Now, the new question is the same old question as ever; do I choose a variable rate or a fixed rate mortgage? Considering many mortgage lenders rates increased by up to .5% over a few weeks, this is a good time to re-evaluate that question.

Currently, most 5 year fixed rates are at approximately 3.5% (although I have a great special for qualified borrowers). Variable rates are now mostly between prime -.3% and prime -.4%, which means an effective current rate of 2.6%-2.7%. Therefore, you are likely looking at a current premium of .8% if you take the fixed rate. It is my belief that this will last for 1 1/2 years approximately before the prime rate will start to see further increases. I do not believe that we will see decreases in the prime rate still, even with the threat of recession.

For the short term, variable rates will definitely be advantageous. However, fixed rates have never been this low as far as I can remember, and I do not think they can really go much lower. If you get a variable now with the intention of locking in later, the rate you lock in at will likely be significantly higher than what you can get right now.

Overall, I think if there is any time that it is better to get a fixed rate, now is the time.

• Housing values in Vancouver are up 8-13% from last year
• Housing starts in Vancouver are down over 20% from last year
• Mortgage rates continue to remain quite low by historical standards

Bond rates also have softened slightly in the last month, so fixed rates look safe at current levels at the moment, and a couple lenders have reduced them slightly.

Variable mortgage rates have had signs of increasing lately, with several lenders increasing their rates in relation to prime due to slim profit margins on their variable mortgage rates.

You can view more information on the statistics here.

Keeping in mind I am a mortgage broker and not an economist, I will try to summarize what I think are the most important parts for most Canadians and Greater Vancouver residents.  Its a long explanation, but I promise I do have a point.

The Canadian dollar is worth more than ever compared to the US dollar, currently near $1.05 US.  This is great for cross border shopping (ask my wife), but is bad news for Canadian retailers and exporters to the US.  The US government cannot give their money away for free right now, which is what they do with a US “prime” rate of near zero.  So they are giving their money away via an economic policy called quantitative easing.  Essentially they are just printing more money, which means that the Canadian dollar continues to be worth more since their is more US currency in existence and circulation.

With these factors causing the Canadian dollar to be valued higher and higher, it is difficult to see the Bank of Canada then raising the prime rate, causing the Canadian dollar to be worth even more US dollars again and further killing exports to the US.

I saw an election ad the other day that criticized the current government for a factory in Ontario closing down and moving operations to the US.  In my opinion, this is a good example of what is happening all across the country to businesses who export to the US, who can no longer compete because their revenues are significantly less than before and costs are higher due to items like the cost of oil increasing.

While now there has been word that quantitative easing is coming to an end, Wall Street believes that the Federal Reserve rate will stay low for up to 2 years, which means the Canadian dollar still looks attractive compared to the US dollar.

What does all this mean for your mortgage and real estate?

On the negative side, the Canadian economy is going to have a tough time growing in these economic conditions with such a strong dollar for an economy that has always relied on exports.  Therefore, you may not make as much money, employment growth may be slow.  However, variable mortgage rates should stay low, and my opinion is that they will stay low past next July that the media has been advertising as the date of increase in rates.

What also occurs to me is that if real estate prices have been growing in such conditions, I can only imagine the kinds of real estate price increases that it will see in the time of a strong economy.  It is scary to think of this in Vancouver where the statistics show an average price increase of 18% over the past year, and while the past low rates may have steadied home prices, when unemployment is down and economic conditions have improved, and the government thinks the conditions are right again to loosen up on high ratio lending (possibly), it could be a very good time to buy a home now for the appreciation in value that it could attain.

Refinances (even after the new government mandated changes) still allow homeowners to refinance to 85% of the value of their homes.  Further, you can really use the refinance to your advantage by combining your refinance with a Tax Deductible Mortgage Plan (TDMP) tax structure to allow you to pay off your home in about 1/2 the time at no greater expense to you!

I would be happy to take some time to sit with you and discuss your options and the best route for you.  As a mortgage broker, I am an advisor that provides value-added service in helping you as a homeowner make the best decision for your individual situation that you will not receive from your bank.

Please contact me if you or your friends and family would like more information.

This is my first note today about Tax Deductible Mortgage Plan (TDMP) mortgages.  This is an exciting plan for many people who are paying too much in income taxes every year and are not able to save money or invest as they would like to.  Best of all, this is court backed and with TDMP guidance, is a very safe strategy.

I am proud to announce that I am now a certified TDMP agent, and can structure your mortgage for maximum tax efficiency along with the TDMP team.

To find out more about TDMP mortgages, give me a call, email me, or simply fill out the form below and I will be in touch with you shortly.

I thought it was quite amusing.  It is a great marketing ploy for the mortgage broker referenced in the article.  He says something that the newspaper wants to propagate to their readers, they mix up and change around some facts, and he gets some major free publicity.  And all he had to do was give the newspaper what they wanted to hear.

“I think it’s fantastic. It’s too bad the Americans didn’t do this three or four years ago, or the mess they’re dealing with wouldn’t be nearly as bad.”

I wonder if this broker even knows what kinds of policies were in place in the US to cause the real estate market there to crash.  They were much much more agressive than allowing 90% loan-to-value refinances.  One of the ones that I remember offhand was “NINJA” mortgages (no income, no job, no assets).  Never in Canada have we had such an agressive policy, and even at their most agressive, the Canadian government was hailed as saviours of the country for keeping their policies conservative.  Since then they have tightened up even more significantly.

“The Bank of Canada is worried about how indebted Canadians are, big bank executives have spoken up on the subject and now the federal government has shown how concerned it is as well. Borrowers, as Mr. Cocomile tells it, have been oblivious. As a result, they need to be saved from themselves.”

I never knew that someone who is irresponsible could be saved from themselves.  I suppose that forcing someone into bankruptcy sooner by not being able to finance their homes to pay off high interest debt will protect their home equity.  Interestingly enough, the government has never said anything about wanting to avoid an increase in personal bankruptcies, so maybe they feel this is in everyone’s best interest.

In my mind, it is very simple.  People are buying things they can’t afford, and will continue to do so even if they know they don’t have equity in their homes.  In my job, I see it all the time.  They don’t buy stuff on credit card thinking “I got my house to back me up.”  They buy thinking “Ooh I want that” and then when the debt becomes unmanageable they think “Maybe I can refinance this debt.”

I believe that spending habits is a cultural issue, and it is going to remain regardless of mortgage policies.

“nine of 10 new home buyers have been choosing to pay off their mortgage over 35 years. Starting March 18, 30 years will be the new ceiling for people with down payments of less than 20 per cent.

The extra interest charges resulting from an amortization period of 35 years as compared with 30 years can amount to tens of thousands of dollars.”

Most of my clients go with a 35 year amortization, and I personally encourage it.  The reason for this is that it provides financial flexibility and they still have the right to make significant pre-payments without penalty if they can afford to.  Pre-payments speed up the amortization process, but in lean times they will want as low of a payment as possible.

“I’ll follow up with them and say, ‘Why don’t we ramp up payments?’ They say, ‘Oh, we have a car loan now, or we spent some money on renovations, or we’re trying to get rid of credit card debt.’ Credit’s so easy – everyone’s using it.”

The interesting thing about this is that, as a mortgage broker, he is not in a position to “ramp up payments.”  They have to talk with the lender’s customers support to do that, just the same as me.  If I try to ask a client’s lender for something after the mortgage is completed, they refuse to speak with me.  I would surmise that while his point may be valid, he is not pushing his clients to speed up their amortization in the follow up.

“Whereas you can get a five-year mortgage at 3.85 per cent, a typical credit card would charge about 19 per cent. But refinancing to the maximum drastically reduces your home equity and leaves your house vulnerable if you can’t keep up with your mortgage when interest rates rise.“

This is deceiving as it is stated.  A 5 year FIXED rate mortgage is 3.85%.  This means that they are not going to have their payments change for 5 years.  A variable rate would be more susceptible to rate fluctuations, but right now you can get that for as low as 2.1%.

The one item I agree with is ending HELOC mortgages on properties at 90% loan-to-value.  A revolving credit-style mortgage should require 20% equity.  However, very few lenders currently offer HELOC mortgages with less than 20% down anyway.

I think that hindsight will justify what I have written above.  If you are looking to refinance your mortgage, I would suggest you contact me as soon as possible.  After March 18th, you may no longer be eligible.

While not all housing markets experienced the best of times, overall, real estate investors didn’t experience the free fall that many had feared.

What are forecasters predicting in 2011?

Real Estate Organizations

The very nature of real estate organizations tends to favour more optimistic housing forecasts. According to a report by a national real estate sales brand and reported by the Globe and Mail, mid-size cities will see positive housing sales activity in 2011, led by Winnipeg.

The Canadian Real Estate Organization (CREA) predicted in June, 2010 that this year’s home sales activity will decline slightly – dragged down by Ontario and B.C.  However, it also predicts modest housing price increasesfor all except these provinces. The downside of rising prices, says CREA, is that many potential buyers will be priced out of the market.

Home sellers in smaller markets may benefit from the migration of buyers from expensive urban centres to more affordable neighborhoods.

Financial Institutions

TD Bank changed its forecast mid-way through last year from predicting a 1.7 percent gain in home prices to a 2.7 percent decline. Its report concurred with that of CREA, suggesting Ontario and B.C. prices would see the greatest declines.  In late December, TD adjusted its forecast again – issuing a more rosy outlook for 2011 and a decline in resale home prices of less than 1 percent.

Last month, Scotiabank Global Real Estate Trends listed Canada as one of the best-performing real estate markets in its study of twelve advanced nations in 2010. The report also suggests that global economies are showing signs of stabilizing.

The report predicts a flattening of Canadian home prices in the coming year; attempts by public sector agencies at fiscal restraint, combined with the burden of consumer debt, will dampen employment and discretional spending among Canadians.

Beyond 2011

While forecasters agree that borrowing rates are likely to remain low – at least until mid 2011, rate hikes are inevitable as the global economy wakes up – and it’s already twitching.

This isn’t a good scenario for the amateur investor; the days of making huge short-term gains in real estate investments are over, for now. However, if you’re in the market for a long-term investment, buying in at a low interest rate can save you tens of thousands of dollars in interest over the life of your mortgage.

From all economic indicators, it appears that higher interest rates are on the way in 2012.

What would your monthly payments be at current home prices in your neighborhood?  Compare your options using CENTUM Mortgage Calculators.

The main changes are:

1. The government has removed support for financing of HELOC high ratio mortgages.
2. Reducing the maximum refinance ratio to 85 percent loan to value from 90%.
3. Reducing the maximum amortization from 35 years to 30 years.

What does this mean for homeowners and homebuyers? First of all, it is going to be harder to tap into the full equity of your home.  This means that refinances to consolidate debt will be more difficult, and some of the refinances that could help homeowners in the past will not be possible now.  Secondly, the idea of leveraging equity for the purpose of starting a new business or expanding a current one will be stunted.  This will make it harder for small business to thrive and potentially have negative consequences on the economy.

Finally, the banks will see much greater profits due to less people paying out unsecured debt such as credit cards and lines of credit.  Then, bankruptcies will increase due to people not being able to pay their debts.  If that is what the government had in mind when they talked about making these changes to help control personal debt levels, I suppose this is one way to go about it.

Third, those who had aspirations of home ownership and were barely getting into the market currently will not be able to.  This will probably result in a short term adjustment in home prices through the spring and early summer.  Further, it will mean more people will continue to remain in rental housing for the foreseeable future.

For a government supposedly so committed to “helping” Canadians control debt levels, they have not been doing such a good job running the country’s finances themselves. Further, they have not made any such announcements to further regulate unsecured lending.

In my opinion, these changes are about making bankers, big business and wealthy property investors wealthier and keeping poorer and middle class Canadians down.

If you see soon the need to refinance your mortgage, or if you are on the edge of qualifying to purchase a home, now would be a good time to get it done.  Contact me below and I will be in touch and we can get started.

The rest of the article is quotes and opinion from bankers and government, but the thing that jumps out at me right away is that they want to make it more difficult to get a mortgage because people’s overall debt is getting too high and the low rates have caused people to borrow more than they could afford.

It occurs to me that while rates are low, they have already done plenty to safeguard the mortgage system against default.  The mortgage market is very heavily regulated, and with good reason.  However, it appears that there is not a lot of regulation in place for unsecured lending such as credit cards and subprime car loans (bankers do not consider car loans secured as it is a depreciating asset).  I do not see much being discussed about making it more difficult for the banks to lend money unsecured.  As such, I could see the banks wanting to make it difficult to borrow for mortgages because they don’t want their customers paying off their credit cards at 12%+ with a mortgage where they will receive 3%.  Most people do not go on a spending spree with their mortgage proceeds, they spend on their credit cards and then run to the bank for a mortgage afterwards.

They also do not seem to be doing much to prevent the “keeping up with the Jones’” syndrome that is pandemic through society now.  Everyone has to keep up with appearances it seems.  Therefore everyone has to borrow so that they do not look poor to their friends.  It appears to me to be a very dishonest way to live.

The way to prevent debt is to teach people responsibility in finance, and I for one never remember being taught that in school.  It has never been refuted to my knowledge that the very nature of the monetary system we operate under is built to encourage and increase debt.  We are also taught that an economy is usually at its best when people are spending money.

Until there is a fundamental change in how the entire system operates and in how people think, a mortgage will be the only way for most people to make debt more affordable.  The market is not too hot right now, and is quite stable.  It appears to me to be a ridiculous time to make it even more difficult for people to own their own shelter.

As new or future homeowners, make it your resolution in 2011 to commit to a long-term program of debt and expense reduction. Pay yourself with the savings, either through lump sum payments on high interest lines of credit, your mortgage or your retirement fund.

Here are five simple strategies for increasing your year-end bottom line:

1.       Reduce the number of credit card balances you carry

Making minimum monthly payments on credit card balances is the slowest route out of debt. Paying off cards starting with the lowest balance first – and working up to the card with the highest balance – has both psychological and credit rating advantages. This is known as the ‘snowball approach’ to credit card debt reduction. Another tactic is to reduce the number of balances you carry starting with the highest interest rate card first. This is especially important if your highest interest rate card is also the one with the largest balance outstanding.

2.       Renegotiate service contracts

Cable, internet and phone companies often release attractive rate packages to lure new customers.  If you’ve been a loyal customer of these providers for some time, or your contracts are coming up for renewal, ask them to match competitors’ rates or give you the same packages offered to new clients.

3.       Reduce your household energy consumption

Winter started early in many Canadian provinces this year. Simple actions such as weather stripping to cut down on heating costs, and turning off or unplugging appliances and electronic equipment when not in use can help you reduce your monthly utility bills year round. If you buy a qualifying energy-efficient home, you could be eligible for savings on CMHC mortgage loan insurance.

4.       Lower your entertainment expenses

Some of the most insidious drains on earned income are miscellaneous entertainment and dining expenses.  For example, that daily $4 latte on your way to work adds up to about $80 per month - or more than $900 per year.

5.       Get help from a financial planner, tax or mortgage professional

Businesses can’t thrive without financial plans and budgets and neither can family households. If you’re not sure how to budget your monthly expenses, seek advice from a trusted financial advisor. Is your mortgage coming up for renewal?  Consult an independent mortgage professional before locking in at your bank’s offered rate. Finally, talk to a tax expert to find out if you’re missing out on important deductions that could lower your taxable income.