Mortgage Rates are Rising.

[broken_legs]

Canadian banks raise rates as finance costs rise
Tara Perkins
20:15 EST Tuesday, Apr 13, 2010


Royal Bank of Canada raised mortgage rates for the second time in two weeks, setting the stage for another wave of hikes by major banks as they grapple with higher financing costs.

“This is just the beginning,” said Canadian Imperial Bank of Commerce economist Benjamin Tal. “There is no reason to believe that this will stop at this point.” Indeed, by late Tuesday Bank of Nova Scotia had already followed suit, matching RBC's 25 basis point hike on fixed-rate mortgages. Bankers at rival institutions were weighing their options.

RBC kicked off the increases in March when it increased the price of fixed-rate five-year mortgages by 0.60 percentage points to 5.85 per cent; many rivals followed suit. Following Tuesday's move, RBC and Scotiabank's posted rates will be 6.10 per cent.


etc...

[Xtrema]

Buggers, playoff starts so they hope nobody notices...... :D

[Sugarphreak]

...

[kaput]

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[spikerS]

Originally posted by kaput
^Lets predict how long it takes for housing prices to start falling.

won't take too long.

[Xtrema]

^ Never.....

Probably after summer into late fall when the demand is lower.

I don't expect a huge drop, probably soft lands 5% off from current level.

[lint]

Originally posted by Xtrema
^ Never.....

Probably after summer into late fall when the demand is lower.

I don't expect a huge drop, probably soft lands 5% off from current level.

based on?

[Xtrema]

Gut feel.

While more jobs are coming back due to high oil prices. Gas still got a way to go. Everyone who needs to buy has already jump on it in the last 2 to 3 months which inflated the price a bit. I see price holds up til end of summer due to the usaual busy RE season. Then it should wind down a bit after school starts.

Now will there be any huge event in the next 4 months to start another buying frenzy? Possible. But we have a pretty healthy supply of houses and condos and I don't see demand going anywhere.

[sputnik]

You have to keep things in perspective.

Interest rates are still VERY low compared to the last 10+ years.

I would be shocked if houses dropped more than 5%.

[Cos]

Originally posted by sputnik
You have to keep things in perspective.

Interest rates are still VERY low compared to the last 10+ years.

I would be shocked if houses dropped more than 5%.

+1 I see modest growth over they year (year over year, not month over month).

[kaput]

.

[Sugarphreak]

...

[Cos]

Originally posted by Sugarphreak


I would agree, unless BOC overnight interest rates went up like 3% or something in one shot it isn't going to have much affect.

The job market is coming back, with people back to work demand for housing will go up irregardless of modest interest rate hikes or price.

My feeling on housing prices is the price will remain stagnant for a while with modest 2-3% growth for the next year or so.

Look at the last downturn in 2001, the markets crashed... they recovered pretty much the same amount and within the same time as the current downturn... housing prices stayed flat until spring of 2005... then they exploded.

Eventually people will get comfortable, good times will ensue.... everything will go crazy... and the cycle repeats.

My prediction, next massive housing boom will be in the spring of 2012

I say 13/14 I think 2012 is a little too soon but we share the same sentiment.

[cmyden]

My prediction, next massive housing boom will be in the spring of 2012


I say 13/14 I think 2012 is a little too soon but we share the same sentiment.

You guys do realize that the last two booms were 25 years apart right?

Actually nevermind, I just realized that this time it's different!

[lint]

Originally posted by cmyden
You guys do realize that the last two booms were 25 years apart right?

Actually nevermind, I just realized that this time it's different!

:thumbsup:

[m3_powered]

What do you guys think, would it be wise to lock-in b4 it gets worst, or hold off?

[Cos]

Originally posted by cmyden




You guys do realize that the last two booms were 25 years apart right?

Actually nevermind, I just realized that this time it's different!

I was thinking crashes, not housing booms, so I retract my statement.

[Xtrema]

Originally posted by kaput


I don't understand what you mean. You say everyone who needs to buy already has in the last few months (ie. reduced demand), and we have a healthy supply of houses and condos. That would drive prices lower, not support the current levels.

Reword....

People who try to get in before the new rule, already did, taking away some demand. And this rush caused about 5-7% price increase in Q1 2010

Going into busy season, there will always be people who are not affected by new rule and they will buy regardless, they will keep the market afloat. So I don't see house prices increases any more.

Once summer is over, unless there is a resurgence of jobs coming back, I don't see enough populations coming in to cause another housing boom. And even if there is, the rental market is flooded with cheap places that will handle the inflow. So market should either stay flat or deflate a bit, my guess is around 5%.

The fact is majority of business is driven by gas. But if you look at all the reserves in Russia and US, I don't see why anyone need Canadian gas for the next 5-10 years. Especially dollar being on par with US and a higher production cost. Production cost is so much lower in US than here. And the royalty BS doesn't help.

[autosm]

Originally posted by cmyden




You guys do realize that the last two booms were 25 years apart right?

Actually nevermind, I just realized that this time it's different!


Then add the fact that millions of boomers will be retiring and down sizing in the next while............

[Canmorite]

Originally posted by sputnik
You have to keep things in perspective.

Interest rates are still VERY low compared to the last 10+ years.

I would be shocked if houses dropped more than 5%.

True, but to people who loaded up on debt under low rates, they are watching this very carefully. Even a small rise when you're heavily levered can be nasty.

[Sugarphreak]

...

[cmyden]

Edmonton Housing Bust posted a good analysis today on what the changes to mortgage rules could do to affordability...

http://edmontonhousingbust.com/2010/04/midnight-looming/


Before lenders had employed qualifying rates in some cases for VRM’s, but there was no hard and fast rule governing it (though the 3-year fixed discount rate appeared to be the most commonly used)… come Monday it will now be the standard as the 5-year fixed posted rate.

To get an idea of how big an effect this change will have, lets see how that change would play out using today’s rates from RBC… variable rate available at 2.14%… 5-year fixed posted rate, 6.10%. Using the above graph and an annual income of $75,000, if the 2.14% rate was used one could qualify for ~$590,000… as of Monday if you want to go the variable route the maximum one could qualify for is only ~$347,000. That’s a pretty big shave off of the amount of available credit, roughly 40% in fact.

Though, as I mentioned earlier, many lenders already used a qualifying rate to limit the amount one could borrow… most often the 3-year fixed discount rate, which is today hovering around 4.0%, which would have limited borrowers to ~$450,000. So, considering that condition, that would only cut the available credit by 23% to get down to $347,000… which is still a pretty big haircut, and puts the median home out of reach for most Edmontonians (and this while interest rates are still at historical lows).

There is a loophole though… but it comes with a price. That being, you can qualify for a bit more money, but you can’t take a variable-rate or short-term fixed mortgage. To do this you must take a 5-year fixed mortgage, and in this case you can use the 5-year fixed discount rate as the qualifying rate, rather than the posted rate. This would allow you to use 4.70% rather than 6.10%, qualifying you for $412,000 rather than $347,000.

Still a lot less than you could have gotten before, but a lot more than you will be able to borrow as of Monday with a variable-rate mortgage. The effect of this loophole combined with the elevated prices will be to funnel a lot more people into 5-year fixed mortgages as they seek to maximize their leverage and get as much house as possible (ignoring whether or not such maximization is in their best interest, as in all likelihood, they’ll be ignoring it too).

[sputnik]

Originally posted by Canmorite
True, but to people who loaded up on debt under low rates, they are watching this very carefully. Even a small rise when you're heavily levered can be nasty.

However this is the vast minority.

When you consider all the people with mortgages, most have had theirs for years if not decades and are rather small compared to their current salary or value of their house.

The majority of recent buyers have already locked into a multi year fixed rate, and a good portion of the people on variable rates have the income capable of handling rate increases of 2-3% if not more. You have to remember that if you got a variable rate mortgage more than 2 years ago you are already used to paying over 5.5% interest and are now probably paying ~1.5%.

So who is left?

The few people who got big mortgages with low income and used a low (~2%) variable rate with little ability to move up.

Trust me. While their may be a few people that fit this category, there aren't enough to wreck havoc on the real estate market.

[autosm]

The bank is offering me 3.95% for a 5 year until the end of the month. I am still thinking of letting it ride on the variable roller coaster. Anyone think I am crazy?

[spike98]

Originally posted by autosm
The bank is offering me 3.95% for a 5 year until the end of the month. I am still thinking of letting it ride on the variable roller coaster. Anyone think I am crazy?

I am no financial expert but IMO, yes you are crazy. Thats a decent rate and the peace of mind knowing that your payments will be the same for 5 years, to me, is invaluable.

[Cos]

Originally posted by autosm
The bank is offering me 3.95% for a 5 year until the end of the month. I am still thinking of letting it ride on the variable roller coaster. Anyone think I am crazy?

I locked in at 3.89 and am very happy. You may get away with another month or two on variable and still lock in at 3.95. Chances of timing it that well tho are pretty slim.

[ExtraSlow]

Originally posted by autosm
The bank is offering me 3.95% for a 5 year until the end of the month. I am still thinking of letting it ride on the variable roller coaster. Anyone think I am crazy?
You are crazy. The rates WILL go up substantially during your five year term. Current mortgage rates are at historic lows.

[thepyrofish]

Originally posted by autosm
The bank is offering me 3.95% for a 5 year until the end of the month. I am still thinking of letting it ride on the variable roller coaster. Anyone think I am crazy?
I was offered the same rate recently (though I need to double check how long I'm able to get that) and we're definitely going to go fixed.

[QuasarCav]

Originally posted by spike98


I am no financial expert but IMO, yes you are crazy. Thats a decent rate and the peace of mind knowing that your payments will be the same for 5 years, to me, is invaluable.


I am going to ride the 1.65 as long as I can. Gov't would have to increase the rate by 3 percent and than I'm still in the same boat as the guy with the locked in mortgage.

[rc2002]

Originally posted by Cos

I locked in at 3.89 and am very happy. You may get away with another month or two on variable and still lock in at 3.95. Chances of timing it that well tho are pretty slim.

Actually if you choose the variable route and then lock in, you lock in at the posted rates not the discounted rates. So you'd probably end up locking in at 5%.

The increases in mortgage rates affect the fixed rates only. Variable rate is still based on the bank of Canada overnight lending rate. Makes more of a case to go variable instead of fixed.

I'm not sure we're going to get that major correction everyone is expecting. I think the 5% correction stated earlier in the thread might be realistic. If high house prices are sustainable anywhere, it's going to be Calgary which has the highest income anywhere in Canada. Billion dollar projects are resuming now, and migration from other provinces (especially lower mainland BC and Toronto where house prices/income is much higher) will also help support house prices.

[Cos]

Originally posted by richardchan2002


Actually if you choose the variable route and then lock in, you lock in at the posted rates not the discounted rates. So you'd probably end up locking in at 5%.

The increases in mortgage rates affect the fixed rates only. Variable rate is still based on the bank of Canada overnight lending rate. Makes more of a case to go variable instead of fixed.

I'm not sure we're going to get that major correction everyone is expecting. I think the 5% correction stated earlier in the thread might be realistic. If high house prices are sustainable anywhere, it's going to be Calgary which has the highest income anywhere in Canada. Billion dollar projects are resuming now, and migration from other provinces (especially lower mainland BC and Toronto where house prices/income is much higher) will also help support house prices.

No I understand that but I would bet that the BOC rate will jump over the next year or two. I dont know what the OP is locked in at but lets say Prime +1.5. If BoC jumps rates to 2.00 in the next 18 months he will then be at 3.5. Lets say BoC jumps to 4.00 then he will be at 5.5 not 3.95.

He may lose out in the first year but I would bet by the time he is done his 5 years (fixed or variable) he will be better off.

[freshprince1]

Originally posted by Xtrema


The fact is majority of business is driven by gas. But if you look at all the reserves in Russia and US, I don't see why anyone need Canadian gas for the next 5-10 years. Especially dollar being on par with US and a higher production cost. Production cost is so much lower in US than here. And the royalty BS doesn't help.

China. Sinopec just bought out ConocoPhillip's portion of Syncrude and are piping it to Kitimat LNG in BC. They're going to start buying up what the US would have been buying if Obama wasn't scaring them off with "dirty oil" charades.


back on topic...

I have been variable at Prime minus 0.6% for two years...its been a good ride, and I was paying off more principle, but I just locked in at 3.89 for another 5 years. There's no shame in locking in at anything below 5% really, historically speaking. While I could have had lower payments, or paying off more principle on variable for sometime, I got tired of the uncertainty and locked in.

[bmeier]

Originally posted by Cos


No I understand that but I would bet that the BOC rate will jump over the next year or two. I dont know what the OP is locked in at but lets say Prime +1.5. If BoC jumps rates to 2.00 in the next 18 months he will then be at 3.5. Lets say BoC jumps to 4.00 then he will be at 5.5 not 3.95.

He may lose out in the first year but I would bet by the time he is done his 5 years (fixed or variable) he will be better off.

The current BOC rate is .25%. banks are usually 2 percent above this for variable rate mortgages. I have a prime -.75 rate and i am letting it ride. right now i am paying 1.5% interest. if the current lock in rates are for +- 4%
the BOC rate would have to go up 2.5%

[kaput]

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[bmeier]

Originally posted by kaput
Why would the banks raise their fixed rates prematurely and by so much, making them almost uncompetitive vs. variable? I've heard that it may be in anticipation of a BOC rate hike, but why the lead time? Do they know something that we don't?

i think BOC is going to raise the rates but by how much i dont know.

[kenny]

Fixed rate mortgages are popular right now due to the expectation that rates are going to go up.

Since banks are in the business of making money, they'll hike up the rates of their popular products. The fear of variable rate mortgages is enough to continue driving business to the "uncompetitive" fixed rate mortgages.

[QuasarCav]

Originally posted by freshprince1


While I could have had lower payments, or paying off more principle on variable for sometime, I got tired of the uncertainty and locked in.

That's what they want you to do.

[Rarasaurus]

BOC is in a hard place because our dollar is already very high, as stated above they would have to raise rates 2.5% to match what fixed is at now. Unless the americans start raising rates i do not think we will see much of a move from boc. maybe .25% in the near term. Sure rates are going up but i can't see them raising it 2.5% in the next 2 or 3 years.

As stated above banks are making good money now based on the fear that "rates have to come up".. i do not think they will come up fast when they do come up, and therefore i am also leaning towards staying variable.

The gap is too large from variable to fixed, and historically close to 90% of the time variable wins over fixed.

[kaput]

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[barmanjay]

Got this off of an email from one of my mortgage brokers:

3 year history on average 5 yr fixed rates: 2010 - 5.85% 2009- 5.25% 2008 - 6.99%

[Rarasaurus]

Today’s fixed rates are trading with built-in insurance premiums, IMO it does not matter where boc rate is as banks will always put in their fixed rates so that they make money.

The banks have no intention of having people lock in a fixed and prime coming up higher than the fixed people locked into, forcing them to be negative on their mortgages. Their calculations for where they put fixed is based on offering peace of mind to people that looks attractive. While also protecting themselves and ensuring, to the best of their ability, a profit.

This is exactly why 90% of the time variable is better than fixed, and has nothing to do with where boc rate is now. The insurance the banks have now is the 2.5% spread which is also at a historical high.

Only 10% of the time in the past have they been wrong and lost out on their fixed mortgages. Pretty good track record if you ask me.

[lint]

Originally posted by kaput
^IMO the historical variable vs fixed argument isn't valid when rates are at historical lows.

so do you just throw out the data for the 80's when rates were at historic highs? Or any other period that you feel like?

[rc2002]

Originally posted by kaput
Why would the banks raise their fixed rates prematurely and by so much, making them almost uncompetitive vs. variable? I've heard that it may be in anticipation of a BOC rate hike, but why the lead time? Do they know something that we don't?

As mentioned before. Variable rate is dictated by the bank of canada overnight lending rate so that's why they haven't changed. Fixed mortgage rates are dictated by the long term bond rates. The bond market has been going up. So the banks were forced to increase fixed mortgage rates.

Basically the fixed rate increase wasn't premature because it's not based on the bank of canada rate.

They probably didn't need to increase them as much as they did, but they're in the business of making money for their shareholders.

[kaput]

.

[lint]

Here's an analysis of fixed vs variable (approximated with 1yr fixed) in Canada for 1950-2000. The methodology is very sound (to me) but you can draw your own conclusions.

http://www.ifid.ca/pdf_workingpapers/WP2001A.pdf

[autosm]

I think the major housing crash that happened in Alberta was due to people having variable rates? At least the two people that I know that lost houses did because of 18% rates. Not that that could ever happen again but...

I can't see rates ever being this low that is why I am tempted to lock in.

The other side of the coin is rates have to go up 2.0% for the Variable to be equal to 4%

Somehow me thinks the banks are trying to scare people into locking in at higher rates.

[CokerRat]

Originally posted by kaput
I'm just thinking about it logically. If you've come across any analysis of what's happened at previous high or low points, please post it up, it would be an interesting read.
All they're saying is that a fixed rate product has a built in risk premium versus the variable rate. Generally, lenders set that premium high enough to expect it to be profitable. It's like buying an insurance policy, most of the time it will be a money loser for you, but you don't buy it as an investment -- you buy it to mitigate risk.

Frankly I believe that anything under about 8% is practical for home ownership for most people. (Yes, I know some people have done dumb things at low rates, but I'm talking about typical people that aren't dangerously leveraging the low rate). I think it's unlikely prime will rise above 5% in the next 3 years and I can readily pay a variable mortgage at that rate, so I would stay with a variable given the choice. I would consider switching if and only if I thought rates could rise to the point the annual interest could cripple my ability to pay.

[broken_legs]

Originally posted by richardchan2002


As mentioned before. Variable rate is dictated by the bank of canada overnight lending rate so that's why they haven't changed. Fixed mortgage rates are dictated by the long term bond rates. The bond market has been going up. So the banks were forced to increase fixed mortgage rates.

Basically the fixed rate increase wasn't premature because it's not based on the bank of canada rate.

They probably didn't need to increase them as much as they did, but they're in the business of making money for their shareholders.

Thank you.

People really need to understand that Fixed rates have nothing to do with the BOC rate.

[cocoabrova]

Originally posted by autosm
The bank is offering me 3.95% for a 5 year until the end of the month. I am still thinking of letting it ride on the variable roller coaster. Anyone think I am crazy?



Originally posted by spike98


I am no financial expert but IMO, yes you are crazy. Thats a decent rate and the peace of mind knowing that your payments will be the same for 5 years, to me, is invaluable.

:werd: I just renewed w/Scotiabank @ 3.95% 5yr-fixed. Didn't want to take the chance going w/ a variable.....

[cdnsir]

Are they doing weekly rate increases now? WTF!?


SOURE: http://www.theglobeandmail.com/report-on-business/economy/rbc-hikes-mortgage-rates-again/article1546995/

Tavia Grant and Steve Ladurantaye

Globe and Mail Update
Published on Monday, Apr. 26, 2010 12:14PM EDT
Last updated on Monday, Apr. 26, 2010 12:34PM EDT

Royal Bank of Canada, the country’s largest bank, is leading the way on another round of mortgage-rate hikes, boosting borrowing costs Monday for the third time in recent weeks.

The rate on a five-year closed mortgage is now 6.25 per cent, an increase from the previous rate of 6.10 per cent. A one-year closed rate will, as of tomorrow, be priced at 3.80 per cent. All rates were increased by 15 basis points.

It’s the third move in a month as Canadian banks prepare for an era of rising interest rates. The Bank of Canada last week signalled that its key lending rate will rise, as early as June, as the economy recovers.

Banks can adjust the rate they charge, so customers could still pay a lower rate than what’s posted. Other banks tend to follow with rate hikes once one does, and the actual rate a customer pays depends on a variety of factors, including their financial situation, whether they use a mortgage broker, and how good they are at negotiating.

The hike comes the same day as Canada Mortgage and Housing Corp. released a study showing that 81 per cent of recent home buyers feel comfortable with their current level of debt.

Two thirds of the 2,500 people surveyed said there is a chance they will pay off their mortgage sooner than required, while 27 per cent said they have increased regular payments to eliminate their mortgage sooner.

[kaput]

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[spikerS]

Originally posted by kaput
That should be good for at least another $5-10k drop in buying power.

QFT

[911fever]

Originally posted by kaput
That should be good for at least another $5-10k drop in buying power.

ugh tough for me now, first home buyer, as I need more of a DP for my house

[autosm]

Ok I have to renew by friday to get 3.85% for 5 years. Its up in November and they want a 2k payout. Compared to my rate now I will see payback of the 2k in less than 1.5 years.

What would you do? My current rate until nov is 4.35 and I can renew penalty free in July (with the same bank).

How many are still variable?

[slick2404]

we are locked in at 3.84 for 5 year from May 1st.

[lint]

still variable

[bmeier]

Originally posted by autosm
Ok I have to renew by friday to get 3.85% for 5 years. Its up in November and they want a 2k payout. Compared to my rate now I will see payback of the 2k in less than 1.5 years.

What would you do? My current rate until nov is 4.35 and I can renew penalty free in July (with the same bank).

How many are still variable?

i would probably take the hit and renew now, under 4 % is a good rate IMO.

that being said i am still variable and i have no plans to lock in. I like paying 1.5%

[djayz]

Variable here as well at P+0.5