Mortgage rates were slightly higher today, marking the 6th day in a row where they’ve reversed course versus the previous day.  This is the sort of behavior we see when underlying financial markets are having a hard time making up their mind (or are simply waiting for something before committing to the next big move).

In the case of mortgage rates, the underlying financial market is the bond market.  There are specific bonds that most directly affect mortgage rates, but they are almost always moving in the same direction as other bonds anyway.  That allows us to use something like the 10yr Treasury yield to keep an eye on interest rate momentum.  There we see yields locked in an increasingly narrow range since the beginning of the year.

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Posted To: MBS Commentary

Since Retail Sales rocked markets yesterday, perhaps bonds would be interested in responding to economic data again today? This question seemed to have been answered when bonds apparently jumped following this morning's 8:30am economic data. The only problem was that the data in question included NY Fed Manufacturing and Import/Export Prices. These are not reports that tend to cause such immediate and highly correlated movement. So what gives? For better or worse, I stare at a tick by tick stream of bond data for most of the day. Anyone else who spends their lives in such a manner would also surely have seen bonds on the move in 2 distinct ways well in advance of 8:30am. The first was a more general move that began with the European trading session. While it was general and relatively slow…(read more)

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Blog Image, Feb 12, 2018

I reviewed some recent stats that explain how overall mortgage growth has fallen to its lowest level in the past 17 years!

Overall, mortgages outstanding across Canada total more than $1.5 trillion. And, while this total continues to increase year over year, the rate of growth has decreased. We should pay attention to this!

Typically, when we experience lower mortgage growth or no growth at all, house prices will follow suit and come down.

But, why aren’t the banks up in arms over this given that they make huge profits by lending money? (More on this below.)

MAYBE IT STARTS OUT WEST?

Vancouver could be the first major casualty. January 2019 sales were down 39% over January 2018, while listings were up 55% in January 2019 vs January 2018.

Sale prices are down more than 7% in the past six months.

The Canadian Real Estate Association (CREA) is putting some of the blame (I’ll say a lot!) on the Trudeau government’s infamous ‘stress test’. Next at fault are the interest rate hikes of around 1.3% over the past 18 months. And now you have a qualifying interest rate that jumped 3.3% higher than it was just a few years ago – artificially inflated by the stress test.

We can also add in the incredibly strict new rules that govern non-bank lenders. The Trudeau government brought down the hammer when it came to getting a mortgage. It was like they didn’t want anyone to get a mortgage for any purpose other than when buying an average – or perhaps even a below-average priced home… What do you think?

TORONTO SEEMS TO BE DOING OK

Interestingly, Toronto has fared pretty well. Prices, number of sales and amount of listings are all showing a healthy market… for now.

BEFORE 2016 TRUDEAU GOV’T MORTGAGE RULE CHANGES…

Prior to 2016, there was true competition in the market. You could buy a home for more than a million dollars and negotiate the best rate at any bank, trust company, credit union and other non-bank lenders. Today, most lenders can’t offer competitive rates on mortgages where homes are worth more than a million dollars… even if you borrowed as little as $200,000 (read on to understand more).

Before 2016, you could refinance your home, use some of the equity to finance a business, or purchase another property, or invest… AND, you could shop around through your mortgage broker at more than 50 competing lenders for the best rate.

You could finance the purchase of a single-family dwelling for the purpose of renting it out as an investment (maybe buying for your future, or perhaps to house a child going to university)… AGAIN, shopping among more than 50 competing lenders.

In 2016 and 2017, things really changed for all Canadians seeking or already in a mortgage.

You would think that having a bigger down payment would get you the best rate, right? And if you had little to no mortgage on your property, you would think this would entitle you to the best rate, right? Unfortunately, not anymore!

If, for example, I had a home worth $700,000 with a $100,000 mortgage but I wanted to borrow another $200,000 to invest in a business, mutual funds or vacation property, that I would have no problem getting the best mortgage rate and I could shop around at the more than 50 available competing lenders in Canada, right?

Guess again! The new mortgage rules don’t provide certain lenders with the ability to compete like this other than for the purpose of buying a home that costs less than a million dollar. This is the new reality: Less competition for the Canadian consumer.  How is this a good thing? It’s not! Not for the consumer, anyway… but there is a winner here… read on.

In 2017, while claiming to want to support low- and middle-income earners, we saw Canada Mortgage and Housing Corporation (CMHC) mortgage insurance premiums go up by 12% to 15%. Why? No inflationary reasons… leading some to assume a cash grab, perhaps?

I won’t get into all the mortgage rule changes here. There are more than 60 of them! But these are just some of the more obvious ones that cause me and many others to shake our heads in wonder!

AND THE WINNER IS… THE BIG SIX BANKS

Now, let’s get back to the winner of all the rule changes. Yup, the big six banks. So, while overall mortgage volumes have slowed, the mortgage volumes for the big six banks have skyrocketed over the past three years. The mortgage rule changes that were supposed to “benefit and protect Canadians” have benefited the BIG SIX BANKS and protected them from competition.

The consumer has less mortgage competitors from which to choose, meaning fewer products are available. Prior to 2016, there was a healthy balance of competition and profit. The end result is that consumers are now paying higher rates.

And we’re now seeing a growing secondary lender community emerging (this means higher interest rates). When you  need money, you’ll do whatever it takes… to finance your family, business, a loved one’s healthcare or other numerous reasons for needing a mortgage. You won’t just go away quietly – you’ll find that money. Even if it costs you more, you still need that money!

But how is it that our mortgage industry was so strong… record low defaults, performing loans and profitable mortgage lending companies for decades prior to any rule changes? What makes their business practices bad all of a sudden?

This is where so many experts have tried to reason and speak out against this madness. We’ve had so many industry associations visit Ottawa in a desperate attempt to halt and reverse the federal government’s course of action – including mortgage broker and real estate professionals – but it has all fallen on deaf ears. They don’t want to hear from the experts!!

THE GOOD NEWS…

Here are some positives takeaways. As this is an election year, we’ve seen some posturing by the current federal government hinting that they may modify the stress test.

I’ve been saying for a few years now that if housing slows too much or the government realizes that the pendulum has swung way too far towards safe lending, that you’ll finally see some back-tracking on the changes.

As someone who has held senior management positions at Canada’s biggest banks and trust companies, and as an industry insider, I’ll share one of the golden rules of lending: If you have no arrears (defaults) then your underwriting guidelines are far too tight. There is no such thing as having no arrears. Perhaps the government is aiming for perfection?

Let’s get back to common-sense lending. Leave the lending and underwriting to the experts!

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; Steve@CanadaMortgageNew.ca genews.ca

By Rick MacDonnell for GoAuto.ca

Getting a good interest rate with your auto loan involves a lot more than just having a high credit score. Your credit score is the most important piece of the puzzle, but other factors will affect your interest rate, too: the length of your loan, the age of the vehicle you’re buying, and even the state of the economy can impact the terms of your finance agreement.

Getting a low-interest rate isn’t always easy. But there are several things you can do to help your case. Things that really work. We know because we’ve seen them work. At Go Auto, we’ve approved more than 300,000 people for auto loans, ones that work for the customer’s lifestyle and budget.

So today, we’re going to help you understand six factors (other than credit) that are affecting your interest rate so that you can get the lowest rate you can the next time you buy a vehicle.

  1. The Age of the Vehicle

It may seem counterintuitive, but loans for used vehicles often have higher interest rates than new vehicles. For example, the best possible finance rate for new vehicles on GoAuto.ca is 0%, while it’s almost impossible to finance a used vehicle, at any dealership, with less than 4.99% interest.

Why? Because by the time you purchase a used vehicle, it’s already depreciated in value. In most cases, by tens of thousands of dollars. Because of the lower price of used vehicles—and since it costs money to buy, refurbish, store, and market used vehicles—the dealers will recoup some of that cost with a higher interest rate. Also, used vehicles often come with shorter loans, which means dealerships will earn less. A slightly higher interest rate helps them here, too.

  1. The Length of Your Loan

The shorter the loan you take out, the better your interest rate. This is because the bank will receive their money faster, which is good for them. In order to encourage people to take out shorter, more reliable loans, they offer up better rates as a lure.

Another benefit of a shorter loan is that you’ll end up paying less money in interest. 60/72/84-month terms will come with smaller payments, but you’ll be paying them off over a longer period of time.

Want to see how terms and interest rate affect your monthly payment? Try Go Auto’s car loan calculator.

  1. Your Debt-to-Income Ratio

Simply put, the more money you owe to outstanding debts, the less likely you are to repay those debts on time. At least, that will be the perception of you from lenders. If this is the case, they won’t view you as a reliable borrower, and your auto loan interest rate could suffer as a result.

However, the banks will also factor in the amount of money you make. The higher your salary (or, more specifically, the more money you have available after monthly debt payments), the more confidence they will have in you to pay them back on time.

The comparison of your debts to the money you make is known as your debt-to-income ratio. The better this ratio, the lower your finance terms will be when you buy a vehicle.

  1. Your Down Payment

Anything you can do to convince the banks that you’re reliable with money, do it. This includes placing a down payment. It doesn’t have to be a huge sum, either. If you put $3000 on a $30,000 vehicle, that’s just 10% of the cost, but it shows the bank that you’re capable of saving. You appear more responsible, and they like that.

That being said, the more money you can put down the better. Your interest rate will be better, and the amount you’ll have to finance will be smaller. It’s a win-win. But many of us aren’t in a position to save thousands of dollars to put towards a car purchase, so just save what you can and do your best. Even putting $500 is better than nothing.

It also should be noted that if you’re having a hard time getting approved for a high-interest loan, a down payment can often be the difference between an approval and a denial.

  1. Economic Strength

When the economy is doing well, businesses can take the money they’ve earned and invest it in financial institutions that will produce a solid return. If these invests occur in the credit industry, the supply of credit will be higher than normal. This, in turn, will lower consumer lending rates because the risk is lower.

  1. Economic Inflation

Inflation is the degree to which prices of goods increase in an economy. In order to counter rising costs during periods of inflation, lenders can raise their rates. When the opposite is true—say, when inflation is lower—lenders are more willing to lower their rates.

 

To sum things up, not everything about your car’s interest rate is within your control. But a good amount of it is, so make a plan that’s reasonable for yourself and dedicate yourself to it. There are many ways to improve your credit, but there are other things you can do to help your situation, too.

Find the right vehicle for your financial situation, choose the best payment term you can realistically afford, pay off your debts on time (and when you can, in full), and save up for a moderate down payment. You don’t need to do all of these things, but every little bit helps.

The Canadian housing market softened in January, according to the latest figures from the Canadian Real Estate Association (CREA), with fewer sales and lower prices compared to January 2017. The national average price fell by 5.5% year-over-year to $455,000 (excluding the Greater Toronto and Vancouver areas, the average property price is $360,000). “Sales, market balance […]