Earlier this week Rob Carrick of the Globe & Mail wrote an article  Variable or Fixed? It’s no contest. As a regular observer and reader of mortgage news I am rarely enthusiastic about the media’s mortgage rhetoric however this week’s article was timely and perfectly expresses why in today’s market the fixed rate mortgage is king.  This coming from a mortgage broker who has arranged variable rate mortgage for the overwhelming majority of his clients.

To sum up why fixed rate mortgages are the way to go here are the highlight:

• Over the past 30 days lenders have decreased the spread on their prime minus mortgages due to thinning profit margins. Most variable rate mortgages today are priced at prime (3.00%) if you are lucky you might find prime minus 0.20 (2.80%).
• Fixed rate mortgages have held relatively steady since the end of August and a fixed 5 year is priced between 3.50%-3.60%.
• When variable rate mortgages were 2.25% 30 days ago vs. a fixed at 3.50% the difference of 1.25% was worth the risk of a variable rate mortgage for the majority of borrowers. Now that the difference between fixed and variable is only 0.50% it is difficult to justify the potential volatility of a variable rate mortgage.

Of course there may be reasons why a borrower would want to consider a variable rate mortgage under certain circumstances but today’s market is effectively pushing borrowers into fixed rate mortgages. Whats more I am anticipating a further drop to fixed rate mortgages as Canadian bond yields appear to be trending down wards which could cause a slight dip to fixed rate mortgages.

Here is a short history of Variable Rate mortgages discounts:

pre-financial crisis (2007): prime minus 0.9 to 1 percentage point (at best)

mid-financial crisis (2009): prime plus 1

post-financial crisis (2010-2011): prime minus 0.75 to 0.8

now: prime to prime minus 0.2

As was widely expected the Bank of Canada announced that they would keep the prime rate unchanged this morning. In the BoC’s press release which you can read here, the bank observed that the global economy has slowed significantly. The mood of households much like banks and business is to avoid risk and there is a conscious effort to avoid debt. The final interest rate announcement for 2011 is scheduled for December 6th.

What Does This Mean To You?
The retail bank prime rate remains at 3.00% so if you are in a variable rate mortgage or line of credit your payments will not change. Given the economic uncertainty it doesn’t appear that interest rates will be increasing significantly in the months to comes so if you are in a variable rate mortgage there is no need to lock in.

Good Time To Refinance
Given the low interest rate environment the coming months present a good opportunity to  refinance your mortgage. Fixed rate mortgages are priced around 3.39%. You may want to consider a refinance if:

• you have a fixed rate mortgage above 5%
•  your consumer debt (credit cards, lines of credit, etc) are becoming unmanageable
• you are considering a large rennovation
• you want to tap into your equity for a large expense or purchase of an investment

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It seems like the trend of the shrinking spread is continuing this week. (Say that 3 times fast) Today, a number of lenders indicated that the spread on their variable rate mortgages was poised to shrink again pricing variable rate mortgages at prime (3.00%).

The culprit seems to be narrowing spreads. The spread is essentially the difference between the rate offered by a lender to a client minus the lender’s cost to fund your mortgage. The lender’s base cost for variable rate mortgages is typically a 30 day bankers’ acceptance (BA) yield. The following graph from Bloombergs.com shows that since early September those yields have increased.

Where could we go from here? We usually think of variable rate mortgages as prime minus x however there is nothing preventing lenders from being forced to increase the spread to prime plus in the current rate environment. Stay tuned for further developments.

The Bank of Canada left the prime rate unchanged today. In explaining the decision to leave borrowing costs alone for an eighth meeting, as expected, the central bank said it believes Canada’s economy is growing again after stalling in the second quarter, but painted a troubling picture for the United States and Europe, and said exports will be a “major source of weakness.” You can read this morning’s press release here.

What does this mean to you?
If you are currently in a variable rate mortgage or have a line of credit your rate will remain unchanged. The retail bank prime rate will stay put at 3%.

Should I lock in?
If you are currently in a variable rate mortgage we see no reason to lock into a fixed at this point in time. The prime rate looks to be stable and fixed rate mortgages are also at all time lows.

Thinking of refinancing?
Now would be a good time to consider refinancing to consolidate debt or take advantage of a lower interest rate on your mortgage while rates are low.  Fixed rate mortgages are being offered as low as 3.39% for a fixed 5 year.

Mortgages are very dynamic and the guidance that we offer is based on the circumstances of each individual. If you would like to review your mortgage to make sure that you are still on track please call we’d love to hear from you.

The recent global economic downturn has benefits if you are currently in the mortgage market. The market mayhem has two effects: on the one side it alleviates any pressure the Bank of Canada may have felt to increase the prime rate and secondly, as investors pour their money into safe investments like Government of Canada bonds the yield drops. A falling bond yield triggers lower fixed rate mortgages.

The following are current rates:

1 Year Fixed – 3.19%

3 Year Fixed – 3.55%

5 Year Fixed – 3.49%

3 Year Variable P-.65 (2.35%)

3 Year Variable P-.80 (2.20%) High ratio only.

5 Year Variable P-.90 (2.10%)

50/50 Hybrid 3.02% (effective rate)

Prime Rate is currently 3.00%.

If you are shopping around for a rate don’t hesitate to give me a call I may be able to not only offer you my excellent service and advice but also a market leading rate. 416.461.0204

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Good news from the Bank of Canada this morning if you have a variable rate mortgage or line of credit. In their last meeting for 2010 the Bank of Canada has decided to leave the prime rate unchanged citing that while the global recovery is rolling out as expected there are some increased risks. You can read the full press report here.

What does this mean to you?
If you are in a variable rate mortgage or have a line of credit your monthly  payments will not change. The retail bank prime rate will remain at 3.00%.

Should you lock in?
Although there was a slight increase to fixed rate mortgages last week, today it is still possible to lock into a fixed 5 year at 3.79%.  Despite the low rates we don’t see any significant reason to convert a prime minus variable rate mortgage as the prime seems to be stable as well as fixed rates.

If have a variable rate mortgage at Prime + X then it would certainly be advantageous to consider refinancing into a Prime – 70 (2.30%) mortgage today.

Contact me to help you arrange your mortgage and remember the service of a mortgage broker like myself is free of charge to you.

Mortgage interest rates have increased this week over last week due to an increase in bond yields. While mortgage rates have jumped about 20 points they still remain at all time lows. Contact a Toronto mortgage broker like myself to get yourself the best rates available.

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2.65% – 1 Year Fixed

3.49% – 3 Year Fixed

3.59% – 5 Year Fixed (quick close Dec 31sh)

3.69% – 5 Year Fixed (120 day ratehold)

P-.75   3 Year Variable (2.25%)

P-.75   5 Year Variable (2.25%)

Prime Rate is currently 3.00%.

Bank of Canada Qualifying rate 5.44%

NOTE: Rates are subject to change without warning at the lender’s discretion.

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Officially these are the lowest fixed rate mortgages my father ever remembers being able to offer over the course of his 34 year long career. They may be lowest I’ll ever be able to offer as well. Here are the current Toronto Mortgage Interest Rates available this week:

2.70% – 1 Year Fixed

2.90% – 3 Year Fixed

3.59% – 5 Year Fixed (quick close Nov 15th)

2.87% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.70   3 Year Variable (2.30%)

P-.7o   5 Year Variable (2.30%)

Prime Rate is currently 3.00%.

Bank of Canada Qualifying rate 5.39%.

NOTE: Rates are subject to change without warning at the lender’s discretion.

Click here to view the embedded video.

2.70% – 1 Year Fixed

2.90% – 3 Year Fixed

3.69% – 5 Year Fixed (quick close Oct 30th)

2.87% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.70   3 Year Variable (2.30%)

P-.7o   5 Year Variable (2.30%)

Prime Rate is currently 3.00%.

Bank of Canada Qualifying rate 5.39%.

NOTE: Rates are subject to change without warning at the lender’s discretion.

Click here to view the embedded video.

2.70% – 1 Year Fixed

2.90% – 3 Year Fixed

3.69% – 5 Year Fixed (quick close Sept 30th)

2.87% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.70   3 Year Variable

P-.65   5 Year Variable

Prime Rate is currently 2.75%.

Bank of Canada Qualifying rate has dropped to 5.39%.

NOTE: Rates are subject to change without warning at the lender’s discretion.