Mortgage Interest Rate Tiers

Latest News Jordan Thomson 22 Nov

Since we know that lenders can back-end insure our mortgages and that this specifically makes these mortgage investments more attractive to investors, what does this mean for borrowers like you and me?

To summarize, any mortgage that is inexpensive for a wholesale lender to get financing for, allows the lender to pass on savings to their clients, meaning mortgages that are insured get the best rates! An insured mortgage is where a borrower pays the mortgage default insurance because they have less than 20% down payment and is required on all mortgages where the down payment is less than 20%.

But, lenders can also pay for insurance for their client! An “insurable” mortgage is one where the clients puts 20% down (or more), and their mortgage is approved as though a client is paying for insurance, but the actual insurance is paid for by the lender.

Rates for insurable mortgages are generally very similar to insured mortgages.

An “uninsurable” mortgage on the other hand is one where mortgage insurance is not available.

The graph below outlines what type of mortgages are insured, insurable or uninsurable.

So what does this all mean for you, the borrower?

If your mortgage is insurable, you may be able to get the best rates. What is interesting to note is that if you have a mortgage that was previously uninsured, your current lender cannot insure your mortgage but your mortgage may be insurable if you transfer to a new lender – this is where your opportunity lies!

Also, if your mortgage was previously “insured,” and you paid for mortgage insurance, you will also be offered the best rates upon transfer or renewal.

So whatever your mortgage or financing needs, give me a call at 604.725.1607. I’m always here to help!

Waiting for a Rate Drop?

Latest News Jordan Thomson 22 Nov

So are a lot of other people.

So far, all we’ve gotten is a dozen large or mid-sized lenders hiking 5-year fixed rates over the past week or so.

Meanwhile, the 5-year swap yield (one of the best leading indicators for fixed mortgage rates) is back down to levels it saw six months ago.

5-year-Swap

Back then (in May), the best 5-year fixed rates at big banks were roughly 3.44%-3.49%.

Today we’re at 3.69%, give or take, despite yields having dropped almost 20 basis points in the last 10 days.

No Rush to Discount

Big banks, which directly or indirectly control over $4 out of $5 mortgage dollars in this country, are in no hurry to chop rates and match falling yields. (Falling yields generally lower their funding costs.)

They’ve watched their mortgage growth get pummelled to levels we haven’t seen since last century. They’ve also witnessed a whole new level of competition this year for deposits and mortgages. That’s pressured net interest margins in the worst way.

The biggest problem is that the pool of prime borrowers has shrunk like wool socks in a clothes dryer. That’s mainly courtesy of stricter mortgage rules and higher rates.

These changes have driven competitors to cut insured/insurable mortgage margins to the bone to keep their pipelines full. Banks, which fund many of these competitors, seem to be onto them. What we’re hearing is that banks are being somewhat less generous on fixed rate pricing for the non-bank companies they buy mortgages from.

On top of this, banks are also keeping their own discretionary bank rates elevated. Aren’t oligopolies grand?

None of this is astonishing. After all, we are in the first quarter. Q1 is a notoriously weak time for mortgage discounts as the banks keep their powder dry for the active spring mortgage market.

There’s also the never-ending headline-driven worry about the credit cycle deteriorating. If/when that happens, bank losses will tick higher. And banks being the shrewd operators they are often price for such possibilities ahead of time.

Summing it all up, mortgage rates will follow if yields drop further. But don’t expect the juicy fixed-rate discounts we saw earlier in the year—not until the banks recoup some of their spread.

via Rate Spy

Bank of Canada Raises Rates to 10 year high

Latest News Jordan Thomson 6 Nov

The Bank of Canada today delivered a widely expected quarter-point increase to the overnight target rate, raising borrowing costs for millions of Canadians.

Citing an economy that is operating “at capacity” and modest wage growth, the BoC noted in its statement that the “policy interest rate will need to rise to a neutral stance to achieve the inflation target.” That neutral range, it says, is between 2.50% and 3.50%, suggesting additional rate increases of 75-100 bps.

Removed from previous statements was the word “gradual” concerning future rate increases. The BoC said the pace of those hikes will depend on “how the economy is adjusting to higher interest rates, given the elevated level of household debt,” as well as global trade policy developments.

James Laird, co-founder of RateHub and President of CanWise Financial, said the BoC’s statement is a clear signal that additional rate hikes may come faster than expected.

“They haven’t been this explicit in the past one-and-a-half years, even though they moved the rate up five times,” he told CMT. “They are sending a strong signal that rates will continue to move up at a quick pace.”

Benjamin Reitzes of BMO Capital Markets wrote in a research note that “there’s clearly an appetite for a few more hikes from the Bank. BMO’s forecast for hikes in January, April and July is looking pretty good right now.”

What it means for mortgage holders

Hours after the BoC’s announcement, most of the country’s big banks raised their respective prime rates, which brings the country’s prime rate to 3.95%—a 125-bps increase since last summer.

Most adjustable-rate mortgage (ARM) holders and those with lines of credit will see their payments increase as of their next payment date. ARM mortgage holders can expect monthly payments to rise about $12 per $100,000 worth of mortgage.

Variable-rate holders won’t see their payments increase, but they will see the interest portion of their payments jump while their principal portion declines.

The average 5-year variable insured rate available from brokers, as tracked by Mortgage Dashboard, is now 2.88%, up from 2.31% a year ago.

That’s still a sizable discount off 5-year fixed rates, which have risen to an average of 3.43%, up from 2.95% a year ago thanks to the 5-year bond yield (which leads fixed mortgage rates) reaching a seven-year high.

With the current spread between fixed and variable rates, many mortgage shoppers are likely to find themselves asking the perennial question: do I go fixed or variable?

Laird says that in a rising rate environment consumers tend to gravitate towards the security of fixed rates.

“But anyone who plans to pay down their mortgage rapidly can still consider a variable rate mortgage,” he notes. “Even in a rising rate environment the variable is the better choice for those who will aggressively pay down their mortgage. For those who want certainty in their mortgage rate, a longer-term fixed (7- or 10-year) should be considered.”

Rob McLister, founder of RateSpy.com, says historical data doesn’t support ultra-long terms, like 10-year mortgages. But he agrees that variable rates can still be a good bet for new mortgages, if the borrower is financially stable and the rate discount is big enough. “A rate of prime – 1.00%, for example, changes your probability of success dramatically versus prime – 0.60%,” he said.

Over the long term, research shows “variable-rate mortgages win, and the higher rates go, the more they win,” he told BNN today. Still, he cautioned this isn’t always the case.

“Interestingly, in summer 2017 if you would have gotten a bargain 5-year fixed rate mortgage, you’d be way ahead of the game compared to a typical variable-rate mortgage holder today,” based on interest cost alone and assuming no changes to the mortgage since origination.

As for fixed rates, McLister says the hottest deals are in the insured market. That’s a boon for clients with less than a 20 percent down payment, or an already-insured switch. Insured rates remain as much as 35 basis points below the best uninsured rates, depending on the term.

Canadians Becoming Anxious

The five rate increases over the last 15 months, and the prospect of more to come, have more than half of Canadians concerned about managing their debt costs, according to a recent poll from debt consultancy firm MNP. More troubling was a 6% increase since June in the number of Canadians worried that higher interest rates may push them towards bankruptcy (33%).

This coincides with a CBC poll of 1,000 Canadian homeowners this month that found almost three quarters of those with debt on their home—primarily mortgages—say they’re worried about rate hikes.

“It’s now been a year since the first interest rate increase in nearly a decade,” said Grant Bazian, president of MNP’s personal insolvency practice. “As the effects have had time to soak in, more people are feeling the pinch. Of particular concern is there’s an entire generation of Canadians who never experienced a higher rate environment.”

Legalized Marijuana and the Canadian Housing Market

Latest News Jordan Thomson 17 Oct

October 17th will be an important day in Canada’s social history. It’s the day when we are going to have legalized marijuana across the country. We will be the second major country in the world to do this. How does this affect mortgage brokers like myself? When someone comes to me to obtain financing for a home purchase and the sellers have disclosed that they smoked pot in the house or grew a few plants, how will this affect their home purchase?

A few years ago, someone disclosed that their home had been a grow-op six years previously and their home insurance company cancelled their policy citing safety issues. I could see this happening with both lenders and mortgage default insurers like CMHC, Genworth and Canada Guaranty. A recent article by a member of the Canadian Real Estate Association suggested that both lenders and insurers might ask for a complete home inspection. It was suggested that sellers who have grown a few plants might want to get in front of this potential problem and have an inspection before they list the property. If there are any issues of mold or electrical systems that are not up to code, they can remedy this and have a quick sale.

I contacted both CMHC and Genworth Canada to find out if any policy changes are in the works. CMHC told me that there’s nothing planned beyond what is already on the books. If there’s been a grow operation it needs to be inspected and remediation done before they will insure. Genworth says that nothing has been announced as of yet. Any changes will result in an official announcement to all mortgage brokers.

If you are thinking about smoking pot in your home or want to grow a few plants, contact me as your Dominion Lending Centres mortgage professional first to find out if this could affect your house value or sale in the future.

Thank you to DLC’s David Cooke for the info.

Cash Back and Decorating Allowances on New Build or Pre-Sale Purchases

Latest News Jordan Thomson 12 Oct

As the market shifts, developers will increase their incentives to buyers with cash back and decorating allowances on new build or pre-sale purchases. It is very important to review those options with your real estate agent representative and vital to consult with your Dominion Lending Centres mortgage broker. Although these offers may seem attractive, they can impact your financing and could cost you thousands of dollars.

Before you write a contract on a new build or pre-sale, ensure you have set up your team including a real estate agent and mortgage broker. Always consult with them to ensure you have sound advice. Do not rely solely on the developer’s sales representative.

What happens when you sign a contract on a pre-sale?

When you visit the sales centre for the pre-sale and decide to write a contract you have a rescission period where you can back out of the purchase. The contract you sign is drafted by the sales centre and once you remove any conditions, you are locked into the purchase. Therefore it is essential you have your real estate agent with you at the time of signing or at a minimum, they review the contract. It is in your best interest you fully understand the terms, the disclosure statement, what you are buying, schedule to build, GST, deposit schedule and any incentives.

Once you remove any conditions, the deposit is paid to the developer and a schedule set for all other deposits till the building is complete. Those total deposits are typically 20% of the purchase price. That is money you will not receive back if for any reason you are unable to proceed with the purchase. Some contracts allow assignment to another buyer, but those must be approved by the developer and may come with restrictions. Your realtor can guide you on these matters.

How Will Cash Back or Decorating Allowances Impact Your Purchase?

When the market slows, developers will use incentives such as cash back and decorating allowances on new build or pre-sale purchases as a strategy to increase sales. Regardless if this is a cash back or a rebate for decorating, it will have an impact on the purchase price for the lender on the financing. This is a common misconception among buyers and even realtors who do not understand the process from a financing perspective.

For example: A purchase price plus GST is $800,000. The developer is offering a $20,000 decorating allowance. The lender will automatically deduct the $20,000 from the purchase price. Your new purchase price will be $780,000 for financing purposes. This does not change the actual purchase price. You still have to pay the developer $800,000 for the home. The lender will lend on the $780,000 only. Therefore you must pay in cash at the time of funding the $20,000 difference.

The developer has sold you the idea you are receiving decorating upgrades of $20,000. You are receiving the value of that allowance BUT make no mistake you are paying for it.

If the incentive is a cash back amount in the above example, you will receive the cash back from the developer at the time of completion. However, the lender will still only offer financing on the lower value minus the cash back amount.

Thanks to DLC’s Pauline Tonkin for this info.

Vancouver Market Real Estate Trends LIVE Video

Latest News Jordan Thomson 16 Aug

Market Trends in Vancouver’s Condo Real Estate Market LIVE Video Update:

Inventory is Up and Prices are down so we are seeing a shift into a Buyer’s Market. Is it a good time to buy? Top Realtors are saying yes and here is why!

MortgageMinuteLIVE August 10, 2018

Check out my MortgageMinuteLIVE each week Friday’s at 1pm for mortgage and real estate tips, trends, need to know and more!

If you have any questions you want answered, let me know! I’m always here to help you with purchases, refinances, equity take outs and more. You can reach me at 604.725.1607 or email jordan@citywidemortgage.ca.

Thanks for watching!

CMHC To Help Self-Employed Borrowers Get a Mortgage

Latest News Jordan Thomson 3 Aug

Self-employed Canadians are key contributors to strong and vibrant communities and make up about 15% of Canada’s labor force. However, they may have difficulty qualifying for a mortgage as their incomes may vary or be less predictable.

In line with the National Housing Strategy’s mission to address the housing needs of all Canadians, Canada Mortgage and Housing Corporation (CMHC) is making a number of changes aimed at giving lenders more guidance and flexibility to help self-employed borrowers:

WATCH VIDEO HERE

For more information, please feel free to reach out. Call me on 604.725.1607 or email jordan@citywidemortgage.ca.

Jordan

Defiant Airbnb hosts could face strata fines up to $1K per day

Latest News Jordan Thomson 19 Jul

The province of BC has amended strata property regulations, effective Nov. 30th.

Currently, in any buildings that have a ban on short-term rentals, the max that they can penalize the owner is $200/week. The new regulations will see this increase to $1,000/day. The government’s hope is that this will be a true deterrent and that rental stock will move from short-term rentals back to long-term rentals. Whether you agree or not, this is important information for any one who own rentals or are contemplating a rental purchase and who plans to have short-term rentals.

Click here for full article

For more information on how I can help you fund your rental purchases and refinances while increasing your cash flow, please reach out at jordan@citywidemortgage.ca or call me on 604.725.1607.

Is Vancouver in a Buyer’s Market June 2018?

Latest News Jordan Thomson 8 Jun

You’ve probably seen all the For Sale signs lining the streets and know that real estate is losing it’s sizzle right now. It doesn’t have that frenzy of sales, high prices, multiple offers that has characterized Vancouver’s real estate market since 2015. So, what does this mean?

Given the signs, it looks like we are in a Buyer’s Market! Why and how does this impact you.

Check out my Mortgage Minute Video this Week for the scoop!

Jordan
604.725.1607

Call me anytime if you would like to discuss this or any other mortgage related matters.

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