Mortgage discounts turn to premiums

For those that missed it, there’s an interesting article over at Canadian Mortgage Trends – the major banks have done away with their variable rate discount mortgages and are now charging a premium over prime.

Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.

The banks are well aware of that. They know that pricing above prime impacts consumer psychology.

They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.

That said, banks are not just arbitrarily sticking it to borrowers. The main reason variable rates are worsening is that banks’ costs are rising, and they want to recoup those costs.

Read the full article for more on the factors at play in this move.

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patriotz
Member

Remember also that it's the banks that set prime and any bank can set prime itself to any level it wants any time it wants, although competition means they move in near lockstep.

Prime is the rate that the banks charge their most creditworthy commercial borrowers – i.e. borrowers not guaranteed by government. If banks see default risk rising, they can raise prime even when the BoC rate goes down.

A lot of people confuse prime with the BoC rate. They are entirely different things.

HappyRenter
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HappyRenter

Is Vancouver the best place in the world to live?

There is a poll in CKNW web site.

%68.8 of the voters do not think so.

patriotz
Member

@HappyRenter:

What's funny is that only Vancouver would have such a poll in the first place. New Yorkers don't care whether NYC is the "best place in the world to live". It's just New York, and that's good enough.

Keeping An Eye On Th
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Keeping An Eye On Th

@HappyRenter:

Speaking of Realty Radio 98/Bill Slut and Crew:

"Why Did America's Property Bubble Burst? Here Are 8 Reasons…"

"The real estate sector is a huge buyer of ad-space, and during the boom leading industry professionals such as developers and mortgage companies, regularly funneled in millions in advertising to keep the buying frenzy going."

http://au.ibtimes.com/articles/262619/20111207/di

patriotz
Member

@Keeping An Eye On The Pimps:

Those are really indicators or secondary effects of a bubble, not root causes of a bust. Not one of them is a necessary precondition for a bust.

There is only one root cause for RE busts and that is prices out of proportion to rents and incomes.

specialfx3000
Member
specialfx3000

Yesterday's numbers per Larry:

Vancouver All Areas*

New Listings – 101

Back On Market Listings – 2

Price Changes – 42

Sold Listings – 76

*Attached & Detached – Date: 12/07/2011 Time: 22:35 Pacific YatterMatters.com: Courtesy REBGV. Data believed to be accurate but is not guaranteed.

Anonymous
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Anonymous

ottawa is the best place on earth. that why people are moving there! how is the job situation? it's not that good, cuz the mover spends all day posting here.

Anonymous
Guest
Anonymous

who the f$ck care about variable. 4 years fixed can be had for 3.09%.

registered
Member
registered

@4 Keeping An Eye On The Pimps: Piles o' crap in that article. Blaming foreclosures is like ignoring the bullet hole for the blood loss. The bubble burst's primary trigger in this case was the credit pipeline snapping shut on markets realizing it was fuelled by high risk debt instead of the AAA assurances they were sold. 'Trigger' italicized because there is no bubble without a collapse, fast like the US or slow like Japan.

Insanity
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Insanity

@patriotz:

"What’s funny is that only Vancouver would have such a poll in the first place. New Yorkers don’t care whether NYC is the “best place in the world to live”. It’s just New York, and that’s good enough."

You can't be serious? These type of polls are done all the time including places like NYC. Just google it and you come up with 100s of polls on where is best to live.

I would agree you wont find such polls in Ottawa. Using the word best and Ottawa in the same sentence would be silly.

Anonymous
Guest
Anonymous

@Keeping An Eye On The Pimps: ….“The real estate sector is a huge buyer of ad-space, and during the boom leading industry professionals such as developers and mortgage companies, regularly funneled in millions in advertising to keep the buying frenzy going.”…

Good thing that's not happening in Vancouver! We have the Vancouver Scum newspaper to ensure only accurate facts are reported.

WFT?
Guest
WFT?

@Insanity:

Ottawa is the best place in Canada to live according to money sense magazine.

Ready to Sell
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Ready to Sell

Amazing how sell to list is still below 1.0 this late in the year. Who lists their house for sale two weeks before Christmas? This activity suggests we shall see an avalanche of sellers after Xmas.

patriotz
Member

@Insanity:

"Just google it and you come up with 100s of polls on where is best to live."

Those polls are from travel publishers, etc. asking people from around the world what they think the best city is. Not a poll asking people who live in one city whether they think it's the best city. The latter seems peculiar to Vancouver.

I agree that people in Ottawa don't seem to be hung up on whether their city is the "best", but perhaps you don't need to be when you have the highest median household income in Canada, the lowest house prices of any million+ city except Montreal, and generally reasonable living costs.

Anonymouse
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Anonymouse

I wouldn't be at all surprised if interest-only mortgages were introduced to Canada next year.

Phil
Guest
Phil
VMD
Guest
VMD
[Another round of mortgage rule tightening a possibility] … The bank conceded that the growth of mortgage debt has slowed, particularly after March's clamp-down by Ottawa reducing top amortization periods from 35 to 30 years. But it noted that credit accumulation is still rising faster than incomes, which have slowed, and that October saw a rebound in mortgage growth. "The rising indebtedness of Canadian households in recent years has increased the possibility that a significant proportion of households would be unable to make debt payments in the event of an adverse economic shock," it warns. Recently, the International Monetary Fund warned Ottawa it may have to lean again on mortgage rules to slow down Canadians eager to buy while interest rates are at floor levels. The Bank of Canada doesn't go as far, but possibly as far as it can… Read more »
CanuckDownUnder
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CanuckDownUnder

@patriotz:

Ottawa having the lowest RE prices of all the major cities in English Canada is like being the healthiest patient at the hospice.

registered
Member
registered

17 VMD Says:"Tal said Flaherty may be forced to clamp down further on eligibility rules for mortgages to make house purchases less affordable ."

"My hands are so tied I might have to do (more accurately undo) something!" Not only is it belabouring the obvious to couple high mortgage debt to easy lending terms, it's beyond idiocy to ignore easy terms also drive up prices. The only sense here is banks make out like government guaranteed bandits.

space889
Member
space889

BoC warns that Toronto condo boom might be coming to end:
http://www.theglobeandmail.com/report-on-business

The article said the month of inventory for Toronto condo is 19 months while historically its 26 months. Is that right?? That seems awefully high!

registered
Member
registered

18 CanuckDownUnder: Horses for courses. Not everyone cares to trade heritage, easy access to the outdoors and a great range of cultural activities for awesome hockey riots. Go 'Nucks!

jesse
Member

@VMD: This is big news. I blogged about the BoC's latest report here. The only question is how they would reduce credit availability. A few options:

– Increase minimum DP to 10%

– Increase capital reserve requirements on mortgages

– Speed up Basel3 implementation

– Remove 100% underwrite on CMHC-insured mortgages

– No longer underwrite MI on investor loans

Lots of options, but only good for those who have cash.

Best place on meth
Member
Best place on meth

@DEFAULT NAMEe:

>>>I wouldn’t be at all surprised if interest-only mortgages were introduced to Canada next year.<<<

Yeah! Now that's what I call trolling!

patriotz
Member

@DEFAULT NAMEe:

"I wouldn’t be at all surprised if interest-only mortgages were introduced to Canada next year."

We have had interest-only mortgages all along – they're called HELOC's.

And keep in mind that non-bank lenders have always been able to lend on any terms they want, and so have banks at under 80% LTV.

If you mean you think CMHC is going to start insuring interest-only, no that's not going to happen. Remember interest-only is infinite amortization.

jesse
Member
Vancouver Sun: <a href="http://www.vancouversun.com/business/want+affordable+housing+somewhere+else/5829419/story.html&quot; rel="nofollow">We all want affordable housing – somewhere else "And my friend went up to Robertson and said, 'Look, you can't have the city more afford-able AND the most wonderful, greatest place to live in at the same time. Those things are fundamentally incompatible. All those things you're going to do to make it the most wonderful, greatest, hippest place to be are all going to make it more expensive.'"… Also, affordability means different things to different people. One, if you own a house, you find yourself on the other side of the coin. You want house prices to rise. At the very least, you don't want them to fall. Two, it depends on who you want affordable housing for. "To me," Somerville said, "for someone wanting to live on the West Side but ending up in… Read more »
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