Category Archives: rates

Mortgage rates rise at RBC, more to follow?

Looks like RBC just upped two of it’s mortgage rates by one fifth of a point.

What will we do without our record low mortgage rates?

It’s probably just a minor fluctuation, but other banks are expected to follow as bond yields have edged up in the last month.

So if you want to do a rate lock in now might be the time.

Helmut Pastrick of Central One Credit Union explains:

“Sentiment has improved with respect to Europe and the economic outlook,” Pastrick said. “The economic news was quite negative for a period of weeks and now it is somewhat less negative.”

RBC’s posted rate for a three-year, fixed-rate mortgage will go up 0.2 percentage points to 4.05 per cent. Meanwhile, an RBC special-offer rate for five-year closed mortgages rises to 3.69 per cent.

The rise in the cost of funds for banks will mean other lenders will probably also raise their rates, or absorb some of the cost increase to hold onto or gain market share,” Pastrick said.

Read the full article over at the Vancouver Sun.

 

The new lending guidelines

Those new OSFI guidelines for CMHC mortgages are still ‘coming soon’, but the Vancouver Sun has an article up outlining the current state of the guidelines and predicting they will be announced in the next few weeks.

They’ve softened some since the first concepts floated out there by OSFI, but as a batch of changes that occur all at once they still stand to have a marked impact on the market.

Here’s the list of predicted new guidelines:

. Home Equity Line of Credit mortgages reduced from 80-per-cent financing to 65-per-cent financing.

. Lines of credit to be either amortized, or amortized after a specified period of time (no more never-never plans).

. More stringent income requirements for self-employed borrowers.

. All mortgages to be reviewed upon renewal (currently as long as payments are made, it is unlikely for a bank not to offer a renewal to a client).

. Funds from cashback mort-gages are not allowed as a source of down payment (currently only a handful of lenders allow this, but it does mean that “zero down” mortgages are technically avail-able, but with some restrictions.)

. Use of the five-year posted “benchmark” to qualify uninsured terms of one to four years and all variable terms (currently most lenders use a three-year posted or a lower rate to qualify uninsured mortgage.)

. More limits on underwriting exceptions (many recent applications don’t fit the ever shrinking “boxes” with the banks, which means fewer common-sense deals will get approved.)

. Home insurance to be included in debt-servicing ratios (it is currently not included.)

. More public disclosure of statistics pertaining to institutions’ mortgage practices.

. More accountability from management to ensure lenders are adhering to their underwriting guidelines.

If these changes are implemented I guess we’re going to find out how much of our real estate market is supported by those who are stretching beyond their means.

Days of ultra-cheap money coming to an end

..At least that’s what Mark Carney and other Bank of Canada officials have said according to this article, yet they’re refraining from being more specific.

Meanwhile the Organization for Economic and Co-operative Development (OECD) is urging Canada to start raising interest rates in the fall and keep on raising them to stop an inflating housing bubble and reign in inflation.

The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.

That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.

The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.

Oh, and the OECD made this same recommendation a year ago and was ignored. So I wonder how Carney intends to bring the days of ultra-cheap money to an end?

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.