Canada Mortgage Rates

Canada Mortgage Rates continue to fluctuate in as Canada government bonds saw a recent spike but returned to historically low levels once again. Any speculation of rates starting to rise before the end of 2014 have been put on hold. It is expected fixed rates will remain steady through the winter months with only slight fluctuations up and down. The spring market could bring possible rate increases pending economic numbers.

5 Year Bond Rates

The bank of Canada has held the overnight lending rate steady since September 2009 as the Canadian and global markets have struggled to sustain any significant economic recovery. The bank posted prime lending rate has remained at 3.00% during this time making variable rate mortgages a great choice over the past 5 years. Future increases are expected in 2015 but when and how much are up for debate.

Stay up to date with mortgage rate changes by following our blog and press releases.

Fixed vs Variable Rate Mortgages

Variable rate and fixed rate mortgages both have their advantages and disadvantages. Historically homeowners tend to pay lower rates with variable mortgages, but these mortgages are also vulnerable to fluctuations because they are tied to the Bank of Canada’s prime lending rate where fixed rates are consistent throughout the term of the mortgage. Currently a variable rate mortgage is approximately .60% lower than the best 5 year fixed rates with the Bank of Canada prime lending rate set at 3.00%.

Fixed vs Variable Rate Mortgage

Fixed vs Variable Rate Mortgage

Interest Rate Forecast

The Bank of Canada has said they have no intention of increasing rates until 2015 and bond rates have remained low. When they decide to start increasing rates it will be very slowly as to monitor the effects on the Canadian real estate markets. If they increase rates too quickly they risk crashing the real estate market across Canada. It is expected increases will come a quarter percent at a time pending the financial stability of our economy.

What is the best choice?

There is no correct answer, the product you choose must be the one that fits your needs and comfort level. A variable rate product will be lower today but there is no guarantee it will be lower a year from now. If you are the type of person that can’t sleep at night knowing that your rate may change by 0.25%, then a variable rate mortgage is not the best option for you. If your budget is stretched to its limits and any increase will make your payments difficult to pay, then this is not the best choice. A variable rate mortgage is appropriate for individuals who are financially very comfortable and willing to risk future rate increases by taking the lowest possible rate today.

Convert a Variable to Fixed?

Variable rate products typically allow you to lock into a fixed term of equal or greater length at any time during your term. While this does eliminate some of the risk of a variable rate it does mean you need to time the rate changes perfectly and securing today’s best rate is unlikely when rates start to rise as you are limited to choosing a fixed rate that is available at that time. In most cases fixed rates will begin to rise with bond rates in anticipation of the Bank of Canada increasing their rates.

In order to weigh all the pros and cons of fixed and variable rate products, speak to one of our local mortgage brokers to help you determine the best product for you and your family!

Contact a mortgage broker in your city!

Canada Economic and Real Estate Market Update

The Bank of Canada left the key overnight rate unchanged last week during the latest interest rate announcement on September 3rd. The outlook for inflation remains roughly balanced and is close to the 2 percent target, while the risks associated with household imbalances have not diminished. The Bank of Canada remains neutral with respect to the next change to the policy rate. The next scheduled date for announcing the overnight rate target is October 22nd.

real estate news

Canada’s major real estate boards released August sales data last week which was generally positive across the country. Vancouver saw steady growth in line with sales figures from previous years, Calgary saw a sharp rise in condominium listings and sales, Edmonton saw a sharp increase in sales and prices, while the major centers in Saskatchewan and Manitoba saw flat prices and an increase in listings, and in Toronto there was continued strong growth with year over year sales and prices. View more real estate markets reports here.

Equifax Canada published its latest Consumer Credit Trends Report last week stating consumer debt levels in Canada continue to grow but that the delinquency rate has reached its lowest level in six years. Overall debt, including mortgages, has grown by 7.2% over the past year.

The benchmark government of Canada five year bond yield ended the week at 1.59%, up slightly from 1.52% the previous week. Bond rates have remained steady during the past 5 months ranging from a low of 1.47% to a high of 1.64%.

MCAP Launches Value Flex Mortgage Products

MCAP has introduced two new mortgage products to their lineup. The MCAP Value-Flex mortgage products offer lower rates than their standard products with slightly more restrictive features.

Under the Value-Flex products, MCAP is offering a 5 year fixed rate of 2.89% and a 5 year variable rate at prime minus .65% equal to 2.35% today!

mcap value-flex mortgage

We have seen BMO and other lenders offer these types of low rate products in the past with even more restrictive options. MCAP has been able to keep the majority of the great features their mortgages offer with this product line including:

• Prepayment privileges of up to 20% per year
• Port, refinance and equity take out options with increase, blend and extend privileges (With MCAP only)
• Early renewal option (With MCAP only)
• Early payout with standard payout penalty if property is sold to a 3rd party purchaser
• Flexible payment options monthly / semi-monthly / bi-weekly / weekly (accelerated)
• 90 day rate hold period

The main differences between the Value-Flex product and MCAP’s standard product line is the restriction to refinance without a sale of the property. They will allow you to refinance with MCAP but not another lender. The mortgage itself would stay intact with MCAP and a refinance would be done with an increase, blend, and extend option. Early payout is not an option unless the property is sold. There are also no pre-approvals and the rate hold period is 90 days instead of the standard 120.

The MCAP Value-Flex is ideal for borrowers who simply want the best mortgage rate available but still have access to great mortgage privileges including early renewals, ports and refinances with blended rates or the ability to payout early if they sell their property to a 3rd party purchaser. The only concern would be no option to refinance with a different lender during the 5 year term and no option of an early payout. For most people this is not usually a concern.

For more information please contact one of our local mortgage broker professionals in your area.

Canadians Buying and Financing US Real Estate

Many Canadians are heading south of the border to invest in real estate due to the inflated Canadian housing market and the significantly lower priced US real estate with major upside. Currently Canadians account for 15% of all foreign sales in the US with a total of $13.8 billion dollars spent over the past 12 months. 73% of these purchases were made in Florida, Arizona, and California.

If we look back a few years, US real estate was valued 3 times higher in many of the popular states and the Canadian dollar was worth significantly less than it is today making an investment in US real estate very expensive. Although the dollar has pulled back off the strongest levels and real estate has started to rebound there is still tremendous upside for Canadian home buyers south of the border!

canadians buying us real estateOver 80% of Canadians purchase US real estate with cash but did you know acquiring a mortgage in the US is not that difficult anymore. RBC Royal Bank is offering lending to Canadians with as little as 20% down payment at very competitive interest rates. Your other option is to refinance your Canadian real estate and use the equity from your home in Canada. If you are lucky enough to have significant equity in your home, refinancing can make sense to allow you to buy in the US with cash. If you don’t have the equity available, acquiring a mortgage with RBC is a great option.

If you are interested in buying US real estate, contact our team to discuss both options to determine the best route for you. Our mortgage and real estate team is experienced with purchasing US real estate and can walk you through the process!

Investors Group Variable Mortgage Rate at 1.99%, Is it Right For You?

Investor’s Group has launched a 1.99% three year variable mortgage rate special. This is the lowest rate in Canada, in fact it is 35 basis points below the next closest rate offer from any Canadian bank or lender.

Many are asking how Investors Group can offer a rate significantly lower than all their competitors. There are no economics to justify pricing this low but IG has confirmed that it is a self-funded product. IG claims to have a big block of funds that it needed to lend out at this rate, and wanted to make a big splash in the mortgage market. Funds could last for three weeks or three months depending on lending volume. Many experts believe IG is taking a loss on these funds to take advantage of upselling to these new clients.

investors group offers variable mortgage rate at 1.99%

The Product

The mortgage is a no-frills product. This means it is fully closed, not portable, and you must sell the property to break the mortgage. These restrictions are similar to what BMO offers on their low rate 5 year fixed product and are rarely a good choice for consumers. Having a low rate is one thing, but being forced to sell your home in the event of a life changing experience is far too restrictive for home owners.

Sure, this rate looks great today, but what happens when rates start going up? If you decide to lock into a fixed rate, they are going to lock you into IG’s posted rates, which are going to be significantly higher than best rates. If you decide to change lenders to find the best rate, you will need to pay legal and registration fees again.

The Breakdown

The Good

  • Prepayment Options: 15% lump-sum annually, 15% annual payment increase and double-up payments

The Bad

  • Lock-in Option: Lock into a fixed rate at any time but only at posted rates
  • Refinances: Not allowed
  • Early Renewals: Not allowed
  • Early breakage: Not allowed unless due to a bona fide sale of the property
  • Registration: Collateral charge which means you will have to pay legal fees to switch to a new lender upon maturity.

On the outside looking in this is a fantastic rate and unprecedented dropping below the 2% threshold but to make certain this product is right for you, talk to a mortgage broker and consider the restrictions and how these may affect you today and down the road. Rate is not everything when shopping for the best mortgage for you, always consider all the product features being offered and don’t overlook the fine print!

CMHC Mortgage Product Changes

CMHC announced on April 25, 2014 that they are discontinuing both the Second Home and Self-Employed mortgage insurance products effective May 30, 2014. These two programs have been available to Canadians for approximately 7 years but account for less than 3% of CMHC’s insured business. Given the limited use of these products, the cancellation of these programs is not expected to have a significant impact on the housing market.cmhc mortgage product changes

The self-employed program allowed business owners to qualify for a mortgage without proving their income. An applicant with great credit could qualify for a mortgage before being able to prove their income by traditional sources. Self-employed Canadians can still qualify for CMHC insured financing with a validation of their income using traditional methods.

The second home program allowed applicants to have two insured mortgages through CMHC, one for a principle residence and one for a second home or vacation home type property. Applicants will no need a minimum 20% down payment for a second home or apply for an insured mortgage through Genworth Canada and Canada Guaranty.

These two programs will continue to be available from both Genworth Canada and Canada Guaranty as both companies have given no indication that they will follow CMHC’s lead at this time.

CMHC Second Home and Self-Employed programs will remain available for new mortgage loan applications submitted to CMHC before May 30, 2014, regardless of the closing date of the home purchase.

Canadian Home Prices vs U.S. Home Prices

The Canadian housing market has proven to be consistently strong over the past 15 years even through a global economic down turn. A significant gap between the average price of a home in Canada and the United States has widened to record levels according to Bank of Montreal’s chief economist Doug Porter.

canada-vs-us-home-pricesAverage Canadian home prices were 66 percent above average U.S. home prices during the first three months of 2014 based on prices for existing houses and condos. Never in the history of these two great nations has a gap like this occurred. The U.S. housing market always led Canadian housing until the downturn in 2006. Do we believe housing in Canada is truly worth 66 percent more than housing in America? Absolutely not! Although we know U.S. housing is currently undervalued and on the rebound in many markets this is still cause for concern. Many snowbirds and Canadian real estate investors have headed south of the border to buy homes, and why not, at a 66 percent discount and nothing but upside on the horizon it just makes sense.

Canadian home prices seem to be at a peak, flattening out, with many major markets forecasting a slight price correction. We don’t expect any major down turn but a small price adjustment is in order to keep our economy healthy. New housing starts in Canada fell 18 percent in March indicating the real estate market may be headed for a soft landing rather than a steep correction.

Mortgage Week in Review – April 13-19

jim flaherty passes awayThe previous week ended with sad news as many across the country were shocked when it was announced that former Finance Minister Jim Flaherty had died at the young age of 64. Flaherty died just three weeks after resigning from cabinet and was laid to rest this past Wednesday with family, friends, and colleagues paying their final respects at Toronto’s downtown St. James Cathedral. Flaherty will go down in history as one of the best finance ministers in the history of the not only Canada but the world as he lead Canada through the world economic down turn with minimal damage and one of the strongest economies in the world! He will be missed!

The other big mortgage news this week comes from OSFI and the release of the proposed mortgage rule changes. The guidelines are directed at the country’s three mortgage insurers which include Canada Mortgage and Housing Corp (CMHC), Genworth MI Canada, and Canada Guaranty. The proposed rules have been released for public consultation until May 23.

osfi b-21 proposal

The changes proposed are not significant but will provide clarity about best practices in respect of residential mortgage insurance underwriting, which will contribute to a stable financial system. The most significant change will be eliminating cash-back down payments on insured mortgages which were only being done by select credit unions but borrowed down payments will still be allowed. Overall the main focus will be a higher level of scrutiny on Lenders’ underwriting with heightened focus on the consistency of underwriting decisions.

In conclusion we don’t see any significant impact to mortgage lending but foresee a stronger finance system and more consistent lending guidelines across all lenders.

Is Canadian Housing Still Affordable? See Where Your City Ranks…

In many major markets an average income family can no longer afford an average priced home according to analysis carried out by www.lowestratecanada.com. Toronto and Vancouver are famous for their high housing prices but many other cities are becoming less affordable too. In these large cities, average earners have basically no choice but to buy a condo, or stay out of the housing market completely.

Canada Real Estate Affordability

Our research took into account the average real estate selling price as calculated by the Canadian Real Estate Association (CREA), average household income provided by Stats Canada, and the average maximum qualifying mortgage amount as calculated by our Canadian mortgage professionals. From here we calculated a ratio based on the average selling price compared to the maximum mortgage approval amount.

Of the 15 major cities in Canada we researched, 4 fell into the “unaffordable” category meaning the average sale price was more than the maximum mortgage approval amount an average income will qualify for. Two cities fell into the “borderline” category as their prices were right at the breakeven point for qualification and nine cities were still consider “affordable”.

View our results and see where your city ranks for affordability…

MOST-UNAFFORDABLE: Vancouver, B.C.
Average price of a real estate: $846,978
Average household income: $68,970
Maximum mortgage for average household income: $316,000
Average price to maximum mortgage approval ratio: 268%

UNAFFORDABLE: Toronto, Ontario
Average price of a real estate: $553,193
Average household income: $69,740
Maximum mortgage for average household income: $320,000
Average price to maximum mortgage approval ratio: 173%

UNAFFORDABLE: Victoria, B.C.
Average price of real estate: $483,720
Average household income: $79,350
Maximum mortgage for average household income: $373,000
Average price to maximum mortgage approval ratio: 130%

UNAFFORDABLE: Hamilton, Ontario
Average price of a real estate: $398,239
Average household income: $78,520
Maximum mortgage for average household income: $368,000
Average price to maximum mortgage approval ratio: 108%

BORDERLINE: Calgary, Alberta
Average price of a real estate: $460,338
Average household income: $93,410
Maximum mortgage for average household income: $450,000
Average price to maximum mortgage approval ratio: 102%

BORDERLINE: Montreal, Quebec
Average price of real estate: $320,993
Average household income: $69,150
Maximum mortgage for an average-earning household: $317,000
Average price to maximum mortgage approval ratio: 101%

AFFORDABLE: St. John’s, Newfoundland
Average price of real estate: $337,304
Average household income: $83,020
Maximum mortgage for an average-earning household: $393,000
Average price to maximum mortgage approval ratio: 86%

AFFORDABLE: Saskatoon, Saskatchewan
Average price of a real estate: $335,562
Average household income: $84,730
Maximum mortgage for average household income: $402,000
Average price to maximum mortgage approval ratio: 84%

AFFORDABLE: Edmonton, Alberta
Average price of a real estate: $359,973
Average household income: $91,860
Maximum mortgage for average household income: $441,000
Average price to maximum mortgage approval ratio: 82%

AFFORDABLE: Winnipeg, Manitoba
Average price of a real estate: $264,636
Average household income: $74,040
Maximum mortgage for average household income: $344,000
Average price to maximum mortgage approval ratio: 77%

AFFORDABLE: Halifax, Nova Scotia
Average price of real estate: $282,285
Average household income: $78,690
Maximum mortgage for an average-earning household: $369,000
Average price to maximum mortgage approval ratio: 77%

AFFORDABLE: Ottawa, Ontario
Average price of a real estate: $354,619
Average household income: $97,010
Maximum mortgage for average household income: $469,000
Average price to maximum mortgage approval ratio: 76%

AFFORDABLE: Regina, Saskatchewan
Average price of a real estate: $300,667
Average household income: $88,750
Maximum mortgage for average household income: $424,000
Average price to maximum mortgage approval ratio: 71%

AFFORDABLE: Quebec City, Quebec
Average price of real estate: $263,239
Average household income: $79,140
Maximum mortgage for an average earning household: $372,000
Average price to maximum mortgage approval ratio: 71%

MOST-AFFORDABLE: Saint John, New Brunswick
Average price of real estate: $162,556
Average household income: $70,610
Maximum mortgage for an average-earning household: $325,000
Average price to maximum mortgage approval ratio: 50%