types of yields in the bond market it indicated that we could see rates for five year fixed term mortgages in the 2% to 2.5% range and in fact some lenders have been offering insured and insurable mortgages in this range.

This also changed on Friday of this week when the yields in the five year government of Canada bonds jumped to .67% and some lenders also indicated that they would be increasing the rates on their five year fixed term mortgages.

The other thing that happened on Friday was that the yield curve started to steepen. By that I mean that the yield on the two year bond was at .54%, the five year at .67% and the ten year stood at .85%. This is the type of yield curve that is considered more normal as investors want to be compensated with higher returns for taking on the additional risk of investing for a longer term. A steepening yield curve typically indicates that investors expect rising inflation and stronger economic growth.

This is in contrast to most of the last year where the yield curve was either flat or for a short time inverted. A flat yield curve can indicated that there is an anticipation of slower economic growth and an inverted yield curve can indicate that the economy may be headed towards a recession.

Now, one day does not make a trend but it is something to watch going forward and seems to be in direct conflict with the current challenges to the economy from the covid-19 virus and the oil price wars.

The impact to the economy from the covid-19 virus and the oil price wars will be a challenge and depending on how long they last will determine if the shook will be the same, better or worse than the 2008 financial crisis, Hopefully we will be able to get the covid-19 virus under control sooner as opposed to later so that the impact will be short term.

I we look at what happened in 2008 we saw the banks look for a bigger return and they switched from offering variable rates at prime minus a discount to prime plus a premium. In some case that swing was from prime minus 1% to prime plus 1%. At the same time they did push up rates on the fixed term mortgages.

So if you have a mortgage coming up or renewal in the next four months it might be a good idea to look at what your options are for locking in an interest rate.

If you have any questions please give me a call at 604-961-2400.

Lawrie

Will interest rates increases slow in 2019?

Since July of 2017 the Bank of Canada has raised interest rates five times. And up until December of 2018 the Bank of Canada maintained that its key bank rate would need to continue to increase until it got to their toward its estimated “neutral range,” of between 2 ½% and 3 ½%. That would have meant that rates would need to go up by an additional ¾% to 1 ½% higher than today’s rate of 1 ¾%.

In December of 2018 the Bank of Canada maintained their rate at 1 ¾% and in their comments indicated that rates may not go up as quickly as they expected. They based this on the fact that the Canadian economy was slowing as a result of lower oil prices, weaker consumer spending and a slowing housing market.

At the first meeting of 2019 the Bank of Canada again decided to keep their overnight interest rate at 1 ¾% and mentioned the same concerns as they had mentioned in December.

So what happens for the rest of 2019? Predicting where interest rates are headed is always a challenge and if you look at the chart below you can see what the economists at the banks think. For the most part it seems that most lenders are saying that the increase in interest rates will slow in 2019 and that the increase will be between ¼% and ½%. It is in 2020 that you start to see more of a split in the predictions with some analysts predicting that rates could actually drop by the end of 2020. This drop in rates is based on the risk that there could be a recession at some point which would see the Bank of Canada drop rates to help get the economy going again.

 

2019 2020
Lender Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
               
CIBC 1.75 1.75 2.00 2.00 2.00 2.00 2.00 2.00
Desjardins 1.75 1.75 2.00 2.00 2.25 2.25 2.25 2.00
National Bank 1.75 1.75 2.00 2.25 2.25 2.25 2.25 2.00
RBC 1.75 2.00 2.25 2.25 2.50 2.50 2.50 2.50
Scotia 1.75 2.00 2.25 2.50 2.75 2.75 2.75 2.75
TD 2.00 2.00 2.25 2.25 2.50 2.50 2.50 2.50

 

Looking at the bond markets provides additional support for the idea that interest rates will not be moving higher by a significant amount. Government of Canada bonds are as of January 9th yielding 1.91% for a two year term, 1.91% for a five year term and 1.98% for a ten year term. The bond traders are not asking for any premium to lend money out for longer which is a sign they don’t expect much of a change in interest rates.

So what does that mean for you? If your mortgage is up for renewal you may want to consider either a variable rate or maybe a shorter fixed term in the two to three year range. One of the things I can do for you is prepare a comparison of the different options to help you decide which is best for you.

If you have any questions about your mortgage call me at 604-961-2400.

Lawrie

Bank of Canada to increase rates by only ¼% in 2019!

In their December 2018 Mortgage Rate Forecast the B.C. Real Estate Association is predicting that the Bank of Canada may only increase interest rates by ¼% in 2019. The report also predicts that five year fixed mortgage rates may also be at or near their top.

In making their predictions the BCREA pointed to the slowing economies in both Canada and the US as well as the impact of lower prices for Canadian oil. They are not alone in saying that the economies in both Canada and the US will slow next year. More and more analysts are predicting that both economies will slow which will reduce the pressure for the central banks to increase rates.

If you would like to get a copy of the full forecast you can email me at lawrie.thom@mtgarc.ca.

How does this impact you if you are looking to take out a new mortgage or if your mortgage is up for renewal in 2019? Depending on your personal situation and your ability to deal with an increase in your monthly mortgage payment you may want to consider taking a variable rate mortgage.

Right now the spread between the variable and five year fixed rates is about ¾%. So if rates go up by the predicted ¼% you would still be saving ½% on your interest payments. For a typical $300,000 that would be a savings of about $32,000 over the life of you mortgage with monthly payments that are lower by around $100.

If you would like some help deciding if a variable rate mortgage is right for you give me a call at 604-961-2400.

Or if you would like to get a copy of the full forecast you can email me at lawrie.thom@mtgarc.ca.

Is your mortgage insurable? It could save you thousands if it is.

The new mortgage rules have created three categories of mortgages: insured, insurable and uninsurable. Currently five year fixed mortgage rates typically range from 3.69% for an insured mortgage to 3.99% for an uninsurable mortgage.  Based on current interest rates and a typical mortgage amount $300,000 that would be a savings of more than $20,000 over the life of your mortgage.

Before the new rules came in to place mortgages fell into two categories, high ratio or conventional. High ratios were when borrowers had less that a 20% down payment or 20% equity if they were looking to renew or refinance. And all mortgages could be insured by the government. This insurance protected the lenders in case the borrower defaulted on their mortgage. For high ratio mortgages the borrower covered the cost while lenders covered the cost for conventional mortgages. At that time interest rates on high ratio and conventional mortgages were the same so most people tried to get to the 20% down payment on order to avoid paying the mortgage default insurance.

Even though you may have originally taken out a conventional mortgage you may still be able to fit in the insurable category and it is this category that can provide the biggest savings as you may get the lowest interest without having to pay for the mortgage default insurance.

Here are the basic guidelines for each of the categories which might give you an idea of where you fit in. But it never hurts to review your specific situation with a mortgage broker. Most mortgage brokers are happy to provide a complimentary mortgage review to lay out the best options for you.

Insured Mortgages:

  • For the purchase of a property that will be owner occupied. This includes second or vacation home.
  • Purchase price of less than $1 million
  • Down payment of less than 20%
  • Maximum amortization of 25 year
  • The borrower pays the cost of the mortgage default insurance

Insured mortgages have the lowest interest rates.

Insurable Mortgages:

  • For the purchase or transfer of an existing mortgage. No changes can be made to the existing mortgage.
  • The property must be owner occupied
  • Purchase price less than $1 million
  • Down payment or equity of 20% or more
  • Maximum amortization of 25 years
  • The lender pays the cost of the mortgage default insurance

Insurable interest rates have a sliding scale based on the loan to value from as low as the rates offered for insured mortgages to as high as the rates for uninsured mortgages. The loan to value is the ratio of the mortgage amount compared to the purchase price or estimated value of the property. The lower the loan to value the lower the interest rate as the lender cost for the mortgage default insurance drops as the loan to value drops.

In the case of the transfer of a mortgage from one lender to another the value used to determine if a property meets the guidelines is based on the value of the property before the new rules came into place in November of 2016. However the loan to value is calculated based on the current value of the property. This is important for borrowers in the Vancouver and Toronto markets as they may still get a mortgage at best rates due to the increase in market values.

Uninsurable mortgages:

  • For purchases, transfers and any refinance of an existing mortgage. A refinance is when you make any changes to increase the amount of the mortgage or the amortization
  • Property can be owner occupied or a rental
  • Purchase price or property value is $1 million or more
  • Down payment of 20% or more
  • Amortization can exceed 25 years

Interest rates are highest for uninsurable mortgages

If you would like a no cost, no obligation mortgage review give me a call at 604-961-2400.

Lawrie

Free Mortgage Planning App

My Mortgage Planner App Is Here!

We’re making it easier for you to navigate the Canadian mortgage landscape.

My Mortgage Planner is the new mobile app from Mortgage Architects that provides you with useful tools to help eliminate the stress of getting a mortgage. Whether it comes to determining your monthly mortgage payments, affordability, income required to qualify or closing costs, our app has what you need right at your finger tips!

Some features of the app include:

Affordability Calculator Closing Cost Calculator
Minimum Down Payment Calculator Stress Test Tool to calculate affordability
Total Monthly Ownership Calculator Beautiful graphs and illustrations

Will interest rates go up next week?

At this point it looks very likely that the Bank of Canada will increase interest rates at their next meeting on October 24th. It is expected that this increase will be 1/4%.

If they do increase rates on the 24th this will be the third increase for this year.

So what should you do if you are in a variable rate mortgage? The first thing is don’t panic. Fixed rates mortgages moved a little higher over the past month in anticipation of the Bank of Canada move. Typically fixed rate mortgages to not move higher when the Bank of Canada increase their rates.

If you have any concerns about interest rates continuing to go up maybe now is a good time to have a mortgage review. We can look at your current situation, where you see yourself in the next couple of years and then see if it makes any sense to change your mortgage at this time.

We can complete the review in a quick phone meeting. All you need to do is have a copy of your most recent mortgage statement so that we can go over the details of where you currently are.

If you would like to review your current mortgage please call me at 604-961-2400.

If you have friends, family or co-workers that have any mortgage questions please feel free to pass this on to them.

Lawrie