Tag Archives: Outlook

Monday Mortgage Update: July 9, 2012

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Mortgage Rules in Canada

The new mortgage rules announced on June 21st by Jim Flaherty take effect today. However, some lenders stopped taking pre-approvals for the old mortgage parameters last Thursday and Friday. Talk to your mortgage provider or broker to learn more about your situation.

With the new rules in place, it is likely that mortgage rates in Canada will continue to stay low for an extended period of time. According to a BMO report, they believe the Bank of Canada (BoC) will hold interest rates until July 2013. BMO’s senior economist Michael Gregory says, “the tightening of the government’s mortgage insurance rules does serve to act like higher interest rates specifically for that sector…so that takes some of the urgency away from the Bank of Canada to adjust rates any time soon.” [1]

Overnight Rate Forecast

Currently the target for the overnight rate, which is set by the Bank of Canada, is at 1.00%, where it has been since September of 2010. Variable mortgage rates are influenced by how the overnight rate moves. Below you will find the latest bank forecasts of when the overnight rate will change and by how much. Three of the four banks predicted the overnight rate would hit 1.50%, an increase of 0.50% from today’s rate, by the end of 2013.

The Overnight Rate Predictions:

BANK

Q1 2013

Q2 2013

Q3 2013

Q4 2013
Scotiabank [3]

1.00%

1.00%

1.25%

1.50%
BMO [4]

1.00%

1.00%

1.25%

1.50%
TD [5]

1.25%

1.50%

1.50%

1.50%
RBC [6]

1.25%

1.50%

1.75%

2.00%

 Larger Mortgage Broker Channel

A new proposed federal legislation, if passed, could increase the mortgage broker channel. The new bill would allow provincial credit unions to become federal entities that could accept country-wide deals. In other words, the bill would pave the way for cross-provincial expansion of regional credit unions. However, this new bill will be a positive for brokers as credit unions traditionally use mortgage brokers to break into new markets.

Meridian, the country’s fourth largest credit union did approximately $300 million worth of business with mortgage brokers in 2011.

The legislation would deem federal credit unions ‘banks’ that conduct business on a co-operative basis under the Bank Act. [2]
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Monday Mortgage Update: April 23, 2012

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The Bank of Canada hints at raising interest rates

Last week, the Bank of Canada (BoC) kept the key interest rate at 1.00%, but Mark Carney hinted that Ottawa may start raising rates. The BoC Governor’s exact words were, “In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.” [1]

The reduced “slack” in the economy is a another way of saying the economy is improving, giving the bank a little more wiggle room to act on interest rates.

These recent comments have caused one major bank to alter their key interest rate (also called the overnight rate) outlook. According to BMO, the Bank of Canada will raise the key interest rate as early as January 2013. And Avery Shenfeld of CIBC believes that the BoC will have three rate hikes of 0.25%, raising the overnight rate to 1.75% before pausing; although, he did not specify when these hikes would occur.

The overnight rate is important to track because they drive variable mortgage rates. So, an increase in the overnight rate would lead to an increase in variable interest rates.

Here is a great chart put together by Sudip Adhikari of The Canadian Mortgage Advisor detailing the key interest rate outlook by BMO, RBC, and TD.

*note that BMO recently changed their outlook to an overnight rate hike by January 2013.

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Ratehub: 2011 Year in Review [Part I]

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compare mortgage rates canada

With another year wrapped up, Ratehub will take a look back at 2011 and summarize the highs, the lows, and everything in-between in regards to the Canadian mortgage industry, the Canadian housing market, and a summary of our favourite events.

Mortgage Rules

New mortgage rules took effect early in 2011 that impacted the Canadian mortgage industry by tightening the borrowing options for consumers. One of the rules reduced the maximum amortization period from 35 years to 30 years, for government-backed insured mortgages with loan-to-value ratios greater than 80%. In other words, a mortgage borrower now needs a minimum 20% down payment for their home to receive amortization lengths greater than 30 years.

This rule had an effect on the Canadian housing market as it pushed many on-the-fence first time home buyers into ownership for fear they would not qualify under the new rules. As a result, the extra input of first-time home buyers helped saturate the market further and create greater competition among other home buyers.

This was the third time Canada had tightened mortgage regulations in as many years. According to Canadian Mortgage Trends, the new rules in 2011 led to the following results:

  • A 40% drop in insured refinances
  • Greater interest expenses for consumers who could no longer refinance as much high-interest debt
  • A general agreement among Canada’s leading banks to reduce their maximum amortizations to 30 years on conventional mortgages even though it was not required by the new rule changes
  • Rising popularity of cash back mortgages, which simulate 90% loan-to-value refinances but cost more

Mortgage Rates

Through most of 2011, mortgage rates in Canada remained at historic lows (see chart above). For most of the year, 5-year variable rates were favourable because of the large spread between it and 5-year fixed rates. Historically, variable rates have been shown to save more money, but as the year came to a close, variable rates began to rise.This occurred while the Bank of Canada’s overnight rate, which influences variable rates, remained untouched due to worrying global economic factors. At the same time, fixed rates started to drop, reducing the spread between the two and the advantage of the variable rate. Many lenders that were once offering big discounts to their prime rate as high as prime -0.95%, started reducing them by August. As it stands today, the Big Five now offer their published discounted 5-year variable interest rates at a premium, all of which are at prime +0.10%, or 3.10%.

What were the best mortgage rates seen on Ratehub.ca in 2011?

The best discounted 5-year fixed rate was:         3.15%

The best discounted 5-year variable rate was:    2.05%

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