RateSupermarket.ca’s Expert Mortgage Panel Predicts Status Quo on Mortgage Rates

Toronto, ON – (May 10, 2012): Increased uncertainty in Europe and the wider global economy will cause Canada to sit back and wait before making any major changes to interest rates that could potentially derail its economic growth. While this waiting game plays out, RateSupermarket.ca’s panel of mortgage experts expect both fixed and variable mortgage rates to remain unchanged in the short term.

Fixed mortgage rates: Unchanged

Demand for mortgages is moderating in many parts of the country, and there is decreased need for competitive discounting from big lenders to maintain mortgage market share. All these factors point to one conclusion – little change is on the horizon for fixed mortgage rates. Our panel of experts expect fixed rates to remain level for the next 30-45 days.

Variable mortgage rates: Unchanged

The recent French and Greek elections raise concern for the future stability of the Eurozone. Will Greece exit the European Union?  If so, how many other debt ridden countries will follow? With so many questions unanswered, our Mortgage Rate Outlook Panel members think the Bank of Canada is unlikely to risk rocking the boat by increasing interest rates any time soon.

This, coupled with the fact that discounts to the Prime rate are not expected to budge given the lack of interest in variable rate terms at the moment, means that variable mortgage rates will stay where they are in the short term.

About the Mortgage Rate Outlook Panel

The Panel includes some of the country’s top mortgage experts, and helps Canadian consumers make informed decisions by offering a short-term outlook for fixed and variable mortgage rates.

This month’s panel members:

• Mark Kocaurek, Senior Vice President, Treasury & Lending (Chief Lending Officer) of ING DIRECT Canada
• Dr. Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University
• Wayne Spinney, Mortgage Agent, Centum Mortgage Professionals
• Dan Eisner, MBA. AMP. President, True North Mortgage

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada. Founded in May of 2008, their easy to use comparison engine provides much needed transparency to the Canadian financial market and allows visitors to quickly find the best mortgage rates. Their Mortgage Tool App for the iPhone also allows house hunters to compare mortgage rates using their Smartphone. Over 1.5M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, banking, credit cards and GICs.

The Subprime Market in Canada

There have been talks about Canada’s subprime mortgage industry getting out of control as the banks turn more and more clients away who have less than perfect credit.  Who are these so called less than perfect clients turning to?  In some cases, sure they’re turning to Alt-A lenders (which stands for Alternative A-Paper lenders, also known as subprime or “B” lenders) who often price upwards of 100 basis points over posted rates.

A growing number of mortgages are being funded outside of The Big Five banks.  Speculation suggests that this is due to the recent changes brought on by the CMHC including shortening amortization periods and increasing down payment amounts. Naturally, the banks do not want to lend to anyone that doesn’t qualify for CMHC insurance.

However, there are many qualified individuals who turn to lenders outside of The Big Five for other reasons.  One example of this would be someone who is self-employed and whose taxable income after deductions makes it tough to gain approval through the conventional line up.  It is important to understand that just because it isn’t a prime mortgage through one of The Big Five, does not necessarily mean that it is a sub-prime mortgage.  There is a market out there that has been referred to as a “near prime” mortgage and is nothing close to the literal subprime market that was created in the states.

The NEAR (not sub) Prime Mortgage Market in Canada

There is a misconception that if you don’t qualify for a mortgage at a major bank you can easily just go through a mortgage broker instead.  The decision to call on a mortgage broker and their lenders is different for everyone but the mortgages available through the broker channel are not by any means of a lower quality or riskier (heck, half of the time brokers fund mortgages with major banks).

But if you do find yourself in a tough situation (such as our self-employed friend above), a mortgage broker may have access to alternative lenders that specialize in arranging home loans for ‘near-prime’ borrowers.

It is important to note that loans for the NINJAs (no income, no job and no assets) and negative amortization loans etc. are NOT readily available through a mortgage broker.  These are the true ‘subprime’ mortgages and are typically referred to as private mortgages funded by people with deep pockets who don’t use leveraging techniques to make the deal.  These private mortgages will often help out a client who needs a second mortgage and their current lender will not surpass the 75-85 per cent loan to value level.  This LTV rule of thumb ensures that the lender has a 15-25 per cent cushion on the value of the home before the lender is really at risk.

Is Canada Really Headed for a Meltdown?

I don’t see it that way!  At first glance, the fact that more and more mortgages are being funded outside of RBC, TD, BNS, BMO and CIBC mixed with a decrease in the average price of a home could signal a cause for concern; but experts are saying that Canada has no true subprime market.

Yes monthly home sales are at an all-time high but year over year we are not seeing the same exponential growth in sales nationally.  This is due to moderate gains in major centres (Toronto, Calgary, Montreal, Ottawa and Quebec City) which are offset by declines in Vancouver and the Fraser Valley.  Last year Vancouver ran at unusually strong sales levels and things are just starting to get back to normal vs. the crash that some are suggesting.  *A look at March 2012 versus February 2012 and March 2012 versus March 2011. Statistics taken from CREAstats

The other concern is the decrease in the average sale price of homes nationally.  Again, last year Vancouver had record high-end home sales in their priciest of neighbourhoods.  There definitely has been a decline in the average sale price of homes in Vancouver but this is due to the change in the sales mix, not due to housing deflation by any means.  Overall Toronto is actually stronger than last spring.  The tug of war between Toronto and Vancouver has made it seem that prices are decreasing but it’s really just an adjustment to the marketable properties available.

RateSupermarket.ca Week in Review

The biggest change this week on the Best Mortgage Rates page was for the better!  The 5 year fixed rate and the 3 year variable rate both dropped by 10bps.  Small movements were seen in the 3 year fixed rate (up 5bps) and the 7 and 10 year fixed rates (both up 1bps). Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

The most popular searched rate remains, still in the lead is the 5 year fixed rate (47.4 per cent of visitors searched for this rate over the last week).  Following the 5 year fixed are the 5 year variable rate (21.8 per cent), 10 year fixed rate (8.4 per cent) and the 3 year fixed (7.0 per cent).

The Bank of Canada is hinting a hike in the overnight lending rate is coming soon. This move will affect the payments on variable mortgages, lines of credit or any debt connected to the floating rate.

Short-term overnight rates have been stalled at 1 per cent since September 2010 and the Bank of Canada knows they can’t stay there for too much longer. It’s because Canadians continue to take on more cheap debt and inflationary pressures are starting to creep in.  More recently the Central Bank noted improved prospects for both the global economy and ours. Indicating Canadians could handle a higher cost of borrowing.

If you’re worried about your ability to service debt in a higher interest rate environment, there are plenty of steps you can take right now to prepare.

Fix your Mortgage Rate

If you’re on a variable rate mortgage you may be able to lock into a fixed rate without any costs. Talk to a mortgage expert to see what your options are. With your rate fixed for five years you can more easily budget and manage your money over that time.

Start Paying More Principal Down

The smaller your debt is the easier it will be to handle.  If you’re carrying a large mortgage or a substantial line of credit, start paying down your loan as aggressively as possible. Every cent you put in today will save you money down the road, especially when rates start to rise and that money gets more expensive to carry.  This is true even if your mortgage term is fixed, because you will be better prepared when it comes up for renewal.

Don’t Take on Any New Liabilities

With interest rates so low, there may be a temptation to take on more debt. But if you’re already carrying a high load, this is not the time to start major home renovations or buy a new car. If possible start saving for those new purchases so you can avoid paying any interest at all. This is a good habit to have no matter where interest rates stand.

Say NO to an Expensive Home

If you’re out shopping for a mortgage, don’t take on the maximum your bank is offering. There is an easy method to figure out what you can afford. Calculate your monthly household income after taxes. Ideally your mortgage payments should represent 25 to 30 per cent of that number. Aim to have your payments around 25 per cent for now so they won’t exceed that comfortable amount when rates rise. If your ratios are too high then you need to find a less expensive house.

Base your Payments on a Higher Rate

Make the lifestyle changes you need to cut back on your spending now. Don’t wait until rates go up to see where you can save. I recommend paying your mortgage at a rate of at least 5 percent. This will help you adjust your budget early to handle those higher payments later.

Stay Invested in Canada

Higher interest rates will mean a stronger Loonie. If you’re looking to convert any cash to U.S. dollars holding off for a year could save you a great deal of money. This is especially true for anyone buying real estate in the U.S. My advice, start saving your cash in Canadian dollars, you could get a better exchange rate at the beginning of next year when rates are expected to rise.

Don’t Forget About “Normal” Conditions

The Bank of Canada likes the overnight lending rate to be around 6 per cent. Meaning in normal economic times commercial banks will offer a prime rate closer to 8 per cent. Don’t worry that isn’t happening anytime soon. But it’s important to keep in mind that in the last 30 years Canada’s interest rate has fluctuated dramatically.  In 1980 it reached an historical high of 18 per cent and a record low of 0.25 per cent in April of 2009.

Who is Most Vulnerable

Anyone holding an adjustable or variable rate mortgage will be affected, as the banks will raise prime from the current level of 3 per cent. Also if you have a floating rate on your personal debt you should also be aware of the higher cost of borrowing and what that means to your budget. A hike is still months away and taking these appropriate steps now will protect you and your family from rising costs.

In the News this Week: No Changes to the Overnight Lending Rate

Earlier this week (Tuesday April 17th) the Bank of Canada announced that it will maintain its target for the overnight rate.  This marked the 13^th consecutive time that rates have been left alone over the past 19 months.  Although the Canadian economy has exceeded the Bank’s expectations from January and the U.S.’s own recovery has been on the up and up, it all wasn’t enough to have the BOC increase their overnight lending rate which remains steady at 1 per cent.  This pleases mortgage brokers and consumers alike as the prime lending rate also remains at the 3 per cent level.

BUYER BEWARE … Shedding Some Light on the Cash Back Mortgage

You might be wondering what a cash back mortgage is – it is exactly what it sounds like.  When your mortgage funds you receive a set percentage back in cash to go towards, well whatever you want!  Some will turn around and use a 5 per cent cash back amount as their down payment, a sly move around the minimum down payment required to qualify for a mortgage in Canada, unless you are using a private lender of course.  The pro with this type of mortgage is that you can do whatever you want with the cash back!

The Cons: Nothing Comes for Free

I did some research around cash back mortgage rates among the major banks and found that on the surface, they are priced at par with regular fixed mortgage rates.  This makes them quite attractive to the average consumer.  However, when taking a deeper look I found out that the banks only offer discretionary pricing on their regular mortgage products and not on cash back mortgages; making the effective cash back mortgage rates higher than the standard fixed rates.  No room for negotiating a cash back rate!

If paying the posted rate isn’t bad enough, try getting out of a cash back mortgage.  Is it possible?  Yes!  Is it difficult?  Not really.  Is it expensive?  OH YA!  How do you feel about your first born or an arm and a leg?  These are things you may need to give up in order to pay out the penalty for breaking a cash back mortgage.  Sure the $9,000 in your pocket on closing was nice, but try paying it back on top of the standard IRD/3 month interest penalty charge.  It will most definitely cost you a pretty penny.

Claims to “pay off your mortgage 11 years sooner” with a Cash Back Mortgage?!

One of the major banks has advertised that you can pay off your mortgage 11 years faster with a 5 year fixed cash back mortgage at 4.24 per cent.  Not only will you pay off your mortgage faster but they will even give you $4,000 cash at closing (this is based on a 2 per cent cash back amount on a $200,000 mortgage).  That sounds great doesn’t it, so what’s the catch?

The catch is that their scenario is conditional upon your ability to pay more – funny … when you pay more you pay off your mortgage faster!  So I guess paying off your mortgage 11 years sooner really isn’t dependent on the advertised cash back product, which offers a higher rate and is more expensive if you decide to break it down the road.  With the same suggested principals you could pay off any mortgage faster, so why settle for a higher rate!?

The Offer Under the Microscope

In order to be mortgage free (based on $200,000 principal, 4.24 per cent 5 year fixed rate, 25 year amortization and monthly payments) 11 years earlier you have to increase your monthly payment frequency to accelerated bi-weekly payments, then increase your bi-weekly payments by nearly 9.5 per cent and finally make lump-sum payments of $3,000 per year.

From Scenario One – Two: By increasing the payment frequency from monthly payments to accelerated bi-weekly you can shave over 3 years off of your mortgage (mind you, the equivalent monthly payment translates to $1,168.10 which is nearly $90.00 extra each month).

From Scenario Two – Three: By increasing your bi-weekly accelerated payment to $590.00 (9.44 per cent increase) you can pay off your mortgage nearly 5 and a half years earlier (note: the equivalent monthly payment now translates to $1,278.33 which is over $200.00 extra each month).

From Scenario Three – Four: Now that you’ve increased your total annual principal and interest payments by approximately $2,400.00, this example also requires you to pay an additional lump sum payment of $3,000 per year.  By doing this, you will decrease your total amortization to 14.8 years from the original 25 years.

Bottom line:  It isn’t the mortgage product that is helping you to shave years off of your mortgage, it is taking advantage of pre-payment privileges which you can do with any product!

RateSupermarket.ca Week in Review

Another week of little to no movements in the best mortgage rates across Canada.  Little on the variable front and no movements on the fixed front.  The single change over the last week was an increase in the 5 year variable closed rate, up 5 bps to 2.75 per cent.  Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

Still remaining in the top 1 and 2 spot for most frequently searched mortgages are 5 year fixed (38.5 per cent of visitors searched for this rate) and the 5 year variable (32.9 per cent).  Gaining in popularity over the last week is the 3 year fixed rate, last week 4.8 per cent of visitors were searching for this rate and this week 5.5 per cent have.  Have you created an account on RateSupermarket.ca yet?  Get to it!  It allows you to save your searches so that you can easily sign-in and see the current best mortgage rate for your needs.

Today the Bank of Canada announced that once again (for the 13^th consecutive time over the past 19 months) that there will be no change to the overnight lending rate.  This pleases variable rate mortgage holders since there are no alterations to the bank’s Prime lending rate and therefore no increase to their own mortgage rate and monthly mortgage payments.

The Canadian economy is exceeding the Bank’s expectations from January.  The U.S. has contributed to the overall healthier economic picture in Canada since their own recovery has been more pronounced in recent months and their financial conditions have improved as well. An improvement in Canadian consumer confidence has unfortunately increased the level of household debt, which remains the greatest domestic risk in Canada.  Net exports are forecasted to remain weak due to increased competition, a diminishing global demand and the strength of the Canadian dollar.

A full update of the Bank’s economic and inflationary outlook will be published tomorrow and the next meeting to discuss changes to the overnight lending rate is scheduled for June 5^th, 2012.

RateSupermarket.ca’s Expert Mortgage Panel Predicts Hike in Fixed Rates, but Stability in Variable Rates This Month

TORONTO, ONTARIO–(April 10, 2012) – The spring real estate frenzy has started early this year, perhaps due in part to record low fixed mortgage rates in March. Sadly for borrowers, all good things must come to an end. To paraphrase the old saying, “what goes down must come back up.” As such, fixed rates are expected to rise this month, according to some experts.

Conversely, RateSupermarket.ca‘s Mortgage Rate Outlook Panel is anticipating variable mortgage rates to remain unchanged in April.

Fixed Mortgage Rates: Up

The price wars that sent fixed mortgage rates to historical lows last month seem to be over (for now). The record low rates were an attempt to snap up market share early in the year and get a jump on the peak home buying season, but those rates were unsustainable according to the Expert Panel.

With the increase in bond yields and persistent political and media attention around house prices and consumer debt levels, we should see fixed mortgage rates increase during the month of April.

Variable Mortgage Rates: Unchanged

RateSupermarket.ca‘s Panel members believe that inflation remains in check, the provincial election is heating up in Alberta, and the risks to global economic growth remain biased to the downside.  All these factors combined mean the Bank of Canada is unlikely to make any change to interest rates when they meet on April 17.  As a result, Prime rates and discounts off of variable rate mortgages will remain stable in the short-term.

To read all the detailed commentary from our Panel Members, please visit:

http://www.ratesupermarket.ca/mortgage_rate_outlook_panel/

About the Mortgage Rate Outlook Panel

The Panel includes some of the country’s top mortgage experts, and helps Canadian consumers make informed decisions by offering a short-term outlook for fixed and variable mortgage rates.

This month’s panel members:

• Mark Kocaurek, Senior Vice President, Treasury & Lending (Chief Lending Officer) of ING DIRECT Canada
• George Hugh, President and Co-founder, Taurus Mortgage Capital.
• Dr. Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University
• Wayne Spinney, Mortgage Agent, Centum Mortgage Professionals
• Dan Eisner, MBA. AMP. President, True North Mortgage

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada. Founded in May of 2008, their easy to use comparison engine provides much needed transparency to the Canadian financial market and allows visitors to quickly find the best mortgage rates. Their Mortgage Tool App for the iPhone also allows house hunters to compare mortgage rates using their Smartphone. Over 2M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, credit cards and GICs.

Recent Study Findings: How Canadians Feel About a 2 per cent Increase in Mortgage Rates

A survey completed by Leger Marketing for BMO, found that 43 per cent of Canadian homeowners would be in a bind if interest rates were to increase.  4 out of 10 claimed they would feel pressure if rates would rise as little as two per cent while 1 out of 5 said the same two per cent increase would hurt their ability to service their mortgage.  23 per cent were unsure how a rate hike would affect them while only 57 per cent felt that their mortgages would still be affordable if mortgage rates increase.

This survey which was completed by 1500 respondents was conducted two weeks prior to BMO dropping their 5 year fixed closed rate to the historically low 2.99 per cent.  The survey results were disclosed the day before this promotional rate ended last week.  Since then, all of the major banks have followed BMO’s suit and ended their own 4 and 5 year promotional pricing as well.  But how likely is a 2 per cent increase in mortgage rates?

What Does the Future Hold?

Banks already began raising variable mortgage rates and offering less of a discount off of prime, long gone are the prime minus 75 bps days.  The changes made to variable rate pricing are independent of the fact that the Bank of Canada hasn’t implemented any changes to the overnight lending rate at this point which directly influences the prime lending rate.

According to economists the overnight rate will likely end up in the 3-4 per cent rage, some estimate by 2013 while others forecast no big movements at least until 2014 when the U.S. Federal Reserve is expected to make their first rate increase.  The idea of rates increasing sooner than later stems from the fact that both Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have clearly stated their concerns with the heightened levels of household debt levels (recent report stating debt to disposable income levels around 150 per cent).

On the fixed side of things, the promotional 2.99s have rocked recent pricing strategies and created a seemingly unnatural environment in the mortgage market.  Since the beginning of 2012, the 5 year Government of Canada benchmark bond yield has increased over 26 per cent; and although the yield jumps around from day to day there is a notable upward trend which should signal an increase in fixed rates.

Talks of a Crash Should Cease: Stress Testing Canadian Households

The Bank of Canada has developed a “stress test” to evaluate how any adverse economic circumstances (such as an increase in interest rates) would affect the distribution of debt.  The BOC examines each scenario and considers how changes in interest rates and the unemployment rate affects consumer credit and the impact on debt servicing ratios (GDS/TDS).

The most recent stress test came out optimistic, the BOC is confident that Canadian households are in a good position to handle an economic shock.  In 2000, 8.4 per cent of households had debt-service ratios above 40 per cent and at that time Canada didn’t experience a crash like the American economy had.  The BOC ran a scenario for a 3 per cent increase in the unemployment rate and an increase alike in short term interest rates; the outcome is (not surprisingly) an increase in the number of households with high debt-servicing ratios (from 6.4 per cent in 2010, to roughly 7.5 per cent in 2013).

The C.D. Howe Institute suggests that the BOC’s stress test may actually underestimate the effects of tougher economic times on the Canadian economy since the increase in debt (especially for lower-middle income borrowers), means that consumers might be increasingly prone to bankruptcy after a job loss.  However, no one is anticipating a crash like the American housing market experienced.  Canadian lending standards are stricter than those of the U.S.A. and they continue to tighten with recent changes to mortgage insurance rules and reduced access to credit for riskier borrowers.

RateSupermarket.ca Week in Review

Over the last week we have seen movements in half of our rates and all but one were on the rise.  With the exception of the 1 year fixed dropping a mere 5 bps, the 5 year fixed (up 21 bps), 7 year fixed (up 4 bps), 10 year fixed (up 4 bps) and 3 year variable (up 5 bps) all increased.  The biggest mover was the 5 year fixed rate which ended last week on the best mortgage rates page at 2.98 per cent, jumped up 11 bps to 3.09 per cent last Friday, another 5 bps on Monday and a final 5 bps to end at 3.19 per cent on Wednesday.

The 5 year fixed mortgage rate remains the most popular rate, with 40.9 per cent of visitors searching for this rate.  The 5 year variable rate is the runner up with 33.9 per cent of visitors reviewing the offers for this type and term.  And also notable is the 10 year fixed rate with just over 7 per cent of visitors interested in this rate (7.1 per cent).  Since the drastic change over the 12 months in variable pricing from prime minus to in some cases exceeding prime and the fixed rate pricing doing the exact opposite (hitting rock bottom at 2.99 per cent twice since the beginning of this year alone), consumers are locking in and even considering the “insurance” that the 10 year fixed rates provide.  Most people are thinking they are likely going to have a mortgage for the next 10 years, so why not lock in a rate under 4 per cent!?

Canadians Turning Towards Fixed Rates

A recent poll conducted by Harris/Decima has shown that 50 per cent of all Canadians would choose a fixed rate mortgage if they had to decide today, this is up from 39 per cent in 2011; whereas only 32 per cent would choose a variable rate mortgage, no change from last year.  The other 18 per cent aren’t sure which product would be right for them which is much less than the 30 per cent from last year.  Likely the shift in preferences from variable to fixed is due to the fact that the majority (86 per cent) of Canadians believe that mortgage rates will either stay the same or increase within the next year.

This poll suggests that more and more Canadians are looking to lock in at the current low fixed interest rates in order to pay off their debt sooner and protect themselves from rising interest rates.  As a rule, fixed rate mortgages are normally the product of choice amongst first time home buyers as many are working to establish themselves financially and are attracted to the fact that their rate and payments will not change over the term of their mortgage.

Extra! Extra! Read All About It: Fixed Rates on the Rise

Scotia Bank somewhat slipped under the radar when they withdrew their 4 year promo fixed rates last week and returned to the 4.39 per cent level.  This is a little shocking, seeing as it is a huge 140 basis point jump up from the short lived 2.99 per cent rate.

RBC and TD both published a press release earlier this week announcing a number of changes to their pricing strategy, all effective yesterday – Thursday March 29^th:

• Both increased their posted 5 year closed fixed rate by 20 basis points to sit at 5.44 per cent
• Both also increased their 5 year closed variable rate by 10 bps to sit at Prime + 0.20 per cent (effectively 3.20 per cent)
• And both have ended the 4 year special closed fixed rate of 2.99 per cent and returned it to 3.49 per cent (only a 50 bps increase vs. Scotia’s 140 bps increase last week).

Low Interest Rate Environment Paired with High Canadian Debt Levels – What is Canada Doing to Prevent a “Crash”?

With interest rates at an all-time low, house prices on an increase, concerns of consumer debt levels and a slowing growth rate in income levels there have been fears of the housing “bubble” bursting.  Policy makers and governing bodies alike are consistently revising regulations and even implementing new ones in order to protect Canada from following in the footsteps of our American neighbours.

Most recently, OSFI (Office of the Superintendent of Financial Institutions) has started tightening the underwriting process and lending guidelines for institutions, making it increasingly difficult to obtain financing.  Canada generally has stricter guidelines than the States when it comes to qualifying an applicant for a mortgage.  The States have a larger number of mortgages funded through a stated income program (vs. Canada who will verify income levels with paystubs, letters from an employer, NOAs etc.), no minimum down payment (Canada requires a minimum of 5%) and lenient debt servicing ratios (Gross Debt Servicing Ratios cannot exceed the 32% mark in Canada).

There has also been a continuing trend away from the ‘riskier’ HELOCs toward termed debt.  CMHC no longer provides insurance on the revolving HELOC product (therefore only making them available to home owners on a maximum 80 per cent loan to value basis).  HELOCs are generally more difficult to qualify for based on their flexible features like interest only payments and revolving credit limits.  And don’t forget that last year the maximum amortization for new high ratio mortgages decreased from 35 years down to 30 years.

Bottom line, the burst of the American housing bubble should have come to no surprise after reviewing the lenient underwriting guidelines they had in place which made it way too easy for Americans to qualify for a mortgage.  Something big would need to happen in order for Canada to experience a similar crash.

RateSupermarket.ca Week in Review

Small changes in rates over the last week to the best mortgage rates available on RateSupermarket.ca; the only increase was in the 1 year fixed rate which currently sits at 2.44 percent, up from 2.39 per cent.  Although you would expect to see more movement following the major bank’s rate hikes/promotional rate expiry (namely the 4 and 5 year fixed closed rates and the 5 year variable rates), other mortgage professionals are still able to compete and offer their customers preferable rates.

With all of the promotional advertising and exposure that the 2.99 per cent 5 year fixed received, it is no surprise that the 5 year fixed mortgage rate was the most popular product over the last week, with 45.8 per cent of visitors searching for this rate.  A close second was the 5 year variable closed rate (38.47 per cent), 10 year fixed closed rate (4.5 per cent) and the 4 year fixed rate (4.2 per cent).

Last weekend the government announced a change to current mortgage regulations which now require federal financial institutions to revise the mortgage penalty disclosures they provide to consumers.  These changes were first promised over two years ago by the Finance Department in an effort to bring clarity to the calculation of pre-payment penalties and to ensure consumers were receiving sufficient information on mortgage products.  Institutions have until November 5^th, 2012 to comply with the changes; compliance will be closely monitored by the Financial Consumer Agency of Canada (FCAC).

FCAC Demands an Increase in Transparency for Mortgage Holders

The FCAC has indicated that there has been a significant increase in the number of complaints they have received regarding mortgage penalties, especially when it comes to the calculation of the interest rate differential (IRD).  It seems as though mortgage specialists aren’t doing a good enough job explaining mortgage prepayment penalties or penalties incurred when breaking a mortgage contract to their customers.

Going forward mortgage specialists will need to ensure that they identify and discuss the differences between open and closed mortgage features, fixed and variable rates as well as the cost/benefit of a short vs. long term mortgage.

New Regulations Require Annual Updates – Good News for Mortgage Holders

Every year lenders are now required to provide information to borrowers regarding ways to pay off their mortgage faster, an explanation on how the lender calculates the penalty, a description of the factors that might affect the penalty charges over time, fees associated with the payout of the mortgage, how those fees are calculated, a toll free number to reach a knowledgeable staff member and finally how to access the lender’s financial calculator in order for the borrower to estimate their payment charge.  If the penalty formula is complex, the FCAC requires that a simpler way to estimate penalties is provided.

Tailored Information will Help you Manage your Mortgage

Along with this generic information, the lender will need to provide personal information specific to the borrower about their mortgage.  The tailored information needs to consist of the dollar amount of allowable pre-payments, the remaining balance, the interest rate with any applicable discounts, the borrower’s remaining term, how the lender determines the comparison rate to calculate the IRD and where the borrower can find comparison rate information.

These changes will help all mortgage holders understand the “ins and the outs” of their home loan, and how to save money by using these features to their advantage.

Other News this Week

CMHC released their seasonally adjusted annual rate of housing starts for February which was at 201,100 units, a 1.5 per cent from January.  Quebec and British Columbia had both experienced multiple housing starts which contributed to this upward movement; these were offset by decreases in Ontario and Atlantic Canada.

Stats Can reported that prices of new homes in Canada increased by 0.1 per cent in January from December 2011.  Major movers were the Atlantic Region which dropped 0.2 per cent, whereas the Prairie Regions and BC both increased by 0.2 per cent.  Interestingly enough, since March 2011 Canada has been experiencing month over month growth in the price of new homes and we have not seen a decrease since July 2010.

RateSupermarket.ca Week in Review

BMO is back in full force with their announcement of offering 2.99 per cent on their 5 year fixed mortgage product and TD has responded by bringing back their 2.99 per cent 4 year fixed mortgage.  However, in taking a look at our best mortgage rates page the changes we’ve seen this week include some discounts in the mid-term rates and increases in the long term rates.

*This chart is based on changes over the last week to our Best Mortgage Rates Canada page. Mortgage Rates may vary depending on Province.

No changes this week yet (visitor statistics run on a Wednesday-Wednesday schedule), therefore the 5 year closed variable rate remains the most popular searched mortgage (46.3 per cent of all RateSupermarket.ca visitors).  This is followed by the 5 year closed fixed rates (39.7 per cent) and 1 year closed fixed rate (4.1 per cent).  It will be interesting to see if these numbers change over the next week given the ongoing rate battle of the banks.

The Bank of Canada (BOC) announced today (March 8th, 2012) that the overnight lending rate will remain unchanged for the 12^th consecutive time over the last 18 months.  The last time the BOC made a change to the overnight lending rate was back in September of 2010 with an increase of 25 basis points.

The overnight rate currently lingers at 1 per cent.  The bank rate is at 1.25 per cent and the prime lending rate also remains at 3 per cent.

What the Experts are Saying

C.D. Howe Institute’s Monetary Policy Council (MPC) met earlier this week to discuss their ideas around a possible rate change and all 9 members had anticipated that there would be no change.  This is consistent with the message coming from the RateSupermarket.ca Mortgage Rate Outlook Panel members.  Interestingly enough, all members of the C.D. Howe are also forecasting no changes for the BOC’s meeting next month on the 17^th of April.

The 6 and 12 month opinions are mixed due to clashing philosophies as to where the state of the global and domestic economies will be as well as concerns about maintaining a domestic inflation rate around the target of 2 per cent; however the majority currently anticipate no adjustments will be made to the overnight rate over the next year.

The problem with raising rates too soon is the negative impact that it would have on the Canadian dollar and net exports, could our trading partners afford this increase?  Everyone hopes the worst is over in the United States since they have been reporting some healthier numbers, however policy changes are going to continue to happen throughout 2013 and no one is holding their breath.  There have also been signs of slowing growth in China, India, Brazil and Russia; now it’s the BOC’s turn to make a move and they’ve decided to hold steady.

It will be interesting to see how Canada maintains the moderate growth that it has been experiencing vs. how the rest of the world is keeping up.