Tag Archives: Mortgage Wars

Monday Mortgage Update: June 4, 2012

Posted on by
Reply

Government of Canada bond yields

Last week, Government of Canada (GoC) benchmark bonds plunged markedly across the 2-year, 5-year, 7-year, and 10-year bond yields. Tracking bond yields is important because they help drive fixed mortgage rates. For example, an increase in 10-year GoC bond yields will likely cause an increase in 10-year fixed rates.

*data pulled for the Bank of Canada

According to the Financial Post, another round of mortgage wars could be on the horizon. [1] All eyes will be on 10-year fixed rates as the 10-year bond hit a record low of 1.62% on Friday. Last week’s Monday Mortgage Update pointed out falling 10-year GoC bond yields, which hit a-then record low of 1.80%. Currently, the 10-year fixed rate on Ratehub has been hovering at a relatively low 3.79% for a most of 2012. Now that the 10-year bond yield has dropped 43 basis points or 0.43% since the beginning of May, it is likely that lenders could start discounting the 10-year fixed rate even further.

The 5-year Government of Canada bond yield has also been tumbling since May 1st, where it has fallen 54 basis points or 0.54%, from 1.60% to 1.06% as of last Friday. Earlier this year, aggressive 5-year interest rate pricing by the big banks spurred two separate, but short-lived mortgage wars. Now that the 5-year bond is sitting at its lowest point in more than a decade, the 5-year fixed rate could return to the 2.99% that started the pricing war amongst lenders. [2]

However, there are two important factors lenders will seriously consider before dropping interest rates to record lows for a third time this year:

1)      The 5-year fixed rate at 2.99% drew heavy criticism, especially from the Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty

2)      Offering a 5-year fixed rate below 3.00% eats considerably into bank profit margins. According to a statement released by BMO, “housing market activity has softened in most regions and mortgage growth is showing tentative signs of slowing.” The expectation that both markets will slow over the course of the year may cause banks to reconsider further rate cuts. [3]

The ingredients for another mortgage pricing war are present. According to an unnamed analyst, “with yields where they are banks can absolutely afford to cut mortgage rates again.” However, pressure from Ottawa on lenders could hold off of another mortgage war. Stay tuned.
Continue reading →

Notable News of the Week: April 20, 2012

Posted on by
Reply

This is your weekly mortgage and housing news update. There were plenty of headlines covering the Toronto housing market and most of it carried a negative tone, which doesn’t reflect well for Canada’s biggest market.

photo by Brennan Valenzuela

Toronto Housing Market

The adjective that most people use to describe the Toronto housing market is heated. This is especially true for the condo market which continues to see the average price increase while the average unit size decreases. Plus, the glutton of new construction in the pipeline leads to fears of massive over-supply, which have many experts calling for a condo market crash.

The Financial Post believes Toronto’s overheated market is unsustainable because the rest of Canada has been experiencing home price moderation, whereas home buyers in Toronto continue to over-spend for their properties. Over the past year, only Toronto has shown price gains (%) in double-digit territory at 10.5%. TD Bank believes Canadian home prices are 10-15% above a sustainable level.

Rundown of the numbers:

  • 20%  The number that the Toronto market accounts for within the Canadian housing market
  • 36.1% The jump in new mutli-family home construction (mostly condos) from Q1 2011 to Q1            2012
  • $360,892 The average price of a condo in Downtown Toronto
  • 17%  Percentage of Torontonians willing to pay more than $600/month in condo fees

‘The Donald’ himself made an appearance in Hogtown (that’s Trump, not Duck) to officially cut the ribbon for his Trump International Hotel and Residences tower in downtown.  The Toronto Star has reported over a dozen investors are refusing to pay the final closing costs and assume ownership of their units, claiming these investments no longer make financial sense.
Continue reading →

Monday Mortgage Update: April 2, 2012

Posted on by
1

For the second week in a row, 5-year Government of Canada (GoC) bond yields fell, starting last Monday at 1.65% and finishing at 1.57% for an eight basis point drop. GoC bond yields influence fixed mortgage rates, but last week, lender 5-year fixed rates moved in the opposite direction. This was due to the end of the second mortgage pricing war spurred on by Canada’s Big Five banks, which many experts believed to be unsustainable. The big banks were offering 2.99% fixed rates for 4 and 5-year terms, but the ultra-low rates lasted only a few weeks before being pulled. Currently, the best 4-year fixed rate and 5-year fixed rate offered by a bank now belongs to PC Financial, which offers them at 3.20% and 3.44% respectively.

Variable interest rates continue to experience little price movements. The lowest 5-year variable rate did move up 5 basis points to start this week and is now available at 2.80% on Ratehub. The spread between the 5-year fixed and 5-year variable rate almost doubled once the mortgage wars ended, from a spread of 24 basis points to 44 basis points. This merits some consideration for variable rates, although fixed rates will likely remain popular so long as they continue to hover at historic lows.
Continue reading →

Monday Mortgage Update: March 26, 2012

Posted on by
1

Tracking Government of Canada (GoC) bond yields is important because they help determine where fixed rates are headed. Since the beginning of March, 5-year GoC bond yields have been steadily climbing. This important because it gives us an idea of where lenders will likely take their current 5-year fixed rates. This month, lenders have been engaged in a second mortgage pricing war since BMO re-introduced the 2.99% 5-year fixed rate. This has kept Canadian 5-year fixed rates at record lows over the past few weeks as BMO’s competitors looked to match. But one has to wonder, if 5-year bond yields continue to rise (and eat into lender profit margins), at what point will lenders start to take away their big discounts?

The first mortgage pricing war at the beginning of the year came to an end abruptly when one of the Big Five, RBC, decided to pull its promotional 2.99% 4-year fixed rate early. Other lenders followed suit. Initially, RBC’s offering was intended to last until the end of February until the bank cut the promotion a whole three weeks early, stating: “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” (via Bloomberg).

Will the rise in 5-year GoC bond yields force lenders to cancel their big discounts on 5-year fixed rates early? Last week was the first time in March that 5-year bond yields didn’t finish higher by the end of the week.

5-year Government of Canada bond Yields:


Continue reading →

Notable News of the Week: March 23, 2012

Posted on by
Reply

As always, Ratehub provides you with the latest mortgage and housing headlines that made waves around the nation this past week. The stories of the past week centred around the direction of mortgage industry regulation and wars. That would be of the ‘mortgage pricing’ and ‘bidding’ variety.

How close would you live next to an expressway? – The Toronto Star

The Gardiner Expressway is a highway that connects the downtown core to the rest of Greater Toronto Area. It is one of the Toronto’s busiest highways, yet it hasn’t stopped developers from building condos only steps away from it. The shocking answer? The highway is actually an attraction for some. “I like watching the cars go by, it’s very soothing” said one condo owner.
Continue reading →

Monday Mortgage Update: March 12, 2012

Posted on by
Reply

Lenders are once again aggressively competing for your mortgage business. When BMO re-launched their low-frill 2.99% 5-year fixed rate last week, many banks countered with their own 2.99% mortgage rate in the 4-year fixed category. The best 4-year fixed mortgage rate on Ratehub is currently 2.89%.

And things continue to get better for Canadian consumers as the federal government announced a few measures to make mortgage banking more transparent. Financial institutions must make their mortgage prepayment penalties easier to understand for their clients. The Canadian Bankers Association worked closely with the federal government to develop ‘the Code’; the measures by which banks will disclose how actual mortgage prepayment penalties are calculated. In addition, banks must also provide online mortgage penalty calculators and show customers how they can pay off their mortgage quicker without incurring prepayment charges every year. [1]

Unfortunately, the new mortgage regulations will not standardize how banks calculate their mortgage prepayment penalty.

There is greater incentive now for consumers to break their mortgage than ever, since mortgage rates in Canada have been hovering at historic lows.
Continue reading →

Monday Mortgage Update: February 13th, 2012

Posted on by
Reply

 

“The rates coming down were in response to a very aggressive move by a competitor and a need for us to defend our client base, and to defend our business. We didn’t lead it there, but we felt compelled to follow,” – David McKay, RBC via Globe and Mail

The recent mortgage pricing wars among Canada’s biggest banks have come to a close. Last week, the ultra-low 2.99% 4-year fixed rates offered by TD, CIBC, Scotiabank, and RBC, disappeared. As of February 13th, three of those big lenders raised their 4-year fixed rate by 40 basis points, to 3.39% [TD, CIBC, and RBC]. Scotiabank, on the other hand, chose to increase their 4-year fixed rate to 4.39%, which represents an astounding 140 basis point hike. Although their 4-year offer isn’t as attractive, Scotiabank chose to focus on 3-year fixed rates instead, offering a highly competitive 2.79%.

The mortgage wars were started initially by BMO, whose aggressive 2.99% 5-year fixed rate mortgage was an attempt to lure more consumers during a slow period in the mortgage industry (the months following Christmas). The other Big Five banks responded with their own big discount offers in an effort to not lose market share.

5-year Government of Canada bond yields rose higher last week (up 8 basis points) as it has for the past couple of weeks, so it seems unlikely that we’ll see 5-year fixed rates return to the sub-three per cent territory in the foreseeable future.

Condo Market

Canada’s government is keeping a keen eye on its super-heated condo market. With worries of a housing burst, especially in condo-centric markets like Toronto and Vancouver, Ottawa is considering tightening the mortgage rules for condominium buyers. Last Wednesday, TD Bank CEO, Ed Clark spoke to Bloomberg in New York City and confirmed that borrowing may get tougher for those looking to borrow money for a condo purchase. Mr. Clark said, “Banks are leaning against [ultra-low interest rate financing] in the condo market right now and leaning against it in the unsecured lending market”. He believes this will lead to a “successful soft landing” for the Canadian housing market. [1]

Continue reading →

Monday Mortgage Update: January 23, 2012

Posted on by
Reply

The Monday Mortgage Update is a little late this week, but there was a lot of news to report from the Canadian mortgage industry and the instruments that influence it.

Bank of Canada

As reported last week, the Bank of Canada (BoC) kept the overnight rate unchanged at 1.00%. There was some interesting take aways from the BoC Governor Mark Carney last week. According to the Bank of Canada, they expect the Canadian economy to return to full capacity in the third quarter of 2013. The central bank’s call for a healthy return is a full quarter earlier than originally forecasted, despite their new grim outlook for the global economies of the world. Mark Carney stated that the outlook has actually deteriorated while uncertainty has grown. The BoC Governor also maintained his stance that the current high levels of Canadian debt present a risk to the economy.

So why does Mark Carney believe the outlook for Canada’s economy has improved since the last forecast? Even in the face of worsening global economic growth and high levels of Canadian debt? According to the Toronto Star, Carney said “while this headwind is expected to persist in coming quarters, other fundamentals supporting business investment in Canada remain extremely favourable including low borrowing costs…Canadian business balance sheets are in their best shape in living memory.” The tone of the Bank of Canada’s announcement suggests that interest rates are likely to remain low to continue to spur economic activity.

Canada’s Minister of Finance Jim Flaherty said the government has been watching the housing market very carefully. He added that home sales have been softening as of late, but are prepared to intervene if necessary.

Government of Canada Bond Yields

The movement of Government of Canada (GoC) bond yields drive fixed mortgage rates in Canada and over the past couple of months, the bond yields have been trending downward – until last week. Both the 5-year and 10-year GoC bond yield finished 14 basis points higher by last Friday. The 5 and 10-year bond yields are important to watch because of their influence on 5 and 10-year fixed rates which lenders are offering at huge discounts. If these bond yields continue to rise, these discounts will start to disappear.

Mortgage Rate Wars

Typically, the first few months of the year are a slow period in the mortgage industry. In an effort to attract more consumers and increase market share, many of Canada’s lenders have resorted to ultra-low mortgage rates. Both the 4-year fixed rate and the 5-year fixed rate are at 2.99%, down 20 basis points from two weeks ago. Also making a lot of noise was ING Direct’s decision to offer the lowest 10-year fixed rate in Canadian history at 3.99% (more on that below).

Continue reading →

The Mortgage Pricing Wars

Posted on by
Reply

The mortgage industry has been buzzing lately with the current mortgage pricing war that has seen the Big Five banks (BMO, Scotiabank, TD, CIBC, and RBC) drop their fixed rates to new lows. It started last week when BMO reduced their Low Rate 5-year fixed mortgage product to 2.99%, representing the lowest interest rate for a Canadian bank ever. Lowering a 5-year fixed rate to the sub 3.00% territory is a risky strategy for lenders as it cuts into deep into profit margins. However, the first few months of the year following the holidays is always a slow period in the real estate and mortgage market. And to keep fiscal ground with fewer mortgage shoppers in the market, BMO used dramatic pricing strategies to try and draw the attention of consumers.

But, their Low Rate mortgage came with less features and greater restrictions. According to Drew Donaldson of Safebridge Financial, “the BMO offer is like buying a Ferrari with a Honda engine, and no wheels come with it…reduced borrowing limits and restrictive refinancing options.” As it stands, the offer is still at an incredibly low interest rate and is sure to catch the eye of most mortgage shoppers.

The 2.99% rate offer from BMO has a lot more momentum behind it than it appears. We talked to Jason Friesen, who has been a part of the mortgage industry for the last decade with Calum Ross, and this is what he had to say:

“With the BMO product being a two week rate special (it ends next week) and the rate breaking that 3.00% mark (a HUGE psychological barrier), it amounted LOTS of free advertising that they wouldn’t have received otherwise. Their name has been all over the media and discussed on television, print and radio. All for free.”

Continue reading →