Interest-ing times

Bank of Canada’s overnight lending rate exposes disparities in Canada’s housing markets

The Bank of Canada’s decision to leave its overnight lending rate unchanged at 0.5 per cent is expected to have vastly different impacts on markets across the country, say experts.

The bank’s decision to stand pat on the rate it established last July instead of downgrading it by 0.25 per cent will do little to help revive what’s expected to be a sluggish economy in 2016, said BMO Financial Group chief economist Douglas Porter in an interview with CREB®Now.

“It’s certainly not going to be enough to turn around Calgary,” he said. “Is it enough to revive the Canadian economy? No, a quarter point is not going to do it. But there’s only so much a central bank can do without risking other things, and I think we’ve seen those risks in the past year.”


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A record year for Mortgage360

Economic uncertainty not translating to fewer mortgages

You would think that given the economic climate, the amount of mortgages a brokerage is funding would be down. Yet that isn’t the case.

While the number of real estate transactions may be down, the number of mortgages being completed by Mortgage360 is up.

This year has been a record one for Mortgage360, with it funding more mortgages in the first six months than any other previous year – even with the economic uncertainty that has plagued Calgary’s oil industry.

Mortgage360’s ability to outperform the industry has to do with several factors.

First, it aligned with a great charity called Mealshare earlier this year. Every mortgage Mortgage360 now does provides 100 meals to people in need. We think that’s pretty cool. Apparently, so do our clients.

Working with an awesome charity isn’t the only reason it has been a good year. Mortgage360 has found many energy sector workers who applied for mortgages in late 2014 or early 2015 and decided to wait to purchase, either hoping that home prices would fall or uncertain of their employment situation going into 2015, have realized the sky isn’t falling. Now, they are following through with their home purchases.

What is interesting about our numbers, however, is the percentage of people borrowing under $500,000 has increased, while the percentage borrowing over $500,000 has decreased.

This is likely due to the low supply of moderately priced housing, combined with positive net migration. In other words, moderately priced houses are still selling.

Having the Bank of Canada cut interest rates twice since January also helps, sending a clear signal to buyers that a favourable lending environment is here to stay for a long period of time. My guess is if you have a variable-rate mortgage it is likely it will stay below the current five-year fixed rate for the entirety of the term.

The reality is five-year fixed mortgages in Canada are really just five-year adjustable rate mortgages that mascaraed as a safer alternative to a variable. At the end of five years, the rate adjusts anyways. That’s why Mortgage360 is placing its bets on variable-rate mortgages where the client will qualify for them.

For those who aren’t sure about variable rates, Mortgage360 has also introduced the made-to-measure mortgage into its repertoire. The made-to-measure can be any combination of fixed and variable-rate mortgages.

Say, for example, you are not entirely comfortable with variable rates. You could have 70 per cent
of your mortgage in a fixed rate and 30 per cent variable. This combination would allow you to reap the benefits of a variable for a portion, but still have the perceived safety of the fixed.

The great things about the made-to-measure mortgage is you can choose any split between variable and fixed, and the product is available to everyone, including first-time homebuyers who only have a down payment of five per cent.

Speaking of first-time homebuyers, 61 per cent are now consulting a mortgage broker according to the Canadian Association of Accredited Mortgage Professionals’ Profile of Home Buying in Canada. Young consumers are quickly realizing that if Uber can get you there faster and cheaper than a taxi, a mortgage broker can get you a mortgage faster and cheaper than a bank.

Nolan Matthias holds a Bachelor of Arts Degree in Economics, is the co-founder of Mortgage360, and the author of The Mortgaged Millionaire.

* This content was produced by CREB®Now’s advertising department, in consultation with Mortgage360. CREB®Now’s editorial department was not involved in its creation.

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Looking beyond variable mortgages

Short-term fixed re-emerging as alternative

nolanVariable rates are back in fashion after the Bank of Canada lowered the overnight  lending rate in January, and economists expect another decrease in the near future.

Yet, even though variable rates make sense, most borrowers are still leaning toward fixed-rate mortgages for no reason other than certainty. Consumers like to know what their mortgage rate is going to be.

The good news is there are options for risk-averse borrowers who don’t want to dive into the variable-rate waters, but still want the low rates that come with the floating products. (more…)

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Mortgage misconceptions

Why interest rates are not the only consideration

nolanThe common misconception is all mortgages are created equal –  the only piece you have to pay attention to is the interest rate.

 That couldn’t be further than the truth.

In fact, if you consider the mortgages of the five big bank – RBC, BMO, TD Canada Trust, Scotiabank and CIBC – the only commonality is the interest rate. The 20 or so pages that make up the rest of the mortgage document are completely different.   (more…)

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Three simple rules for revenue properties

There’s more to it than just buying a condo

nolanIn last week’s column, I discussed a client who recently purchased a rental property that will    return 17 per cent annually on just the cash flow and mortgage repayment.

That’s a pretty good return, especially when considering that return will increase as more principal is paid down, and as the property starts to appreciate in value.

However, there is more to consider than just buying a condo and renting it out. Our client is a smart buyer who followed three basic rules when it came to buying her investment property. While these rules are simple, they are also important. (more…)

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