Fixed rates are now “superior,” said BMO in this report released Thursday.
“While we have in the past supported going variable,” circumstances now “favour…locking in...”
That’s been BMO’s rally cry since 2010 when it proclaimed “Time to Say Goodbye…to Variable.” In retrospect, that advice would have cost mortgagors handsomely. But BMO was far from alone in that call.
Few anticipated the economy would drag along the bottom, depressing rates for five years after the great recession. People are now becoming desensitized to statements like “We may not see such low fixed rates again any time soon” (BMO’s latest prognostication).
Sooner or later, economists will be right on fixed rates, partly for the reasons BMO mentions (including higher inflation). But there are things about BMO's report that people need to know about.
Sometimes it takes a team effort to afford a mortgage.
That’s especially true in the Vancouvers and Torontos of the world, where you need to be in the top tax bracket to afford a detached home solo. This is probably why Vancity, the nation’s largest credit union, has been getting press lately on its Mixer Mortgage, even though it launched the product in 2006.
The Mixer Mortgage is designed to help one or more roommates, co-workers, friends or family members buy a home together. It’s not a new concept. Vancity just puts a different spin on it, and that spin includes useful guidance.
OK let’s rephrase that. It’s not the time for a 10-year fixed for well over 90% of Canadian mortgagors.
There was a time last year when the spread between 10-year and 5-year fixed rates was below 3/4 of a percentage point. That made even the 10-year scoffers among us rethink our positions. But spreads are now back over 1%. That means 10-year terms simply aren’t worth the interest premium anymore (for all except the most payment sensitive borrowers).
It’s hard to imagine the mortgage industry getting more competitive than it already is, but it will…every year.
One area where lenders are constantly looking to outflank competitors is with client retention. And what better way to maximize retention than by making first contact with clients who are approaching maturity?
But when you get that renewal call or letter from your lender, it takes forethought to make the right decision. That’s the topic of this week's Globe column (click for article).
When choosing a term, it’s often necessary to compare mortgages side by side—for example: a fixed rate and a variable rate.
This comparison typically entails running hypothetical amortization schedules on each mortgage and then comparing the total payments and ending balances.
Doing this gives you a close enough idea of the relative borrowing cost difference, but there’s an extra step if you prefer to be more precise.
“It’s very important when you’re comparing mortgage terms to compare cash flows,” says York University Professor Moshe A. Milevsky. “In almost no other comparison in personal finance do you have to worry about that, but with mortgages you do.”
It’s not synonymous with the “lowest mortgage rate.”
The best mortgage rate corresponds to the mortgage and advice that saves (and in some cases makes) you the most amount of money long-term.
Mortgage professionals routinely advise, “It’s not all about the rate.” To some, that sounds like evil sales-speak meant to boost commissions. The reality is that mortgage flexibility, contract restrictions and advice all have a definitive impact on borrowing costs. And most people don’t discover how much impact until after their mortgage closes.
That said, consumers are obliged to negotiate the very best deal they can. Three years ago, we asked ourselves, what kind of mortgage comparison website would we want if we were shopping for a mortgage ourselves? We thought up RateSpy.com.
Have you ever had a sick feeling in your stomach after buying a car, or a big screen TV, or a boat, or expensive jewelry? It’s that nagging worry that you’ve bought the wrong model or spent more than you should have.
Buyer’s remorse is common with big ticket purchases, but it’s not as common right after you close a mortgage.
With mortgages, the buyer’s remorse comes later—when you discover the cost of changing your mortgage, or realize that you have no objective source of advice to rely on.
There are numerous ways to weed out inferior mortgages, and (believe me) there are countless inferior mortgages out there. Once you’ve scouted out the best rates, it’s time to start asking questions. Here’s what you’ll want to know:
Falling mortgage rates have been one of the biggest single factors escalating home prices. So as rates reverse higher—assuming it’s a sustained increase—values will feel the pressure of deteriorating affordability.
But there’s a contingent that feel rates and home prices could march higher together, indefinitely. Some believe we may not see 2.99% 5-year fixed rates again for several years.
Is that a bad bet to make? Have people over-reacted by calling for the end of low mortgage rates? Does it matter when it comes to timing a home purchase? Those are some topics in this week’s Globe column.
And on Thursday Sept. 12, we’ll poke at this issue even further in a live Globe and Mail chat at noon ET. Click here to join in.
We’re at one of those points in the economic cycle where mortgage rates get especially confusing.
On the one hand, we see the Bank of Canada confirming that it has no plans to raise short-term interest rates for several months (maybe several quarters). And on the other hand, we have bond traders pushing up long-term interest rates to two-year highs.
That's got many wondering:
a) which side is most reflective of the long-term trend, and
b) how mortgage shoppers should position themselves?
As the chart illustrates, inflation tends to stick near 2%. That’s thanks, in large part, to the BoC’s inflation control mandate.
Long-term, there is no reason to believe the Bank won’t be able to maintain this 2% trajectory. And the suppressing effect that could have on interest rates should be welcome news to Canadian mortgagors.
The attached video is a chat I had a few weeks back with Elizabeth Wilson, Editor of REW.ca. We covered the basics about what’s been pushing up rates lately, the fixed vs. variable decision and why rate holds are so important.
On that last point, it’s worth noting that pre-approval/rate holds are often 10+ basis points more expensive than rates on “live deals” (i.e., applications with firm closing dates). But that’s no reason not to get a pre-approval. If there’s a chance you’ll close a mortgage within 180 days, you always need to protect yourself from adverse rate moves. Furthermore, pre-approvals never bind you to a lender, so it’s like a free option.
According to a Scotiabank survey, 6 in 10 mortgage holders say they could add a little extra ($20) to their mortgage payment without impacting their finances.
It makes you wonder about the other 4 in 10 (but that’s another story).
The question here is, what would $20 extra per month mean to the average mortgage? The answer: It would save the typical borrower almost $2,800 in interest over 25 years and reduce his/her amortization by 10 months.*