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Dear ,
Many of our clients are confused by the ever changing mortgage scene ... and we don't blame them. The Bank of Canada once again raised rates this month. This of course, had an immediate effect on mortgage rates.
In the article that follows, take a look and see what the "experts" have to say and see if you can figure out what all the mixed messages add up to!
As always, if you have ANY questions about getting a mortgage, renewing or refinancing, we are here to assist you.
Sincerely,
Mike Averbach and Justin Blacklock
PS. To see our current rates CLICK HERE.
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Dumbfounded by the Rates? So are we...
Deciding between a fixed or variable rate has never been more difficult...or easier!?
"The fact is we're three years in to the global financial crisis and its dynamics still dominate the economic outlook." - Bank of Canada chief, Mark Carney
The question everyone wants to know is: How long will that be true? The answer, which is as ambiguous as ever, has a direct bearing on the mortgage rates.
As always, we can count on the "professional predictors" to have an opinion. Here's a sampling of what they're saying now, following a week that brought the third consecutive BoC rate increase and an anemic employment report.
The economy will have to worsen further "to prompt the central bank to stop raising rates." - BMO Capital Markets, deputy chief economist, Douglas Porter (Ottawa Citizen)
"...The (Bank of Canada's) language suggests the bank may pause longer than merely the next meeting or two." - BNY Mellon strategist, Michael Woolfolk (Global)
"In our opinion, the odds favour the Bank of Canada pausing for some time...TD Economics does not anticipate another tightening before March of next year." - TD Chief economist, Craig Alexander (CBC)
"...The bank (of Canada) doesn't know what it is going to do." - CIBC World Markets Chief Economist, Avery Shenfeld (Vancouver Sun)
"...Rates are low and likely to rise at only a gradual pace in the next 18 months..." - TD Chief economist, Craig Alexander (Globe & Mail)
Do you get the sense that no one really knows where rates will be 12 months from now? If so, you're right.
But that matters less than one might think. TD's Craig Alexander told the Globe's Rob Carrick this week: "Rates are remarkably low by historical standards. People get so hung up on the direction of interest rates. The level matters."
How does this translate to you? Today's 3.59%-3.79% five-year fixed rates are manna from heaven. One lender of ours is even offering 3.45% for 5 years to take a piece of the pie. So are 2.90% three-year fixed rates and 2.30% variable rates. Take a look at our rates page here.
Rates are so good in general that most people don't need to drive themselves to insanity while choosing between fixed or variable rates. As long as you don't borrow over your head, your finances won't be decimated by making the wrong choice.
Prime - 1.00% Variables
"We definitely believe it's going to get back to prime minus 1...It's a rate war out there." That's a broker talking about variable rates, as quoted by the Globe & Mail a few weeks back.
If we truly knew variable-rate mortgages were headed back to prime - 1.00%, we could strategize appropriately.
For example, 1-year terms would be even more compelling-on the assumption borrowers could renew into even cheaper variable rates 12 months hence.
John Bordignon, EVP Strategic Development at Paradigm Quest (one of our lenders), says, "Consumers have been asking for adjustable rate mortgages (ARMs) more and more, which in my view is one of the reasons we've seen such competitive pricing."
"In the broker channel at least 65% of the volume has been ARM versus fixed," says Bordignon. "Historically it's the other way around-65% fixed, and the balance ARM."
George Hugh, Vice President, Lending Sales at ING Direct, tells us: "We can't expect much more discounting." Hugh senses that profit spreads on variable mortgages are near their minimum.
"We're in very abnormal market conditions. Mortgage pricing is being driven by excess demand for mortgage business from balance sheet lenders (big banks). For the most part, these needs are being driven by securitization and other debt issuance programs. In addition, the Big 5 banks still have a ton of deposits where they pay 'zero' interest...and they have to put that money to work. This excess demand is causing mortgage spreads to deteriorate. But now we're pretty well at a floor."
"There seems to be a perception that prime - 1(%) is coming back," Hugh says. "I don't feel we're going back to the prime - one days. There's too much risk in the market and not enough spread for that risk."
At prime - 0.65%, today's gross variable-rate spread is roughly 108 basis points (2.35% minus the 30-day banker's acceptance rate). That's materially under the 120+ basis points that lenders have typically required in the past.
From that gross spread, lenders need to pay securitization costs and/or liquidity premiums (in the case of banks using transfer pricing), hedging costs, underwriting costs, overhead, marketing costs, sales force compensation, etc.
At prime - 1%, Hugh and Bordignon feel spreads would be unsustainable.
That said, there's always the chance lenders may someday offer short-term prime - 1.00% promotions or "teaser rates", but Bordignon feels, "We will not see prime - 1.00 as everyday pricing."
Over the next few quarters, people may shift more into fixed-rate mortgages says Bordignon. "As prime increases, and it will, I think we will revert back to historical splits. That will ease demand for ARMs. In addition, banks won't want to give up a lot of spread in the first quarter of their year, which begins November 1st."
Are you confused? We can help! Our mission is to make getting a mortgage simple. Please call or email us with any questions!
Call Now: 604-736-1855
Check out our current rates HERE.
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Averbach Mortgages
604-736-1855
We save you time. We save you money. We get you the you the best mortgage terms at the best interest rates possible.
If you are:
- purchasing your first home
- refinancing
- renewing an existing mortgage
- investing in real estate
- consolidating your debts
- experiencing current or past credit issues
We have the solutions that work for you.
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Justin Blacklock and Mike Averbach
Averbach Mortgages |
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