Toronto Condo and Real Estate Blog

One mortgage broker seems to think so. Here’s why.

Rob Carrick -  Globe and Mail

Jas Grewal’s reaction to the recent runup in interest rates was to abandon a sweetheart of a variable-rate mortgage in favour of a safer, but more expensive, fixed-rate mortgage.

Mr. Grewal, you should know, is a mortgage broker. A mortgage broker who sees the potential for much higher rates in the future.

“I’m fairly conservative and I’m locking in,” said Mr. Grewal, of the Mortgage Centre in Toronto. “Rates are starting to spike and I think they’re going to continue.”

Variable-rate mortgages like the one Mr. Grewal has are unaffected by rate increases over the past couple of weeks. But fixed-rate mortgages are on the rise, and he’s worried about a pervasive trend toward higher borrowing costs. He may have a point — it may be time to bail on that variable-rate mortgage and lock in for the longer haul.

Ultralow rates are a big reason why there are signs of life in the housing market. Sales activity and prices have been rising this spring; the average resale price of a home sold in May was nearly $320,000, according to the Canadian Real Estate Association, bringing prices back to where they were before last fall’s financial meltdown.

But rates are ticking up again. Five-year mortgages with a juicy discount applied are now going for about 4.3% after a pair of two recent rate increases that lifted them off historical lows in the 3.7% range. Meanwhile, the prime rate, used as a base rate for variable-rate mortgages, continues to sit at 2.25%.

Mr. Grewal’s concern is that rising inflation will send short-term interest rates soaring to a point where a five-year mortgage at today’s rates will look like a comparative bargain.

Statistically, variable mortgages are a better deal than fixed mortgages 88% of the time, Mr. Grewal said. “But I think we’re in that 12% zone right now.”

Whether you’re thinking of locking a variable rate into a fixed-rate mortgage or of renegotiating a mortgage you took out years ago to benefit from lower rates today, you have some thinking to do about rising borrowing costs.

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Contact the Jeffrey Team for more information  -  416-388-1960

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By Mario Toneguzzi

First-time home buyers are primarily concerned with affordability when choosing a new home, but their expectations may be too high relative to their current financial buying power, says a survey by real estate firm Coldwell Banker.

The survey was conducted among the company’s brokers and sales representatives in markets across North America.

Nearly half of the survey respondents reported that affordability was the top concern for first-time home buyers, but 82% of this group also consider move-in conditions to be very important when searching for homes. Only seven per cent are looking to buy fixer-upper homes that they could buy at a lower price and renovate themselves.

“In the past, first-time home buyers were willing to purchase older, more basic houses in an effort to save money and break into homeownership,” said John Geha, president of Coldwell Banker Canada. “Today, this group has greater home expectations because they have grown up accustomed to their parents’ lifestyles. It is important for first-time home buyers to remember that by considering a fixer-upper for their first home purchase, they can build equity over time and move up and into a second-stage home that better reflects their expectations.”

According to 29% of Coldwell Banker brokers and sales representatives surveyed, first-time home buyers were more concerned with down payments 10 years ago than anything else while only 23% said this is the biggest concern in today’s market.

Some other key findings from the survey include:

- 70% of respondents said first-time home buyers are looking for larger homes than they were 10 years ago;

- 38% said proximity to work is the top priority for first-time home buyers;

- 33% said investment is the top reason for first-time home buyers in making their purchase; and

- 46% said first-time home buyers look at five to 10 homes on average before making their purchase.

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Contact the Jeffrey Team for more information  -  416-388-1960

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Mortgage rates have surged in recent days, but that doesn’t mean you can’t still cut your costs

Roma Luciw – Globe and Mail

The days of ridiculously cheap mortgage rates appear to be over. Now they’re just cheap.

A sudden and dramatic jump in rates last week means Canadians looking to break their existing mortgage and refinance at a lower rate may have missed the sweetest spot in recent history. But that doesn’t mean people can’t still trim their payments.

“We are not going to see these rates again for a while, not in the immediate horizon and maybe never,” says Gary Siegle, a Calgary-based manager at mortgage broker Invis. “But rates are still at historical lows. Depending on what your penalties are, there is still money to be saved.”

Toronto-Dominion Bank kicked off the hiking party, raising its five-year closed mortgages – the one of the most commonly chosen by Canadian homeowners – by a whopping 0.4% to 5.85%.

That hike, its biggest in nearly a year, is on top of a 0.2% increase unveiled last week by TD and several other big Canadian banks. Three other big banks followed in TD’s footsteps and raised their posted rates in the last twenty-four hours, and other lenders are expected to follow suit.

With interest rates floating near generational lows, Canadian home owners who locked in last week may have been fortunate enough to negotiate a fixed-rate five-year mortgage as low as 3.65%. “Clients who locked in during the last few months will enjoy the benefits of rates lower than any we have ever seen,” says Eric Iankelevic, a mortgage agent with mortgagebrokers.com in Toronto.

Although no one knows where interest rates are headed, the consensus is that they are unlikely to be this low again for a long time.

“These are really emergency interest rates but emergencies do not last forever,” says CIBC World Market economist Benjamin Tal. “I do think that interest rates will rise, I don’t think it will happen in the very near future but three, four, five months from now they will be higher. Definitely a year from now they will be higher. And in two years, they could be notably higher.”

The stunningly low interest rates have led many Canadians to break their existing mortgage and get in at a lower rate. Mortgage brokers say that despite the penalties associated with it, a massive chunk of their recent business has been refinancing existing mortgages. And despite the latest jump in mortgage rates, they don’t expect that to change.

Kim Arnold, a mortgage consultant with Dreyer Group Mortgages in Vancouver, says with mortgage rate still well below their historical norm, it is still a good time to look at refinancing.

The decision to break an existing mortgage depends on the penalty, as well as how many years are left on the existing mortgage. It might, for instance, make more sense to break a mortgage with a year left on it as opposed to one with four years left.

“It is not always worth it,” Ms. Arnold says. “It depends on the lender and it depends on the penalty.”

Penalties for breaking a mortgage loan can be either the greater of three months’ interest or the difference between the interest the bank could make on your mortgage as originally arranged versus lending money out at current rates. Most recently the so-called interest rate differential, or IRD, is the larger penalty and the one many lenders use.

All of this is specific to the lender and subject to negotiation. In some cases, banks will do a blended rate, which blends the existing mortgage with the lower current rate. At the end of the day, home owners may or may not end up paying less interest than if they had stuck with their current mortgage.

Mr. Iankelevic says some of the best deals out there are the variable-rate mortgages. Given that the Bank of Canada has said interest rates are likely to remain unchanged until the second quarter of 2010, a variable rate can provide huge savings for home owners who can stomach a little risk.

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Contact the Jeffrey Team for more information  -  416-388-1960

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