Randy Miller

Broker Of Record

Urban Avenue Realty Ltd., Brokerage

Whitby & Brooklin Real Estate

Office 905-430-1800

Direct 905-430-9444

Email: randy@randymiller.ca

Categories

Negative Financial Headlines

Canadian mortgages in arrears (homeowners who have gone 3 or more consecutive months without making a payment) have been and are extremely low.   They are historically less than 0.5% (actually Canada’s current average sits at 0.29%, Ontario sits at 0.18%, with Alberta at 0.27%!) Even through the most recent couple of 'financial crises', there was no blip in this number.   

This is a tiny fraction of the US statistic; however, common opinion leads us to believe otherwise.   There are a number of fundamental differences between the two countries'   banking and mortgage lending systems.   One difference is that most mortgages in the US are 'non-recourse', meaning you can walk away from your house and owe nothing beyond that asset's worth.   In Canada, you are liable for the entire debt, and this is a great incentive to do everything possible to make that mortgage payment.    

Canadian mortgage lenders are prudent; their goal is not be stuck with a property. Banks are not in the property ownership and management business, so it is in their best interest to make sure borrowers can make their mortgage payments.  Mortgage default insurance facilitates lenders to make more risk-based decisions, opening up the mortgage lending market to more consumers (including rental property, which is always viewed as more risky since it is assumed an owner will pay for their own housing first before covering the payment on a home they do not reside in). If a consumer falls into temporary financial hardship, there are assistance programs available from the mortgage insurers, with the goal of avoiding a default and lender having to take over the property.

Canadians with mortgages have significant equity in their home, averaging about 74% of the home's value.   In addition to that, a 2014 survey found that 16% of mortgage holders have   increased their mortgage payments, and 16% made an additional lump sum payment in the last year. From the headlines, you would think an epidemic has swept across our country with low-equity home ownership being the norm.   

Canadians, in general, are conservative with their money and the statistics show many are sitting on a healthy amount of wealth.  Naturally, there is the demographic at the beginning stages of their home ownership journey who have lower equity.   However, there a many mortgage regulations in place designed to qualify these applicants accordingly, along with mandatory mortgage default insurance for those with low down payments.   

There is much discussion today about how hard it is for first time homebuyers to qualify for a mortgage, due to these regulations which have become increasingly more strict, so it is plausible the government may realize the effects of their decisions and loosen up the reins in order to maintain balance in the housing market and economy.

Another statistic demonstrating that Canadians, overall, are conservative with their money is that 60% of Canadians pay off their credit card balance in full each month, avoiding credit card and interest payments altogether.   The truth is, no matter how many rules and regulations are implemented,   there will always be financially irresponsible people.   The headlines like to focus on this group, and regulatory decisions appear to be swayed by these sentiments, lumping everyone into the same category, including savvy real estate investors who understand how to manage debt responsibly.   

In conclusion, headlines are designed to sell.    Not everything is perfect and positive all the time, but it certainly isn't the constant doom and gloom we read about.   The messages in the headlines are often inconsistent; one day something is up, and the next day it is down.   A savvy investor knows to look beyond the headlines, not get swept up emotionally, dig deeper, filter out the irrelevant chatter and figure out what really applies to them.
(Reference sources: Canadian Mortgage and Housing Corporation, Canadian Association of Accredited Mortgage Professionals, Canada Bankers Association, Bank of Canada)

If you are planning to buy a house in Whitby or Brooklin or other areas within Durham Region, contact me. I can help you with the buying process and refer you to a mortgage specialist that can explain the products and help you choose the right mortgage product. Let me help you every step of the way!

Randy Miller
Broker of Record

Royal Heritage Realty Ltd.
Offices in Pickering and in Whitby

905-430-1800
 

 

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red house mortgage rate

On the heels of headlines forecasting ‘inevitable interest rate hikes’ came the announcement of a 0.25% rate reduction to the Bank of Canada’s overnight lending rate.

The majority of Mortgage Brokers found themselves spending the first two work weeks of 2015 calming clients in the face of multiple headlines forecasting interest rate ‘shocks’ ahead. In turn, the past two weeks were spent explaining to variable-rate clients the subtle, yet important difference between the bank of Canada’s Prime rate and their mortgage lenders' ‘Prime’ rate.

Lenders base variable-rate mortgages on what is referred to as their own internal Prime rate. Although historically lenders have moved in lockstep with the Bank of Canada decisions, there was some initial reticence to lower effective interest rates on current variable-rate mortgages and after nearly a week without movement Lenders reduced their internal Prime rate from 3.00 to 2.85% sharing some of the Bank of Canada’s reduction with variable rate mortgage and line of credit holders, but not all of the rate reduction.

One important point is that the Bank of Canada’s Prime rate is specifically NOT used to qualify clients for mortgages. In other words, Canadians do not currently qualify for any more mortgage debt today than they did the day before the rate reduction announcement. Accordingly this reduction in interest rates does not directly strengthen purchasing power for home buyers, and thus should do little to add more fuel to real estate values.

It is further worth noting that, historically, as lenders reduce their own Prime lending rate on variable-rate products, the discounts offered on these products - mortgages, lines of credit, etc . tend to be adjusted upward, negating any potential gains for new mortgage applicants. Existing closed variable-rate discounts will of course continue to be honoured until the end of the client's mortgage term.

In short, although this rate reduction may bode well for clients currently in a variable-rate mortgage, it may not be of significant net benefit for clients applying for a variable-rate product in the coming weeks. Although today we have both deep discounts on variable rate products, and the new lower 2.85% Lender Prime rate. New applicants may have their cake and eat it too.

Fixed rates, although largely dictated by the bond market, have been edging downward since Jan 5. Despite this material and documented decline, there had not been a major headline noting this. Rather headlines were largely promoting the opposite of what was occurring in reality. The day that the Bank of Canada announced the cut of 0.25%, the bond market saw a (then) record low of 0.83% and has since dipped below 0.60%.

This has created significant increases in lenders' fixed-rate profit margins, and arguably calls for further rate reductions to fixed-rate products, in particular the five-year fixed-rate mortgage. However, as with the cut to Prime, lenders have thus far been slow to respond. Offering 0.05% and 0.010% reductions and reaping the increased profits. Lenders remain unlikely to make any significant moves until one breaks ranks. With strong property values coupled with strong sales activity in most major markets, there seems little incentive - or fundamental desire - on the part of lenders to reduce rates further.

What is evident at this time is that variable-rate clients will continue to be the big winners into the foreseeable future, and those clients who prefer a fixed-rate product will also continue to benefit from historic lows as well. 

If you are planning to buy a house in Whitby, Brooklin or other areas within Durham Region, contact me. I can help you with the buying process and refer you to a mortgage specialist that can explain the products and help you choose the right mortgage product.

Randy Miller
Broker of Record

Royal Heritage Realty Ltd.
Offices in Pickering and in Whitby

905-430-1800

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 Mortgage Rate War

The Globe and Mail reported this week that less than a month after the Bank of Canada’s surprise interest-rate cut, a renewed mortgage-rate war is in full swing. But, this time, it’s being driven by an unlikely source: smaller lenders.

Even as Canada’s big banks have cut rates to near three-year lows, small credit unions and mortgage brokers are going a step further, sacrificing profits in a fierce bid for new business.

Only weeks after the country’s banks began offering eye-popping specials such as 2.84-per-cent five-year fixed mortgages, the average discounted five-year rate offered by the Big Six banks now sits around 2.79 per cent, driving the spread between the bank’s posted rates and the rates that customers actually pay to levels not seen since 2012.

But in a cutthroat move to grow their share of mortgage originations, many smaller lenders and brokers are offering deep discounts off the banks’ already low rates. Several online brokerages are offering variable mortgages with rates below 2 per cent and five-year fixed mortgages as low as 2.39 per cent.

The battle for customers comes after the central bank dropped its benchmark rate last month to 0.75 per cent – and amid speculation of deeper cuts in the months ahead.

Concerns are mounting that low mortgage rates will add fuel to an overheated housing market and add pressure to an economy struggling with rising household debt. Earlier this month, North Peace Savings and Credit Union, a small credit union in extreme northeastern B.C., began advertising a seven-year fixed mortgage at 2.99 per cent, well below comparable offerings from major lenders for the same mortgage term.

The credit union can afford to offer such an attractive long-term rate in part because few people actually take seven-year mortgages and the company’s primary business is commercial lending to the region’s natural gas industry, North Peace chief executive Mitchel Chilcott said.

But the company, whose mortgages are entirely self-funded through deposits from its 12,000 customers, also opts to earn less profit and pay out fewer dividends in order to drive rates down.

In the past, members received cheques for $1,000 roughly 14 months after the start of every fiscal year. But about five years ago the company gradually began shifting toward boosting the rates on its high-interest savings accounts and lowering them on its mortgages.

“For most homeowners, having a $90 or $100 lower mortgage payment a month was a lot more meaningful and impactful than maybe getting money back 14 months later,” Mr. Chilcott said.

Other credit unions have followed a similar model, which has helped them grab more market share away from the banks. Banks lost more than 2 per cent of their share of the mortgage business last year, according to banking industry consultant David McVay, with some of that going to credit unions thanks to increased price competition.

The rate war is even more intense among mortgage brokers, many of whom are shifting away from the traditional full-service model that saw brokers spending hours working with clients to select the best mortgage and earning hefty commissions. These days, more borrowers are turning to online and “self-service” brokerages that compete on volume, offering less personalized service and sacrificing some of the commissions they earn from lenders in order to discount rates even further.

Not everyone is a fan of the model. Some are worried that with interest rates already so low, brokers are having to dig deep into their commissions to offer meaningful discounts, a model that some brokers argue could threaten the industry as a whole.

“The majority of people don’t like what we’re doing and it’s a troublesome thing for us to digest because ultimately it’s the best for the consumer,” said Jeff Mark, co-founder of Spin Mortgage, an 18-month-old online brokerage that is advertising a five-year fixed rate at 2.49 per cent, well below the typical bank rate, by sacrificing some of its commissions. “We make less money per deal. I don’t know how that isn’t a good thing for the market.”

Brokers would have to give up roughly 40 per cent of their commission from a typical five-year fixed rate mortgage just to offer a discount of 10 basis points, equal to a tenth of a percentage point, off the interest rate, writes broker Mark Kerzner in Canada Mortgage Trends. That’s a huge sacrifice to offer borrowers a small savings.

“It’s becoming hypercompetitive and there is only so much you can discount a rate before you make nothing,” said Robert McLister, founder intelliMortgageInc, a low-rate online DIY brokerage. “We’re rapidly, in my opinion, approaching a point where at the very deep-discount end of the market there’s not much left to give if you’re a mortgage originator and you’re considering giving up your commission to offer a better rate.”

Even so, the industry seems to be moving toward more discounting. Rising house prices mean borrowers have become hypersensitive to low rates and the advent of online rate comparison sites has only heightened

By TAMSIN MCMAHON - The Globe and Mail

Randy Miller
Broker of Record
Royal Heritage Realty Ltd.
Offices in Pickering and in Whitby
905-430-1800  

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low mortgage rates

Nearly half of Canadians are planning to buy a home in the next five years, survey says. More than 15 per cent are saying cheaper mortgage rates will allow them to make the purchase sooner than expected.


On 1 February 2015 The Globe and Mail reported: Younger Canadians, who are struggling with far more debt than their parents did at the same age, are the most likely to respond to falling rates. More than a fifth of millennials told a Bank of Montreal home buyers survey that they have shortened their time-frame for buying a home because of lower rates and 75 per cent said they were planning on making a purchase within the next five years.

Regionally, the demand among buyers is strongest in Ontario and Atlantic Canada, where the combination of low interest rates and cheaper oil prices are poised to put more money in the pockets of consumers. Nearly a fifth of residents told pollsters that they would speed up their home purchase because of low interest rates.

In contrast, just 13 per cent of residents in Quebec and 12 per cent in Alberta said lower rates were having an impact on their buying decisions. Plunging oil prices have made Alberta consumers more cautious about jumping into the housing market this year, while a high vacancy rates and a glut of newly built condos in Quebec is pushing more potential first-time buyers into the rental market, according to Desjardins Group.

Mortgage rates have been falling since last week, when the Bank of Canada shocked markets by cutting interest rates by 25 basis points ( a basis point is a hundredth of 1 per cent.) Lenders soon followed, with major banks dropping five-year fixed rates mortgages to as low as 2.84 per cent and this week cutting their prime rates by 15 basis points, which quickly pushed variable-rate mortgages among the Big Six banks as low as 2.25 per cent.

Many analysts had predicted that interest rates would rise this year, so the central bank’s unexpected decision to slash rates is widely expected to reignite the country’s cooling housing market. “Given the negative impact of lower oil prices on the Canadian economy, interest rates are likely to remain low for some time, supporting home sales, especially in Vancouver and Toronto where affordability is an issue”, said BMO senior economist Sal Guatieri.

But with mortgage rates falling only slightly and more Canadians telling the BMO survey they were planning to use lower rates to pay down their debt rather than load up on new ones, cheaper rates are expected to have a modest impact on the housing market.

Shortly before the Bank of Canada cut its target overnight lending rate, more than half of Canadians told an earlier BMO poll that cheaper rates would make them more likely to buy a home, though most said the drop would need to be 10 per cent or more to have a significant impact on their buying plans.

Source: Tamsin McMahon, The Globe and Mail

If a move is in your future, let’s sit down and talk about your plans. Contact me today!

Randy Miller
Broker of Record
Royal Heritage Realty Ltd.
Offices in Pickering and in Whitby
905-430-1800


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Whitby Brooklin Homes

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