But we already have 10 year rates! Look at this week’s rate update!
In a speech early this week, Bank of Canada Governor Stephen Poloz said that it is time for some fresh ideas for Canada’s mortgage market. He suggested that changes could include encouraging longer than 5-year duration fixed-rate mortgage loans, the creation of a market for private mortgage-backed securities and the launch of shared-equity mortgages for first-time homebuyers proposed in the March federal budget.
Taking these in turn, only two percent of all fixed-rate loans issued in 2018 had durations longer than five years. For borrowers, this would mean less interest-rate risk if they dealt with fewer renewals; however, this is not the full story.
Firstly, 65% of all 5-year mortgage holders break their mortgage by around month 33. Also, some banks and many mortgage brokers offer fixed-rate loans with durations of 7, 8, or even 10 years. However, the borrower pays dearly for this insurance against rising rates. Since the introduction of mortgage stress tests, many borrowers have trouble qualifying for loans as it is. Most want lower, rather than higher, monthly payments and demand for longer-duration mortgages is so low because they cost a full 100 basis points or more above existing 5-year mortgage loans. Besides, interest rates have been low and even falling over most of the period since 1982. Fear of significant rate spikes has diminished dramatically.
Poloz agrees there is some momentum in Canada towards the creation of a private market for mortgage-backed securities. He said it would provide a more flexible source of long-term funds for mortgages not insured by CMHC. To the extent that enhanced sources of capital would reduce the cost of funding for lenders, it might reduce the rate spread between 5-year and longer-duration mortgages, making them more attractive. But, again, perceived rate risk and the actual less than 5-year duration of most mortgages begs the question of why Poloz is providing an answer to a question no one is asking.
Indeed, data show that Millennials in Canada are buying homes in Canada’s most expensive cities. Royal Bank economists found that “apart from a short-lived slowdown in 2015 resulting from changes in the temporary foreign worker program, the population aged 20-to-34 in Vancouver, Toronto and Montreal has grown solidly over the last dozen years. …The inflow of millennial immigrants is poised to grow in the coming years. Canada will increase its annual immigration target from 330,000 in 2019 to 350,000 in 2021, and our largest cities will likely get the lion’s share of newcomers. In recent years, Vancouver, Toronto and Montreal together welcomed approximately half of all new immigrants aged 20-34.”
Finally, the shared-equity mortgage for first-time homebuyers may well prove to be unpopular. A similar program was offered in British Columbia a few years ago, and there were very few takers.
The BC Home Owner Mortgage and Equity Partnership program, introduced in late 2016, was cancelled effective March 31, 2018, due to lack of interest. The province anticipated that the program would provide 42,000 loans over three years. However, as of January 31, 2018, there were fewer than 3,000 loans approved.
The new federal program will provide a larger downpayment for first-time buyers, but it only applies to homes priced just over $500,000 or less, which might help in some parts of the country, but in higher-cost regions homes that cheap are slim pickings.
Canadians don’t want to share the equity gains in their homes, as most first-time buyers don’t imagine that their home equity could decline. Governor Poloz, himself, forecast in the same speech that he’s confident Canada’s housing market will return to growth later this year. Population and job growth has been rapid pointing to the resumption of growth in depressed housing markets later this year.
Poloz is a champion of the B-20 guidelines, saying they have done what they were intended to do–remove the froth from bubbly housing markets. During the press conference following his speech, reporters asked if the governor would support a reduction in the roughly 200 basis point spread between the qualifying rate and the contract rate to which he responded in essence– a resounding, no.
Here at HT Mortgage Group, part of Dominion Lending Centres in Grande Prairie, we understand. Call us from home, you don’t have to go outside to get a mortgage! Just call our office at (780) 513-6611. We are having a terrible coldsnap this week, Environment Canada even issued an Extreme cold warning for Northern Alberta. As I write this is it -36 C, but with Windchill it could dip as low at -47 C! Don’t risk getting frostbite, stay warm and call us from home!
Nowadays, you can send us payslips, T4’s, tax receipts and other income paperwork electronically. We use a secure documents portal to protect your confidential documents. You can ask your realtor to send over your purchase agreement and your MLS listing to us as well!
If you check out the Our Agents section, we have every one of our mortgage agent’s cell phone’s and email address’s listed, but just in case you don’t want to head over to another page to check them out here they are again:
|Cell: 780-831-9024||Web: www.pamelalobban.ca|
Call us from home, you don’t have to go outside when it’s this cold!
Our office is open Monday to Friday from 9am to 5pm – and we do have staff who are here, braving the cold everyday – if you like going outside in this weather. Our Keurig is ready to serve hot coffee to any intrepid customers who do visit us today!
It’s always exciting when we hit a milestone! This week we published the January 28th Mortgage Rates in Alberta and both Megan Lemay and Pamela Lobban have been with HT Mortgage Group for 10 years! We dropped the rate on our 7 year mortgage to celebrate! (Lol well no – we can’t control how lenders price mortgage rates, but it dropped anyway!)
I’d also like to point out that 7 year fixed mortgage rate – it’s very tempting! Recently lenders have been dropping rates little by little, but for the security of knowing exactly what I’d pay for the next 7 years I would be tempted by that 3.64%.
Of course when you choose to lock in a mortgage for 7 years there are a couple of things you should consider:
In conclusion, although 7 year rates provide a lot of security… they are really only suitable for you if you are very settled and content with the home you live in.
Did you know when you go to a national search engine like ratehub or ratefinder – they will show rates that may not be available to you? Maybe you need to live in a Large center like Calgary or Edmonton to qualify, or maybe that rate just doesn’t like contract income. It’s always better to search mortgage rates with a local company who knows what lenders will accept in your local community – because yes, the do change how they treat borrowers depending on where you live in Canada!
Give us a call today (780) 513-6611 to discuss what mortgage works best for you!
With the Bank of Canada in a mood to raise rates, it’s a similar feeling for the bond market, which impacts fixed rates. In every interest-rate market there are many factors leading to an increase and we are hoping to provide a little bit of clarity on what is happening and what it means to you and your loved ones. We tell you this in advance to be proactive to take care of you, as our mortgage family, so as you hear the news about the changes you have comfort we are here to lead with clarity.
At this time, we see fixed rates increasing as the bond market increases.
Why do we note this information and how does it relate to you?
Locking in won’t be for everyone, especially if you are making higher payments and your mortgage is below $300,000, which most people fit and will continue on that path. Also if your discount is more than .6 below prime you may want to wait and watch the market. Locking in will be around a 1% higher rate than you are likely presently paying. If knowing you can likely lock in around 4% now is most attractive to you, this may be your time.
Keep in mind that if you or someone you care about has an average mortgage of $350,000 and got it a few years ago at 2.49% now a qualified applicant can expect about 3.89% which is a payment increase of $254 dollars a month, so increasing your payment now will protect your equity, and you from future payment shock.
Please reach out to a Dominion Lending Centres mortgage professional so we can help ensure you or a loved is on the right path in our ever changing market.
In recent years the government has made it tougher to get qualified for a mortgage. Our staff here at Dominion Lending HT mortgage group in Grande Prairie are here to help. The most recent change took effect May 9, 2018 so take a peek at the link below to understand a little more about the recent changes.