A run down of what's going on in the market and the company.

Monday, March 29, 2010

Mortgage Rates Rise!

By THE CANADIAN PRESS, cp.org, Updated: March 29, 2010 2:28 PM

Royal, TD raise mortgage rates in sign era of historically low rates ending

The Royal Bank of Canada sign is shown in Toronto's financial district in downtown Toronto in this Feb. 26, 2009 file photo. Two of Canada's biggest banks - Royal Bank and TD Canada Trust - are increasing some of their residential mortgage rates effective Tuesday in the latest sign that the era of historically low rates could soon come to an end. THE CANADIAN PRESS/Nathan Denette
TORONTO - Two of Canada's biggest banks are increasing some of their residential mortgage rates effective Tuesday in the latest sign that the era of historically low rates could soon come to an end.

The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX:RY) and TD Canada Trust (TSX:TD). Rates for mid-term mortgages like these tend to reflect the banks' borrowing costs on bond markets.

The biggest increase announced Monday affects five-year mortgages. Both banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.

A homeowner taking on a mortgage of $250,000 at the new rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.

The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.

Rising rates present a dilemma for many homeowners who face decisions about whether to lock variable rate loans into fixed terms or ride it out and hope that rates will come down again in 2011 as the economy slows and inflationary pressures subside.

Potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance.

Historically, staying short-term and flexible has been the best strategy, but banks usually advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk.

CIBC (TSX:CM) chief economist Avery Shenfeld said the central bank begins to step on the brake when it sees overheating in the economy, and economic growth in the first quarter has outperformed the central bank's forecast.

CIBC has lifted its own growth outlook for the first quarter of the year to over five per cent, due to strong indicators of recovery.

"The only reason the market is building in expectations for rate hikes is because it's seeing the economy as better able to withstand them," he said.

"Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."

Mortgage rates hikes are a trend consumers should expect to continue, Shenfeld added.

He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of the third quarter.

That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.

"Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs," he said.

"Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates."

When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Shenfeld said.

The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.

Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.

And he added that the outperformance of the economy in the first half of the year will be countered by a slowdown in the second half.

"Not only do we expect weaker growth in the key US export market by then, but Canadian consumers may also be more temperate in the wake of a debt financed binge."

Tuesday, March 9, 2010

Insured Stated Income Programs Tighten Up

CMHC has felt for a while that too many people apply for stated income mortgages that shouldn’t.

Therefore, effective April 9, CMHC is adding more restrictions to its Self-Employed stated income product..

Read the rest here:

Article Source: Canadian Mortgage Trends
Article Direct Link: CMHC Tightens Up Stated Income Program

Monday, March 8, 2010

The 5-year Funnel

March 08, 2010

The 5-year Funnel

Take all the high-ratio borrowers with above-average debt ratios and funnel them into 5-year fixed terms.

That’s what the government has done with its new posted qualifying rate.

The instinctive conclusion after hearing about posted qualifying rates is that droves of people will no longer be able to qualify for a mortgage.

Not so. Posted qualifying rates won’t keep the masses from buying homes.

To illustrate this, pretend you live in the typical Canadian household which makes about $66,343 a year. Perhaps your family has $500 a month in non-housing debt obligations. How much mortgage can you afford?

Well, maybe your name is ‘Mr. Leveraged’ and you want to stretch your budget. You can get yourself qualified today using a 3-year fixed rate of, say, 3.49%. That’ll get you a $314,000 mortgage, or thereabouts.*

If the new qualifying rules were in effect today, you’d get more buying power with a 5-year fixed mortgage. That’s because variable-rate mortgages and 1- to 4-year fixed terms would (will) require you to qualify using a 5-year posted rate. Posted is 5.39% today.

The qualifying rate on a 5-year fixed mortgage, however, might only be 3.75% (and even less with some lenders).

Having to qualify with 3.75% instead of 3.49% would knock Mr. Leveraged’s maximum mortgage down to $304,000. That’s a mere $10,000 less than he can get under today’s qualifying rules (which still apply until April 18, 2010).

This small loss in buying power isn’t that big a deal. The government’s new qualifying rate policy will not be an obstacle to people buying homes.

What it does, however, is funnel people with higher debt ratios and less equity into 5-year fixed mortgages.

Who’s happy about that?

Big Lenders: Because 5-year fixed terms are usually more profitable than variables or shorter terms.
Bankers and Mortgage Professionals: Because they often get paid more up front for selling 5-year fixed mortgages as opposed to shorter terms.
Many Others: Because 5-year fixed terms help: 1) Keep high-ratio applicants with less equity from overextending themselves; and, 2) reduce payment shock as interest rates start climbing.
Who’s not happy?

Qualified Homeowners Without 20% equity: Because many of them will no longer be approved for lower-cost variable-rate mortgages, 1- to 4-year fixed terms, or hybrid mortgages.
Smaller Non-Bank “A” Lenders: Because it’s harder to compete with big banks in the prime 5-year fixed market.
A final reminder for good measure: The new posted qualifying rate will not apply to all mortgages. CMHC says it will apply after April 19 only to insured mortgages with less than 20% down.


* The maximum mortgages were calculated assuming a 35-year amortization, 5% down, 680+ credit score, 44% maximum TDS, a 1% property tax rate, $100/month for heat, and a 3.15% default insurance premium. Median income source: 2006 census.

Posted at 12:05 AM in Mortgage Commentary | Permalink | Comments (3)

Article Source: Canadian Mortgage Trends
Article Direct Link: The 5 Year Funnel

Saturday, March 6, 2010

Breaking News: Posted Is The New Qualifying Rate!

March 06, 2010

Breaking News: Posted Is The New Qualifying Rate!
For all variable-rate mortgages and fixed terms under five years, the new qualifying interest rate will be the greater of:

the chartered bank 5-year posted rate (5.39% today), and
the contract rate.
These changes take effect April 19, and are part of the new mortgage rules announced by the Finance Department on February 16.

The posted qualifying rate will be published by the Bank of Canada each Monday at approximately 12:01am Eastern Time. Here’s the link: Posted Mortgage Rate (Look for series V121764.)

Mortgages over five years will use the contract interest rate.

These changes only apply to mortgages over 80% loan-to-value, says CMHC. Currently lenders use qualifying rates that range from discounted 3-year fixed rates (like 3.29% today) to posted 5-year fixed rates (5.39% today).

For mortgages with multiple terms (e.g., hybrid mortgages), each term will be qualified using the applicable criteria above.

Based on recent inquiry levels from concerned borrowers, there may be a rush to get applications in under the old rules.

More to follow…

Posted at 11:15 AM in Government Related, Mortgage Regulations | Permalink

Article Source: Canadian Mortgage Trends
Article Direct Link: Posted is the new qualifying rate

Friday, March 5, 2010

One Giant Government Leap Backwards

One Giant Government Leap Backwards

Yields Catapult Higher

Yields Catapult Higher

Fixed mortgage rates should tick higher next week--barring any economic surprises.

That’s because Canada’s 5-year government bond yield is up 18 basis points today, the most in almost five months. (Bond yields guide fixed-rate mortgage pricing.)

The jump in yields is thanks to stronger-than-forecast U.S. employment data, a new June maturity as the 5-year benchmark, asset rotation into stocks, and the 20% increase in debt issuance announced in yesterday’s budget.

If you’re considering a fixed-mortgage rate hold, it may be wise to lock it in by Monday.


Sidebar: We have to wait another week for Canadian employment data. Usually it comes out the same day as U.S. data, but not this week.

Posted at 09:30 AM in Mortgage Rate Trends | Permalink
March 05, 2010

Article Source: Canadian Mortgage Trends
Article Direct Link: Yields Catapult Higher