GARY MARR (FINANCIAL POST) - If you thought mortgage rates could not go any lower, you were wrong.
Investors Group is rocking the mortgage world with what appears to be the deepest discount in Canadian history on a floating rate loan, offering a deal that takes an effective mortgage rate down to 1.99%.
The company is now offering 101 basis points or 1.01 percentage points off its prime rate of 3% for a variable rate mortgage. Consumers can get the deal for a 36-month term which is shorter than the length offered by some of the major banks on the deep discounted five-year fixed rate mortgage which has dropped to around 3% — a controversial level that once drew the wrath of the department of finance.
“We haven’t seen a rate like this from a lender,” said Rob McLister, founder ofwww.ratespy.com., referring to the steep discount.
The offer from Investors Group is not available from brokers and is coming from the company’s own sources, designed to make a major splash in the marketplace.
“They could have priced this at prime minus 80 and beat everybody in Canada. Obviously, they want to get people’s attention here,” said Mr. McLister, who is also editor of Canadian Mortgage Trends.
Peter Veselinovich, vice-president of banking and mortgages with Investors, said his financial institution was able to set aside a block of funding to be able to offer the cut rate deal.
“This [deal] will be driven by what the appetite is in the marketplace. It’s a limited time offer, it may be there 90 or 120 days or it may be there for 30,” said Mr. Veselinovich, whose company quietly brought in the cut-rate product Monday to bring in new customers for its other offerings. “It’s kind of the best kept secret in the marketplace.”
There are some conditions to the mortgage, namely you cannot break it without selling your home. Nevertheless, the loan does allow consumers to double up monthly payments and pay a lump sum of 15% of the mortgage every year.
The latest salvo in the mortgage rate wars comes in the aftermath of former finance minister Jim Flaherty’s death which happened shortly after he stepped down as finance minister.
Mr. Flaherty had intervened in the market to discourage banks from lowering their mortgage rates below 3% on five-year fixed terms, out of fear it would inflate the housing market.
In March, after new Finance Minister Joe Oliver was sworn in, Bank of Montreal jumped back into the market again with its 2.99% offer for a five-year fixed mortgage. Mr. Oliver has shown no interest in intervening in the market.
“Our Government has taken action in the past to reduce consumer indebtedness and the Government’s exposure to the housing market,” said Mr. Oliver, in a emailed statement to the Financial Post.
“I will continue to monitor the market closely. We took action four times, from 2008 to 2012. Budgets 2013 and 2014 announced additional measures to reduce the government’s exposure to the housing market. We will continue monitoring the market.”
Steeply discounted variable rate mortgages tied to prime which generally moves with the Bank of Canada’s overnight rate could end up pushing Canadians back to floating rate products and leave them vulnerable should interest rates spike.
Ottawa has moved in the past to get consumers to lock in a rate by making it easier to qualify for a fixed-rate mortgage. Consumers are able to use the rate on their loan to qualify for lengths of five years or longer while for variable rates they must meet borrowing standards based on the qualifying rate for five years which stands at a relatively lofty 4.99%.
“A variable rate mortgage or an adjustable rate mortgage is the right rate for a lot of clients,” said Mr. Veselinovich, noting Investors Group is sub 3% on five-year fixed rate deals for people who want to go that route.
The Canadian Association of Accredited Mortgage Professionals in its mortgage survey last year found only 9% of consumers opted for a variable rate or adjustable rate mortgage in 2013. Overall, 26% of consumers have a variable rate product — a percentage that shows how popular that product had been in the past.
Another lingering threat from even lower rates could be ramped up consumer debt which has finally shown signs of finally coming under control.
Royal Bank of Canada said this month residential mortgage growth in March jumped 5.0% from a year ago. It was the fourth consecutive month the growth rate had held steady at 5%.
“We’ve seen debt accumulating in the mortgage market but it is slowing over time,” said Laura Cooper, an economist with the bank. “I’m not sure interest rates are having the same impact now. I think [sub 2% rates] do have the potential for some upside risks.”
No Change in Rate for Vancouver
(BCREA) Interest Rate – April 16, 2014
The Bank of Canada announced this morning that it is maintaining its target for the overnight rate at 1 per cent.
The Bank’s target rate has now remain unchanged for 29 consecutive meetings. In its accompanying statement, the Bank noted that inflation in Canada remains low and is expected to remain below the Bank’s 2 per cent inflation target this year due to slack in the economy and heightened retail competition. The Bank left is forecast for Canadian economic growth unchanged at 2.5 per cent this year and next, citing a strengthening global economy and ramped up business investment. The Bank also noted that recent developments are in line with the its expectations of a soft landing in the housing market, though elevated household debt remains a risk should economic conditions deteriorate.
While some expected a slightly more dovish note from the Bank given continued muted inflation and a slight rise in the dollar, the Bank remains decidedly neutral. An expected second half rebound in growth and firming inflation means that the next move for interest rates is likely higher, but the timing of that move remains uncertain. Our view remains that the overnight rate will stay at its current level until at least early 2015NeutralWhile some expected a slightly more dovish note from the Bank given continued muted inflation and a slight rise in the dollar, the Bank remains decidedly neutral. An expected second half rebound in growth and firming inflation means that the next move for interest rates is likely higher, but the timing of that move remains uncertain. Our view remains that the overnight rate will stay at its current level until at least early 2015
HAARUUN DHUBAT (YAHOO FINANCE) - Maybe it's the sky-rocketing home prices in key markets, but Canadians are saying sayonara to the traditional way of buying a home and are either going in alone or doubling up with friends or relatives.
A quarter of Canadians who’ve bought a home in the last two years made the significant financial move on their own, while four in ten Canadians believe purchasing a home with friends and family is a great way to access the housing market, according to a survey by TD.
Jesse Vorona is one of those ‘solo’ buyers. He recently purchased his first property in the Greater Toronto Area because he was more than comfortable going it alone.
"I like to call the shots when it comes to my investments,” Vorona told Yahoo Canada Finance.
Households comprising of single Canadians make up 27.6 per cent of all homes, according to Statistics Canada. And it looks like young, single women are dominating the solo route in Canadian cities. Women, especially those in their 20s, represent one-third of all condo sales in Montreal and Toronto, according to the Globe and Mail newspaper. Single women are more likely than men to be solo first-time home buyers thanks to changes in income levels and demographic shift, according to RBC's 19th annual Homeownership Poll.
"Women are being more cautious than men, weighing cost, affordability and job security before buying a home," Marcia Moffat, head of home equity financing for RBC, said in a recent release.
But there are those who are less comfortable making the investment without a safety net or financial support. Toronto resident Mike McCann went the non-traditional route, purchasing a property with multiple buyers because of the security it offered.
“For larger properties I would work within a partnership for financial reasons,” McCann says.
If you are buying alone or with a partner, many of the guiding principles that exist for traditional, nuclear families still apply. For instance, you need to know how much you are comfortable spending and what your budget will look like once home-associated costs are accounted for.
"Once homebuyers set their budget and down payment, they can take their prospective monthly mortgage payment for a test-drive and 'pay' into a TFSA or savings account," says Michelle Snow, associate vice president, retail products at TD in a release.
"This two-fold solution allows the homebuyer to see how comfortable the monthly mortgage payment is before locking in, and save for a larger down payment at the same time. For co-purchasers, it opens the line of communication to talk about how these monthly payments will work after the purchase."
Communication will be key in any alternative purchasing plan, especially when it comes to the purchase price, which is a motivating factor for pooling capital and seeking alternative home buying strategies in the first place.
“I think it is predominantly due to an increase in property prices and tighter lending requirements,” Snow says of the influx of co-purchasers.
For example, 96 per cent of Ontario-based home buyers consider the price of the home the most important factor when purchasing property, according to research from the Real Estate Council of Ontario. The national average purchase price for a single-family home in Canada now sits at $406, 372, which is a 10 per cent increase from the same month year-over-year (February), according to theCanadian Real Estate Association.
From an ownership standpoint, buying a home by yourself or with a group isn’t necessarily better than what has been traditionally observed in the Canadian housing market says Chris Allen a Toronto-based realtor.
Then again “If you have the capital then absolutely go ahead and put it in your name and finance the property yourself or with your friends and family,” says Allen. “The trend with ‘team buying’ is a good thing if you’ve done your due diligence with your friend, you don’t want to get into a business relationship without nailing down all of the facts.”
Consider this before you buy a home with your group of besties: If you are buying a home there should be some legally-binding agreement that protects home buyers from one of the other members leaving the arrangement, cautions certified financial planner Margaret Richards.
“[Traditionally] if you are married there is family law to protect you,” says Richards.
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