Tag Archives: mortgage rates

With Your Mortgage: Now Do The Opposite

Since 80% of homeowners have a five-year fixed mortgage, millions of people have a mortgage renewal to deal with this years.

With rates at their highest point since the 1980s and likely a couple more rate hikes coming early this year, that’s a nightmare about to hit them. If you’re one of them, as I was last year, don’t just shrug your shoulders and sign up for another five-year term before doing some thinking and research. Yes, spend a few days thinking this through – just make sure you never do anything because you read me suggest it – or the suggestion from anyone else without doing your own due diligence!

Remember last year when gas prices were at insane levels? Our brains are wired to think that that’ll be the case forever. Remember looking at any of your investment statements in the last year? You’d have been better off to never open the envelopes. But, if you did, it was down, down, down and your brain thought it’ll be down forever and (hopefully not) to just get out and put the money under your mattress.

Today, gas prices are back down and in 2023 and next year, your investments will also come back. What stays down (or up) doesn’t stay there forever. So don’t get depressed or in that “what’s the use” mindset and just sign another five-year mortgage term.

My thinking, and what I did, might be a good starting point for you to consider another mortgage term this time around: As we discussed in a story last year, I was able to do an early renewal. Yes, it was a two percent higher rate, but avoided the last three (and coming two plus) rate increases.

Variable rate: That’s only a good deal when rates are at their max and heading down. That way, each month, your mortgage rate will be reduced with decreases in the prime rate. But that’s not today.

One year term: That made no sense to me to have to renew again when rates will have barely peaked. I wanted/needed a little more time for rates to finish rising, stabilize for some time, and start to come down.

Two year term: That would be 2025. Maybe that would have made sense, but when the rate fever breaks, it’ll take a bit for the inflation to ease – meaning a period of stable rates before a rate drop happens to again re-boost the economy. Two years didn’t seen long enough for me to be able to be on the sidelines.

Three year term: That, to my way of thinking was the perfect timeframe for all that to happen and already be pretty much assured rates will be down. Down all the way? No idea? Still rising? No chance the Bank of Canada will not have inflation beaten down and the economy back on track. In my view and action, three years made the most sense right now.

That doesn’t mean I’m not still massively jealous of a neighbour with a 1.8% rate for four more years…but I can’t live for a better past. I can just deal with the reality of today…

Ready For The Recession?

Happy New Year! But likely not so happy in the financial world for the next six months or so as it’ll be unlikely that we’ll avoid a recession this year.

While rate increases happened pretty much all of 2022, the impact isn’t usually felt in a big way by consumers for at least six months. And that time is upon us. Actually, it was upon us in November or so, but there isn’t anyone who’s going to turn off their spending tap right before Christmas. There also aren’t many companies who want to be seen as Scrooge in doing big layoffs in December.

January, however, is very different and we’ll see an immediate decrease in consumer spending and a large increase in layoffs. Once person’s spending is another person’s (or companies) income. That creates a spiral effect boosted by inflation and high interest rates that’ll accelerate a slowdown rather quickly.

While 80% of Canadians holding a mortgage have a 5-year term, this year another one-fifth of those are up for renewal. Add that to the one-fifth who renewed at much higher rates last year and 40% of them are now facing the reality of $400 or more in mortgage interest. National Bank estimates that the median amount spent on mortgage costs is 67% of income. The normal ratio anyone uses is around 30% tops and this is an even worse situation than the early 19080s. That doesn’t leave a lot of money for non-essential spending for those who are laid off, had their hours cut back, are in the 40% who’ve had to renew their mortgage or the 20% who had a variable rate mortgage all along. That group of being hit with huge mortgage renewal rates will keep going until 2027. That’s the big advantage the U.S. has where everyone has a 15 or 30-year fixed mortgage…

Oh, and rental rates keep rising as landlords pass on their higher carrying costs, utilities, etc. so you can add most renters to the large group of people who are now barely able to cover their basic living expenses.

That’s assuming we’re not using credit cards to keep up our lifestyle. Since the end of summer, credit card pay rates (the percentage of balances paid each month) has been dropping significantly while auto loan arrears are growing.

So happy New Year is more likely to be an un-happy new year of 2023…

And Another 3/4 Percent Rate Increase

As predicted, the Bank of Canada increased interest rates by another three quarter percent this morning.

Hopefully you were able to get an early mortgage renewal as we talked about two weeks ago. Or at least passed on the heads-up…

If you’re not anywhere near renewal – many of us are envious. Even more so if you don’t have a mortgage in the first place!

On a $400,000 mortgage, for example, today’s change will increase a mortgage payment by $250 a month (or $62.50 for every 100,000 of mortgage balance). Between the rate increases and the Trudeau stress-test there aren’t going to be many first-time buyers that will have any chance of qualifying for their first home.

How sad that the Federal Government seems to have a single-minded focus on stopping home sales when it’s such a massive part of our economic activity from legal fees to home improvement stores, builders to realtors. Let’s hope that, at some point, they realize more supply would make a massive difference…but that’s not likely…

Close To Your Mortgage Renewal? Make a Call To Save $10,000 Or More

There’s another (likely “only”) half a percent rate increase coming at the next Bank of Canada meeting in September. While inflation seems to have peaked, but that’s just an educated guess, our rate increases may not be over until the end of the year.

If you have a mortgage coming due for renewal like I do, it’s not a pleasant thought. However, if your mortgage comes up in the next six months, a number of lenders WILL let you renew if you’re within that six months! That’s what I did last week. My rate is going up 2.4 percent, but that’s better than three percent after the September increase, and any other jump after that. Check with your lender today if your mortgage is up in February next year or earlier! That call may end up saving you over ten thousand dollars!

What’s the rate increase going to cost you? That depends on the rate you currently have. However, a 3% increase on each $100,000 will be $3,000 a year. So someone with a $400,000 mortgage will see their payments go up close to $1,000 a month! What do you get for that? Nothing! It’s a huge increase in your monthly spending for just getting to stay in your home. Yes, it stinks and it’s depressing, but that’s what rising rates cause. Your early renewal will start the following month, so be ready to change your payment budget!

How long should you renew for? That’s up to you. I only ever answer questions as to what I would do – or in this case, what I did. My thinking was that rates will peak sometime next year at the latest. But then it’ll take a while for them to ease downward. Like gas prices, they spike up and take forever to come back down. Even when the Bank of Canada decreases rates, that doesn’t mean the chartered banks will immediately pass that prime rate decrease on. So it didn’t make sense to me to just do a two-year mortgage for that reason. But I sure wasn’t going to sign for five years at these rates as selling or refinancing triggers a big penalty (typically three months or the interest differential – whichever is larger.)

So I picked the kind-of middle option of a three-year term at 5.2%.

While my mortgage is pretty small, I sympathize with anyone who is close to the $400,000 mortgage example about to flush $36,000 of net income down the toilet over the next three years…

Close To Your Mortgage Renewal? Make a Call To Save $10,000 Or More

There’s another (likely “only”) half a percent rate increase coming at the next Bank of Canada meeting on September 7th. While inflation seems to have peaked, but that’s just an educated guess, our rate increases may not be over until the end of the year. (Their next meeting date to likely raise rates again will be Oct.ber 26th.)

If you have a mortgage due for renewal like I do, it’s not a pleasant thought. However, if your mortgage comes up in the next six months, a number of lenders WILL let you renew if you’re within that six months! That’s what I did last week. My rate is going up 2.4 percent, but that’s better than three percent after the September increase, and any other jump after that. Check with your lender today if your mortgage is up in February next year or earlier! That call may end up saving you over ten thousand dollars!

What’s the rate increase going to cost you? That depends on the rate you currently have. However, a 3% increase on each $100,000 will be $3,000 a year. So someone with a $400,000 mortgage will see their payments go up close to $1,000 a month! What do you get for that? Nothing! It’s a huge increase in your monthly spending for just getting to stay in your home. Yes, it stinks and it’s depressing, but that’s what rising rates cause.

How long should you renew for? That’s up to you. I only ever answer questions as to what I would do – or in this case, what I did. My thinking was that rates will peak sometime next year at the latest. But then it’ll take a while for them to ease downward. Like gas prices, they spike up and take forever to come back down. Even when the Bank of Canada decreases rates, that doesn’t mean the chartered banks will immediately pass that prime rate decrease on. So it didn’t make sense to me to just do a two-year mortgage for that reason. But I sure wasn’t going to sign for five years at these rates as selling or refinancing triggers a big penalty (typically three months or the interest differential – whichever is larger.)

So I picked the kind-of middle option of a three-year term at 5.2%.

While my mortgage is pretty small, I sympathize with anyone who is close to the $400,000 mortgage example about to flush $36,000 of net income down the toilet over the next three years…

Zig When Banks Want You to Zag & Adulting 101

Last month we talked about a survey that showed 8 out of ten people want financial advice from their bank. Great idea – from the wrong people! Getting financial advice and learning the insights is a great ideal or it’ll cost you huge. But don’t get it from people who are on commission. Here’s more proof of that going on right now:

Interest rates are stable and heading down. The Federal Reserve in the US will start dropping them before Canada, but they will come down in both countries. I first mentioned that we will be going into a recessing last fall already.

What are all financial institutions advertising heavily right now? Getting a fixed longer term mortgage at a “special” rate. OK, rates are coming down – so the WORST thing to do is lock yourself in right now at higher than need be rates! Banks want you locked in for five years or longer. That way, when rates come down, you’re way overpaying and it’s their additional profit.

What you do not hear from any of them right now are any ads on GICs. Why? Because if you lock those in right now you’ll get the higher rates before they drop. That’ll make you money but cost the banks a significant amount of profit: You get the high rate – they have to pay it while prime rates are dropping.

Adulting 101 Course

What a great idea! And it’s something four or five parents or grandparents can do together this summer: An Adulting Boot Camp. A high school in Lexington Kentucky this year started a three-day adulting 101 course for grade 12 students. Day one is all about money, day two is home & health and day three is being a professional. It’s everything from budgeting to saving, how to do laundry, basic cooking, car maintenance, ironing a shirt, shaking hands, making eye contact, tucking in your shirt, leaving your cell off during an interview and a ton more.

I love it love it love it! They may seem like such no-brainers to us older generations, but it isn’t in any way shape or form for 18-year olds!

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Mortgage Rates Are Down…Sort Of…

It seems like a lot of people got really excited when the Royal (now matched by a number of others) dropped their mortgage rate by 0.15% last Thursday.

Any time rates or prices drop, it’s great for buyers, but this one isn’t anything to get excited about. It’s a rate drop for new mortgages and not a drop in the prime rate. So if you’re on a variable rate mortgage, it’s not likely your bank will drop your payment starting next month. Even if they did, it’d amount to $5.60 on a $250,000 mortgage. If they choose to drop your line of credit rate, you’d save $1.20 a month on an average $36,000 credit line.

Any tiny drop in rates isn’t going to rescue the housing market in 80% of the country. What needs to change is the mortgage stress rules that force borrowers to qualify for sticker rates when their actual rate will be about two percent lower. That rule certainly makes sense in overpriced housing markets.

It was designed to slow down the market. But what it’s done is not only slow it down, but stop it, and then shrink it in a big way. Toronto sales down 16% last year, as well as prices – Vancouver sales down 32%. Overall, sales are down 47% and mortgage applications are now at a 22-year low. One of the big banks’ mortgage applications are down by half over a year ago.

Is THAT what the goal was? The desire to own a home hasn’t changed, but the ability has. Now there are many signs that the federal government is running scared – and should be.

The stress test might still have a purpose but should be set by postal codes so the slow housing markets don’t keep getting killed. Plus, we’re pretty much done with rate increases. Sure, there might be one or two more, but we’re much more likely to have a recession in the next year than to have another huge wave of inflation with the corresponding rising rates.

It’s an old stat, but someone buying a home spends an additional $10,000 in everything from furniture to painting, renovators to appliances. None of that happens if the housing market has grinded to a halt. And I still maintain that there are tons of younger people who would love to get into the housing market but can’t. And if they don’t buy an entry level home, the people selling those can’t move up when they can’t sell…and none of the dominos to a healthy housing markets move!

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Mortgage Rates & Recalls Information You Really Need

Not nice of some of the big no-service banks to once again take advantage of us. Not nice – but expected. One of them is Scotiabank, who passed on 0.15% of the quarter point decrease last week. I just saw a number of line of credit statements…they’re not the only ones.

On a positive note, the Okanagan right now has some of the lowest mortgage rates in the country. Prospera Credit Union has a five year variable rate of 2.05%. If you want a fixed rate – and you should – it’s 2.65% posted rate, and profit sharing and rebate. Plus, you get to deal with a credit union and not the banks, and that’s the biggest bonus.

Over the past year there have to be about 50 million vehicle recalls of various sizes and degree of danger. That’s a staggering number, led by 30 million recalls for defective airbags, and tens of millions from General Motors.

The problem is that these recalls have to get to the vehicle owners and have to be fixed. Some are minor, but lots of others are safety issues that have caused a lot of fires and deaths. If you purchased a new vehicle, the manufacturer has your information and you’ll get a recall letter. That’s required by law. If you’ve moved, they do not have your address, so you’ll need to go to a dealer – any dealer – and get them to update your address.

If you purchased a used vehicle, they have no idea who you are, or how to reach you! You need to let your car’s manufacturer know that you own one of their vehicles. Whether it’s for a current recall or for one down the road! You can take your registration to a dealer and ask them to put it into the manufacturer’s system – NOT just into the dealer’s service department data base. And never give them your phone number or email address. You don’t want junk mail and solicitation – you want recall information. When you’re at the dealer they can also pull up any existing recalls right on the spot.

An alternate plan is to just do a google search for  your manufacturer in Canada. That’ll give you their website and a customer contact phone number that should be able to do the same thing.

However, the most urgent thing you need to do is to check your vehicle for recalls – now! Here is the link to Transport Canada, or you can just search: “Transport Canada safety recall” and you’ll get to the website. The site doesn’t need a serial number, just the year, make and model.

Link to Transport Canada to search recalls

 

 

Is There A Point In Paying Down Your Mortgage?

I recently received an email from a lady asking if there is still a point in paying down her mortgage when house prices don’t seem to be increasing.

It’s a very good question. However, she’s confusing the mortgage with the value of her house. They really aren’t connected. The mortgage is the DEBT owed – the value (up or down) is what it can be sold for. The difference is what comes out in cash equity when it’s sold. In a perfect world, the mortgage is tiny – the value is high. So what’s cashed out on sale is huge equity. Or if the mortgage balance is still high and the value hasn’t gone up much – the difference between the two is a much smaller amount of equity.

The value is what you can sell the house for. The mortgage balance determines the cheque you’ll actually get if you sell.

The difference between owing and value is your equity. If you pay down the mortgage – the equity increases. That takes work and money. If you just pay the regular mortgage, equity builds slower. On the “value” side of the house – that is a second increase, but one you can’t control much, as it’s the market and what a buyer is prepared to pay.

All of us, hopefully, will pay off the mortgage. It’s just a question of whether it’s double or triple the original amount when interest is added for 25 years, or whether it’s much quicker and thus, much less interest, by paying weekly payments (that takes about seven years off) or adding a lump sum whenever  you can.

She’s right in that it’s the last debt that should be paid as it’s the lowest interest rate. It shouldn’t even happen before paying off a car or credit card. But for someone that’s debt free, except the house, it then becomes a choice. Invest extra money, or pay off the house – or both.

For over six years now we’ve heard that there’s an imminent massive housing price correction. I guess all these ‘predictors’ will eventually be right if you just keep saying it every year. In 2014, prices increased an average of 6% while the Bank of Canada predicted a 30% correction. In 2010, the Economist warned of a 25% reduction but prices increased 6.8%.

Predicting the housing market is a game you’re bound to lose, just like trying to time the stock market. Pay down your mortgage and invest a little money each and every month. If you’re not retiring today, or not selling your house this week – watch all those investment shows for entertainment value, and not specific advice to your financial situation.