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FIXED VS VARIABLE MORTGAGES

THINGS TO CONSIDER

Fixed and Variable rate mortgages both have their advantages and disadvantages!

Historically speaking, homeowners tend to pay lower rates with variable mortgages, but these mortgages are also vulnerable to fluctuations because they’re tied to the Bank
of Canada’s prime rate (which is announced eight times per year). Fixed rates, on the other hand are primarily influenced by the yield on Canadian government bonds (bond yields) , and are typically higher than variable rates, but their rate is consistent throughout the term of the mortgage. Below are a few questions to help you determine which type
of mortgage is right for you.

CAN I AFFORD TO TAKE A VARIABLE RATE MORTGAGE

There is some risk associated with variable rate mortgages, so if  you go this route, you must be able to mitigate the risk if rates do rise.  One method of protecting yourself involves setting your payment to a fixed amount that’s higher than the minimum requirement.  For example, setting your payments based on the current 5 year fixed rate will allow you to provide a buffer in the event that rates rise and, because you’re paying more than the minimum amount, you’ll be paying more of your principal as well.

DOES A VARIABLE RATE MORTGAGE FIT MY RISK PROFILE?

Once you have decided you can afford a variable rate mortgage,  the next thing to assess is whether a variable rate mortgage fits your personality, lifestyle and comfort zone. If you’re the type of person that can’t sleep at night knowing that your rate and payment may change by 0.25%, then a variable rate mortgage may not be the best option for you.

WHAT TYPE OF VARIABLE RATE MORTGAGE SHOULD I CHOOSE?

There are three main factors to consider when choosing a variable rate mortgage:

  1. Payment frequency – Make sure you are aware of the options available before deciding. Some lenders may not allow certain variations of payment frequency (i.e.accelerated biweekly or weekly payments).
  2. Rate changes – Some lenders change their variable rates in line with the Bank of Canada eight times per year while others do it quarterly.
  3. Conversion to fixed rate – Does the lender allow the mortgage to be converted to a fixed rate mortgage at anytime? If so, what rate are you guaranteed on conversion – the best discounted rate or the posted rate?

If you would like to discuss all of your options in detail please contact me directly at 250-819-6536 or 1-888-819-6536 or email me at lisa@mortgageplayground.com

Lisa Alentejano

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Bank of Canada Hold Key Rate “household debt” remains biggest risk

OTTAWA — The Bank of Canada kept its key interest rate on hold Thursday, as expected, but said while the outlook for the Canadian economy has “marginally improved,” household debt “remains the biggest domestic risk.”

The central bank acknowledged, in the statement accompanying its rate decision, that “heightened uncertainty around the global economic outlook has decreased,” since its monetary policy report in January.

“With tentative signs of stabilization in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased,” it said.

“However, the global economy is still expected to grow below its trend rate as the deleveraging process in advanced economies proceeds.”

The Bank of Canada said the outlook for the domestic economy “is marginally improved” since its January report. “Although the economy will likely grow faster than forecast in the first quarter due to temporary factors, underlying economic momentum remains around trend, balancing domestics strength and external weakness.”

As for inflation, the bank said “the profile . . . is somewhat firmer than previously anticipated as a result of reduced economic slack and higher oil prices.”

“After moderating in the second quarter, total inflation is expected, along with core inflation, to be around 2% over the forecast horizon, . . . “

The central bank has held its benchmark lending rate at a near-record low 1% since September 2010, in an effort to bolster the economic recovery from the 2008-09 recession.

But cheaper borrowing costs — especially for mortgages — have led to record high consumer debt. Bank of Canada governor Mark Carney, along with Finance Minister Jim Flaherty, has urged consumers not to borrow beyond their needs, as interest rates will eventually begin rising again.

“Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, “which remains the biggest domestic risk,” the bank said Thursday.

The Bank of Canada’s next interest rate decision will be on April 17.

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TD, RBC End 2.99% Mortgage Deals Early

After a crazy month fielding calls about rates and competitive rates from the major banks, they have put a hault on them.  Although the product that were attached with them were limited and badly disclosed to consumers, there are still amazing rates to be had in the mortgage market.  The problem with banks is that they can choose to give one rate today and a different rate tomorrow.  All I can suggest be informed and do your homework and ask questions when shopping for a mortgage.  Its not always about rate its about having a mortgage plan that suits your needs and someone that can show you ways to save money on your mortgage long term!  If your interested in learning more about how to save money on your mortgage , no tricks no catch good ole information for you from me  http://bit.ly/AfD2RR    Here’s the article below;

After briefly offering record-low rates of less than 3% on some of its mortgages in response to its rivals, Canada’s two biggest banks have pulled back their offers prematurely.

Toronto-Dominion Bank, Canada’s second-largest bank, raised its special four-year closed fixed rate mortgage 40 basis points to 3.39%, effective Wednesday, while also introducing a special five-year closed fixed rate mortgage at 4.04%.

The bank also hiked its five-year closed mortgage 10 basis points to 5.24%.

TD had said it would offer the special rates until Feb. 29.

The moves put TD back in line with Royal Bank of Canada, which made the same rate decisions on Monday, coming into effect Wednesday.

RBC had also initially planned to keep its special rates available until Feb. 29

 

The only difference is RBC already had the special five-year closed fixed rate mortgage product, which it increased 10 basis points to 4.04%.

RBC had first cut its rate to 2.99% in January in response to a similar cut from BMO.

Matt Gierasimczuk, a spokesman with RBC, said the bank had to end its special prematurely because of rising funding costs.

“Our long-term funding costs have gone up considerably due to global economic concerns and, while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate,” he said in an interview with Bloomberg News on Monday.

With household debt-to-income ratios at at historic highs and still on the rise, the Bank of Canada has repeatedly voiced its concerns over the past year that Canadians are living beyond their means.

“We have expressed on numerous occasions our concerns about rising household indebtedness,” senior deputy governor Tiff Macklem said in a question-and-answer session following a speech in Toronto Tuesday. “The simple fact is that consumers are consuming more than they’re earning.”

With files from Reuters and Bloomberg News

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Bank of Canada Hold Key Rate

Best be getting used to this: Mark Carney, governor of the Bank of Canada, has again maintained interest rates at 1% and remains on track to not budge from that position any time soon as upside and downside risks remain balanced amid moderating growth.

This marks the 11th straight time the central bank has held rates at the 1% level, since a 25 basis point increase in September 2010. Since 2000, the bank has employed eight fixed dates a year when it makes decisions on the key rate. Economists expect the bank to keep interest rates at current levels until as late as next year.

The bank’s statement contained a few contradictions: It says the last quarter was stronger than expected, but growth in the future will moderate. Yet the economy will return to capacity quicker than expected.

Huh? Here are the main takeaways from the bank’s statement:

Canada muddles through, more or less

The overall outlook for the Canadian economy remains “little changed” from the bank’s October monetary policy report, with “more momentum than anticipated in the second half of 2011,” but comments Tuesday show a mixed picture with growth “expected to be more modest than previously envisaged.”

On the one hand, the bank has pushed up the schedule for the economy to return to full capacity by one quarter, to the third of 2013, and projects growth of 2.0% in 2012 and 2.8% in 2013 based off 2.4% growth last year. “While the economy appears to be operating with less slack than previously assumed, given the more modest growth profile, the economy is only anticipated to return to full capacity by the third quarter of 2013, one quarter earlier than was expected in October,” he said.

On the other hand, Mr. Carney expects the pace of growth to be more modest than previously thought, largely due to outside factors. “Prolonged uncertainty about the global economic and financial environment is likely to dampen the rate of growth of business investment … Net exports are expected to contribute little to growth, reflecting moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar,” he said. Of note, the loonie spiked to a two-week high against the greenback earlier Tuesday.

Household debt still a problem

“Very favourable financing conditions are expected to buttress consumer spending and housing activity,” he said. “Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further.” The Bank of Canada has been harping on this for a while, but the conditions created by the lengthy low interest rate environment have led Canadians to borrow and spend. Debt-to-income ratios have hit repeated record highs in the past few years, and the trend is expected to continue.

If not hawkish, at least less dovish

The outlook for inflation remains stable for now, with dynamics similar to those in October, but Mr. Carney characterized the inflation profile as “marginally firmer.” Inflation is expected to slow in 2012, before rising again to 2% in the third quarter of 2013 as excess supply is absorbed, wages grow modestly and expectations remain anchored. “Several significant upside and downside risks are present in the inflation outlook for Canada. Overall, the bank judges that these risks are roughly balanced over the projection horizon,” he said.

Europe: Still a big mess

“The sovereign debt crisis in Europe has intensified, conditions in international financial markets have tightened and risk aversion has risen,” Mr. Carney said. “The bank continues to assume that European authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks.” Children, of course, already know the schoolyard rhyme about what happens to “U and Me” when you assume anything.

The rest of the world: Not much better

“The outlook for the global economy has deteriorated and uncertainty has increased,” the bank said. In the United States, while the GDP rebound in the second half of the year was a welcome surprise, the bank remains bearish on the pace of growth in 2012 due to household deleveraging, fiscal consolidation and spillover from Europe. Chinese growth is also slowing as expected, to a more sustainable pace. Commodity prices, except oil, are expected to be below levels forecasted last October at least through to 2013.

Financial Post

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Bank of Canada hold key rate steady

Bank of Canada Keeps Key Rate Steady

As expected by most economists, the Bank of Canada announced earlier today that it is keeping its key policy rate steady.

In its statement the Bank noted that it expects “growth in Canada will be slow through mid-2012 before picking up as the global economic environment improves, uncertainty dissipates and confidence increases.”  The Bank also projected today that the Canadian economy “will expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013.”

The prime rate at most lenders will stay at 3.00%, which means those with variable-rate mortgages will still enjoy relatively low rates.  A new variable-rate mortgage can in many cases be obtained by qualified borrowers at Prime minus 0.20% – 0.40%  Home equity lines of credit and variable-rate credit cards are also typically linked to the prime rate.  The pricing for new fixed-rate mortgages is influenced by trends in the bond markets, rather than the central bank’s key policy rate.

The Bank’s next rate decision is scheduled for December 6.

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No evidence of housing bubble:Flaherty

NEW YORK – The Vancouver housing market is attracting unusually strong demand but Canada as a whole does not face a housing bubble that requires government action, Finance Minister Jim Flaherty said on Wednesday.

Mr. Flaherty and Bank of Canada Governor Mark Carney have paid close attention to Vancouver housing prices, and they have warned Canadians not to take on so much debt that they will not be able to service it when interest rates rise.

Asked at a news conference in New York what it would take for Canada to act again to cool the market, he said: “It will take clear evidence of a bubble in the housing market in Canada, which we have not seen.”

Given low interest rates, the level of housing demand in Canada is not surprising, Mr. Flaherty said. But he added: “We have seen in the past year some softening in the Canadian housing market, in part due to the tightening of the insured mortgage market rules that we did earlier this year… That’s an appropriate result from that tightening.”

The International Monetary Fund said in a report on Wednesday that private credit remains strong in Canada and that the government might need to consider further measures to prevent households from taking on too much debt.

“Developments on the housing front require increased vigilance, and consideration may need to be given to additional prudential measures to prevent a further buildup in household debt,” the lender said in its Western Hemisphere outlook.

A survey released on Wednesday by Canada’s leading real estate broker showed the average price of detached one- and two-story homes in Vancouver has risen by about 17% in the past year to more than $1-million — about three times the national average.

Home resale prices for Canada as a whole have risen between 5.7% and 7.8% over the past year, the report said.

Asked what would constitute evidence of a bubble, Mr. Flaherty said: “If we saw dramatic surges in prices in some part of the country. There’s some demand in Vancouver in particular, particularly from the Asian people coming to Canada who are investing in real estate. So there’s some demand there that is unusual in terms of the entire country, but overall across the country there’s been some moderation, which is good.”

The government has tightened mortgage rules three times since 2008, most recently in January.

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Increase to Variable Rate Mortgages

Why could I get Prime minus .90 last week and today it is Prime minus .25?– A great question, says the Mortgage Brokers Association of BC (MBABC), especially when fixed interest mortgage rates are remaining the same.  The quick answer?  As with many things, it all boils down to money.

Over the last couple of months, banks and other lenders have been offering historically low variable interest rates to qualified homebuyers in an effort to attract new clients and mortgage business.  In the short term, lenders have been prepared to accept these low profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages – a similar ‘loss leader’ tactic used by retailers to get consumers into their door.

“However”, says Geoff Parkin, MBABC’s president, “the recent announcement by Bank of Canada governor, Mark Carney has changed the mortgage lending landscape.”   Carney stated that, because of poor performing global markets and continuing economic uncertainty, the benchmark interest rate would remain unchanged.  The long-term outlook indicates continuing low fixed interest rates with no significant increases to the Prime rate.  “In a nutshell”, says Parkin, “the bank’s theory of anticipating rising profits on variable rates was proven wrong.  They’ve had to quickly respond to this situation by reducing the variable rate discount in order to gain back profit.”

What does this mean for consumers who have variable rate mortgages?  Much of the same, says Parkin.  “We continue to see low fixed rates and the variable rate is under 3.0%.  There may still be value in going variable over fixed, but because consumers all have different financial situations and mortgage needs, we recommend they obtain expert financial advice from their MBABC mortgage broker.”