Wednesday, June 24, 2009

Mortgage defaults in Edmonton

Here is a link to a story that was featured on Global News last night regarding recent foreclosures in Edmonton. While foreclosures are on the rise, we are not even close to close to the situation in the United States!

Click on the camera below to view the video:









Wednesday, June 17, 2009

Mortgage Dilemma

Peter Kinch, a mortgage broker in Vancouver was featured on CTV news yesterday! He answered viewers questions regarding the current interest rate climate. He answers questions such as: when is the time to lock in a mortgage rate? Is it possible to get out of a mortgage early without paying a penalty?

This is a very helpful video for individuals who are considering making the switch from a variable to a fixed rate mortgage, those looking to purchase a new home or individuals who have a mortgage coming up for a renewal in the near future.

Click the image below to view the video:

Monday, June 15, 2009

Don't handcuff your mortgage & Feds not likely to raise rates

Don't handcuff your mortgage
Gary Marr, Financial Post
Published: Saturday, June 13, 2009

Would you like to pay an extra $300 per month on your mortgage? Not likely.That hasn't stopped a number of Canadians, with the deal of a lifetime on a variable-rate mortgage, from switching over to a more expensive fixed-rate product and paying the extra freight.A fear of rising rates is driving the rash decision. But if you've finally managed to pin your banker to the ground, why on Earth would you let him off the mat?More than 28% of Canadians have a variable-rate product tied to prime, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). If you negotiated a deal before October of last year, chances are you are now borrowing money for as little as 1.35%. That's based on deals that at one point saw the banks giving 90 basis points off prime. Prime is now 2.25%.The average sale price of a home last month in Canada was $306,366. Based on a 25% downpayment and a 25-year amortization, your monthly payment would be $962.61 at 1.35%. Convert that to a five-year fixed-rate term and you're probably going to have to consider a 4% mortgage rate and a monthly payment of $1,289.04.Rates are rising fast. Most major banks upped their five-year rate by 40 basis points this week, although discounters were still offering 4% this past week."It's not a mass rush yet, but we are starting to see ... people locking in. But variable rates are still so good," says Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust. She stops short of questioning why a consumer would pull out of these "deals" that are no longer available on the market.Try to get a variable-rate mortgage today and the best you can probably hope to get is 60 basis points above prime, or 2.85%.The landscape changed dramatically in October during the credit crunch. As the Bank of Canada lowered rates, the major banks reluctantly lowered prime because of the massive amount of customers with variable-rate products negotiated under the old, higher terms."Bonds yields are going up rapidly and people are starting to realize the rates are going to go up," Ms. Dal Bianco says. Throw in the fact the Bank of Canada used the weasel word "conditional"(on inflation rates)when it promised not to raise rates until June, and you can understand why some people think today's record-low prime rate might not hold.But if you're someplace between 60 to 90 basis points below prime, the rate is going to have to go up pretty fast to justify locking in today at 4%, even though that is just slightly above the all-time low hit last month for a five-year term."I don't understand why you would lock in," says Jim Murphy, chief executive of CAAMP. "Sure, if they start to rise, but [Bank of Canada governor Mark] Carney says they won't rise, so you've got another year at that prime-minus rate."Don Lawby, chief executive of Century 21 Canada, says even when rates do start to increase, they are not going to jump significantly right away. You are not going to get 4% on a fixed rate again, but double-digit rates seem unlikely. "The only logic two locking in would be for someone very sensitive to any rate change and they just want to be secure," Mr. Lawby says.But at what price? If you're using the "feeling secure" logic, why not go for the 10-year fixed-rate product? Rates on that product can be locked at 5.25%, ridiculously low by historical standards. Yet fewer than 10% of Canadians consider a 10-year product.There are some compromises you can make. For starters, there is nothing to prevent consumers from having a blended mortgage at most Canadian banks. Some banks will let you take half your outstanding debt and lock it in. Diversity is preached for stock portfolios, but few people seem to adhere to the same philosophy when managing their debt.Consumers might want to take their cue from business. Few companies would want all of their debt coming due at the same time -- it presents too much risk. The other option is knocking down principal: Make payments based on a 4% rate and have that extra $300 go straight to your principal every month.The bottom line is if you've got a deal on your mortgage, why would you give it back?Dusty wallet Double check your credit card statements. DW is in a bit of a skirmish with Visa over a taxi cab bill. Of course, DW is too cheap to use cabs, but does succumb to them to get to and from airports on vacation. Last trip, the family took an airport limousine and paid the $56 charge. Guess what? The same amount was billed a month later. So far, the taxi cab company has yet to produce a second receipt. In the interim, DW had to pay the second $56 charge.gmarr@national-post.

Fed not likely to raise rates
Peter Hodson, Financial Post

Recently, there has been some loud talk about inflation and how the U. S. Federal Reserve is going to have to start raising interest rates soon in order to nip inflation in the bud.When first confronted with this news, you may have said, "Hogwash! No way in this economic backdrop could the Fed raise rates, slow down growth and risk sending us into a steep 'double-dip' recession."That certainly would be my view. It's unclear at this point even if we are coming out of recession, so it really would be premature to slow things down at this point before any growth traction has been achieved.However, let's not just make assumptions. Let's delve into history to see what the Fed has done in prior cycles.The last U. S. recession was from March, 2001, to November, 2001, a period of eight months. The Fed funds rate was 6.5% from June, 2000, to January, 2001. In January of that year, the Fed lowered the rate to 6%, then went on a 12-month lowering frenzy during the recession and in the aftermath of the 9/11 attacks. By year-end 2001 the Fed funds rate was 1.75%, with the Fed still maintaining an easing bias.Despite the official ending of the recession in November, 2001, the Fed maintained very low interest rates for almost three more years. In fact, it kept lowering rates, down to 1% from June, 2003 to May, 2004. This strategy of keeping rates low despite no recession is now widely blamed as the reason for the creation of the housing bubble that popped in 2007. The Fed finally raised rates in June, 2004, a full 30 months after the recession had ended.In the recession of July, 1990 to March, 1991 (eight months) the Fed had been easing or maintained a neutral bias since February, 1989. At the start of that recession, the Fed funds rate was 8.25%. By the end of the recession, it was down to 6%. Again, despite the recession being over, the Fed kept jamming rates lower, all the way down to 3% in December, 1993. The Fed didn't raise rates again until February, 1994. In that recession, again the Fed kept lowering rates for 30 months after the end of the recession.Going back further into history, in the recession of July, 1981 to November, 1982 (16 months) the Fed acted a little more quickly. In May, 1981 the Fed rate was 20.0%. By December of that year, the Fed had moved rates down to 12%. In the spring of 1982, though, rates were back to 15%. But, showing signs of confusion, by the end of the summer 1982, rates were much lower, at 9.5%. The Fed was tightening rates again by September, 1982, and for a period of time investors had no idea what to expect, as the Fed moved rates up or down seemingly at random for a period of 18 months.In the energy crisis of the early 1970s, the recession lasted from November, 1973, to March, 1975 (16 months). In November, at the start of the recession the Fed funds rate was 9.00% but by May, 1974, because of inflation fears the Fed had already raised the rate to 13%. Recession fears, however, ultimately ruled the day, and by year-end 1975 the Fed rate had been cut in half, to 4.75%. The tightening began anew, however, in April, 1976, 13 months after the official end of the recession.What can we conclude? One, it seems sometimes that the Fed is just winging it, moving rates at random in response to short-term events. But it does seem the Fed is unwilling to raise rates too quickly after any recession.Based on the severity of this economic downturn, you would have to conclude the Fed is unlikely to risk a double-dip recession, and will keep the Fed funds rate very low (now 0% to 0.25%) for a long time.This may, of course, cause inflation, but for the time being, that is still better than a giant de-leveraging economic death-spiral.
peter@sprott.com--- - Peter Hodson is a senior portfolio manager at Sprott Asset Management.

Thursday, June 11, 2009

Interest rates going up, up, up

Here is an excerpt from an email recently sent by a lender rep:

… I believe we are in for a couple spikes… Last week, mortgage rates went up 20 bps and this week another 40 bs, that’s 60 bps in total. The sub -- 4% 5 year Mortgage Rates in Canada are now GONE... GONE … Long term (10 year treasury bonds) bonds in the US are near 4%, up 2% from 6 months ago… the longer term (30 year) bonds are getting very close to the magic 5%, that the cash guys want… there is also speculation out of the States that these same 30 year US treasury bond could go to 7% or 8%.... This all effects the same Canadian Bond Yields which are up similarly...I don't want this to sound alarming… but we all need to be aware of the impact of the pushes in the bond yields… it is a sign that the 'Cash Guys' want more… thus this will lessen spreads (Mortgage Rates vs Bond Rates) and push the lenders (like us) to move rates… Like I have said before… I would suggest that you contact your clients --- ones 'sittin on the fence' because they believe one or both of the following:" I think rates are going to go lower and I don't want to pay more than I have too… ""… house prices are coming down, I want to wait and get best deal…"
As you all know these are the best of rates in the last 1/2 Century or so… this is the time to get your clients the best rates… lock the rate… the bottom is rising. I want to ensure that you are able to assist your clients in getting the best deal… and NOW is the time

Tuesday, June 9, 2009

The Importance of Life/Disability Insurance

Below is an interested article outlining the importance of purchasing life/disability insurance for your mortgage. Most lenders offer their own, internal insurance. Mortgage brokers also offer life/disability insurance!

Ensure you're insured
Buying a home? Don't forget to sign up for mortgage insurance
Denise Deveau, Canwest News Service

June Jell will never forget the time she and her husband, John, sat down with their agent and turned mortgage insurance down flat.
Six months later, he died suddenly of a heart attack at the age of 59, leaving her struggling to keep up with house payments.
While she got back on her feet eventually, it wasn't without sacrifices along the way --including the family home.
Now, she tells everyone she knows, "If you can get it, take it. We thought mortgage insurance was expensive at the time and because of our age, believed we could handle everything."
In retrospect she realized, "It really wouldn't have been that expensive after all. It would have been a blessing."
Insurance of any kind is one of those things people like to put on the back burner or do without.
"A lot of homeowners don't want to add the cost of insurance to their mortgage payment," says Feisal Panjwani, a senior mortgage consultant with Invis Inc. in Surrey, B. C.
"One of the biggest mistakes they make when they sign their mortgage is declining insurance, thinking they will research it on their own.
"Nine times out of 10, they don't get around to it. Then when something goes wrong, it's too late."
It's not surprising some homeowners balk at mortgage insurance, especially when they feel they are already stretching their monthly payments to the maximum.
Especially in these economic times, however, you can't afford to be without it, says Jennifer Hines, vice-president of creditor insurance for RBC Insurance.
"Clients at all stages need to make sure their mortgage is protected," she says.
"Some have life and disability insurance, but the family still could be left holding a debt on what tends to be a person's largest individual debt obligation."
The ideal time to look at options is when you do your mortgage application. The most common are insurance tied to the mortgage itself or to the lender. Tying insurance to a mortgage balance is usually preferred since you can switch lenders and keep the same policy.
This reduces the risk of facing higher premiums or finding out you are uninsurable when you reapply at another bank, says Lorne D. Greenwood, a real estate lawyer based in Milton.
"Getting insurance through an independent broker to cover the same amount means you won't have to re-qualify with each mortgage," he says.
This is also a good choice when your mortgage balance decreases and you want to reduce your premiums.
Mr. Panjwani notes that it's especially important for first-time or younger buyers to get coverage because the mortgage balance is high, insurance premiums tend to be in their favour and medicals are not generally required.
For those who think their disability and life insurance policies are enough if things go wrong, that may not be the case, warns Ms. Hines.
"Typically, disability policies will only pay 60% to 70% of your monthly income, so there is still a gap," she says.
"You still need coverage for other expenses. We tell people it doesn't have to be an either/or situation.
"We also suggest they consider whether they need to top up what they have, so they don't have to be concerned about mortgage payments if there is a death or disability."
When it comes to high-ratio mortgages, according to the Bank Act, anyone borrowing more than 80% of the value of the property must insure the mortgage to protect the lender against defaults.
The premium for this default insurance (not to be confused with conventional mortgage/life insurance coverage) is paid once at the time of the closing, at a rate that varies between 0.5% to 3.75% of the mortgage amount.
Title insurance is also an increasingly important option for protection against title problems and fraud.

Wednesday, June 3, 2009

Merix Financial launches the 50/50 Wise Mortgage

Merix has just launched a new product for borrowers that aren't sure wether they should choose a fixed or a variable rate mortgage. If you are interested in this product please feel free to contact me anytime!

Here are the details:
The MERIX 50/50 Wise Mortgage
"...the wise choice in today's economy"
Don't choose between Fixed and Variable. Choose Both!
Features:
- 50% of mortgage amount is at current 5 year fixed rate pricing (now at 4.09%)
- 50% of mortgage is at current 5 year ARM pricing (now at Prime +.40%)
Ideally suited for:
- Customers who are unsure whether to go Variable or Fixed. This product eliminates the biggest dilemma facing mortgage borrowers in today's economy.
- Customers who want a low interest rate and are more risk-averse than a typical adjustable rate mortgage client. The weighted average interest rate on this mortgage is approximately 3.38% given today's current pricing! And only 50% of the mortgage is subject to interest rate risk.

Additional Features:
- Only one charge is registered (conventional charge, not collateral).
- Each portion operates independently of each other in terms of payment frequencies, prepayment privileges, and prepayment penalties.
- Each portion has the usual 20/20 prepayment privileges.

Convertibility:
- The adjustable portion can convert to a fixed rate at any time without penalty, HOWEVER, the term cannot be extended.

Rate Hold:
- 120 days rate holds on purchases, 60 day refinances.
- No Transfers/Switches permitted.
- No pre-approvals offered.

Additional Info:
- Max amortization is 35 years
- Max LTV is 95%