Category Archives: Canada

Bank offers you should not accept

Many Franks pointed out this article in the Financial Post, which offers a flipside view to yesterdays “do whatever it takes to scrape up 5%” article.

It has a real simple message: Banks exist to make money.  That includes making offers that sound good but may not be in your best interest.

While many people want to blame the banks or the government for Canadas alarming consumer debt problem, theres only one person who is truly to blame: the consumer.  Sign yourself up for a suckers deal and you have only yourself to blame.

While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead.

In the interim, all you have to do is walk into a branch, grab some pamphlets and you will see an array of offers that could get you into even more debt trouble.

One of my favourites is the cash-back mortgage. It is offered to a varying degree by most of the major banks, so there is no point in picking on any one institution.

Here’s the offer: Take out a mortgage for more than five years and get 5% of the value of the mortgage up front to a maximum of $25,000. In other words, get a $500,000 loan and immediately get $25,000 back. “It’s great for first-time buyers,” we’re told.

Really? If the loan is at the posted rate of 5.44%, which it usually is for these types of mortgages, you could easily land into more debt trouble long term.

Another deal tries to lure me over to a new bank with an offer of 2% cash up front, or up to $4,000 on $200,000 if I switch to the financial institution. But what about the costs to break my existing mortgage, and is there really any point in switching products to get that cash right away if I’m going to end up with a higher rate and a less-flexible mortgage?

“Somebody is going to pay for it,” says Kelvin Mangaroo, president of RateSupermarket.ca, about the cost of the promises. “Sometimes there is more fine print than the actual offer.”

Check out full article here.

What do you think, do we need more consumer protection to protect consumers from themselves?

BMO CEO: House prices bound to come down

Bank of Montreal Chief Executive Officer Bill Downe is saying there are ‘legitimate’ concerns about house prices being over inflated and coming down, particularly in Toronto and Vancouver.  He is now calling for the fabled ‘soft landing’ to swoop in and fix the problem:

“We took a long, hard look at the Canadian housing market and concluded … there was a legitimate concern that house prices – particularly in the largest cities – had been rising at a rate that was simply unsustainable,” Mr. Downe said.

“With growing concerns over household debt, a soft landing in housing is in the best interests of our customers and the national economy.”

For those that are curious, yes this is the same BMO that kicked off a rate war with competitors over a special 2.99% mortgage deal. If you’re wondering why a bank would offer credit crack and then tell the addict they should cut back I think Patriotz puts it very clearly:

Because he runs a business and it’s his responsibility to the shareholders to make money. It’s either lend at 2.9% or give the mortgage business to someone else.

Banks like every other business have a responsibility to obey the law and that’s what they are doing. If you don’t like the parameters that the government has established, blame them not the banks.

This is why you’ve been hearing more call from the banks for the government to tighten lending standards.  No single bank can cut out a huge percentage of the market just because they’re concerned about over-debt households.  The banks can’t even get together and agree that they’ll adjust their lending standards themselves, because that would be collusion and illegal.

It’s all up to Flaherty now.

Scotiabank ends 2.99 mortgage deal early, more tightening on the way?

Wow, it seems like it was just a few days ago we were talking about newly introduced teaser-level mortgage rates offered by Canadian banks.

… oh, it was just a few days ago.

BMO kicked off the competition and TD, Scotia and CIBC jumped in with competing lowball offers.

Well it looks like Scotiabank blinked first.  Their special offer didn’t even last a week.  Canadian Mortgage Trends is reporting that Scotiabank has pulled their special offer for a 2.99% rate.  Guess we’ll have to wait to see if the other banks will follow.

And speaking of mortgages, Canadian Mortgage Trends also has some interesting analysis of the OSFI recommendations for underwriting practices and how it’s about to lead to mortgages that are a bit tougher to get.

After reading through 18 pages of changes in detail, our immediate reaction was frankly, concern.

That’s not because the guidelines are greatly imprudent. Some are unnecessarily rigid, but most are sound policy.

It’s because OSFI risks tightening too much, too fast.

Big Mortgage BLOW OUT SALE!

If you’re sharp-eyed you may have noticed some ‘special offers’ on 5 year fixed rates.  BMO kicked off another low-rate war by once again offering a rock-bottom 5 year fixed rate of 2.99% and a new 10 year fixed at 3.99%.

Nobody wants to be left out of fun like that, so TD, CIBC and Scotiabank quickly followed suit and started offering a 2.99% rate as well.

How are customers responding?

Techar said reaction to BMO’s previous offer was fantastic. “We saw an increase in volume almost immediately and it continued for the whole two-week period.”

These deals are temporary and expire in a few weeks.  You’d almost think something was about to happen March 29th, but who knows?  Rumour has it more changes are coming to insured mortgage rules in Canada whether it’s higher down payment requirements or shorter amortization terms.

So is this a deal too good to refuse, or a trap for the gullible?

If rates start to rise, could it be a benefit to buy a home now?  Would these ridiculously low rates offset a drop in prices at a higher interest rate?

What about in markets whose prices have fallen for the last few years?  There are many of these across BC – The Okanagan has seen prices collapse by more than 30% so already.

And what does Mark Carney have to say about all of this?

“Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk,” Carney said Thursday as he held the bank’s trend-setting rate to 1 per cent.