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Happy Family Day – Monday Morning Interest Rate Update (February 21, 2017)

by David Larock

I hope that everyone enjoyed the Family Day long weekend. I used the holiday yesterday for its stated purpose so today’s post will be short and sweet.

Five-year Government of Canada bond yields rose five basis points last week, closing at 1.16% on Friday. Five-year fixed-rate mortgages are available at rates as low as 2.44% for high-ratio buyers, and at rates as low as 2.49% for low-ratio buyers. Borrowers who are looking to refinance should be able to find five-year fixed rates in the 2.69% to 2.84% range, depending on the terms and conditions that are important to them.

Five-year variable-rate mortgages are available at rates as low as prime minus 0.80% (1.90% today) for high-ratio buyers, and at rates as low as prime minus 0.60% (2.10% today) for low-ratio buyers. Borrowers who are looking to refinance should be able to find five-year variable rates in the prime minus 0.45% range (2.25% today), depending on the terms and conditions that are important to them.

The Bottom Line: Expect more bond-yield volatility this week as investors continue to assess whether U.S. Fed Chair Yellen finally means it when she says that the Fed plans to raise its policy rate this summer. So far the market isn’t convinced but that could certainly change, and quickly.

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Will Another Month of Impressive Jobs Gains Fuel a Rise in Canadian Mortgage Rates? Monday Morning Interest Rate Update (February 13, 2017)

by David Larock

Last week was an interesting one for five-year Government of Canada (GoC) bond yields, which our five-year fixed mortgage rates are priced on.

We started the week with GoC bond yields falling in sympathy with their U.S. counterparts as investors re-evaluated their bets that the Trump presidency would lead to higher growth and inflation. Thus far, President Trump has focused on his anti-immigration and protectionist trade policies and not on his promises for fiscal stimulus and tax cuts.

Investors must also be wondering how much, if any, political capital President Trump will have left once he is done fighting with the courts over his Muslim ban and after he gets through the Senate confirmation hearings for his cabinet appointees. Mind you, when the people you nominate to head the education and labour departments and the Environment Protection Agency have all publicly called for the elimination of the same departments they are now tasked with leading, contentious confirmation hearings shouldn’t come as a surprise.

President Trump’s erratic behaviour also raises geopolitical instability risks, and this too is exerting downward pressure on bond yields because capital flows towards safe-haven assets, like bonds, in uncertain times.

Against that backdrop, we received the latest Canadian employment data, for January, on Friday. The headline came in much higher than expected for the second straight month and Canadian mortgage borrowers are now speculating about whether this continuation of stronger-than-expected employment data might trigger another round of mortgage rate increases.

To help answer that question, let’s start by looking at five key highlights from the latest Canadian employment data: read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The U.S. Federal Reserve Maintains a Cautious Approach to Future Rate Hikes – Monday Morning Interest Rate Update (February 6, 2017)

by David Larock

The U.S. Federal Reserve left its policy rate unchanged last week, as expected.

In its accompanying statement the Fed also offered a generally positive view of the current state of the U.S. economy, but that said, its latest assessment did not read like a warning that materially higher rates were imminent (as an increasing number of market watchers have been predicting).

The Fed’s latest commentary matters to anyone keeping an eye on Canadian fixed mortgage rates because our bond yields have moved in virtual lock step with their U.S. equivalents since the start of the Great Recession. While our economies now appear to be progressing along very different trajectories, for as long as the current bond yield correlations hold, if U.S. interest rates rise, Canadian rates will get taken along for the ride.

Here are five highlights from the Fed’s latest statement, with my comments added: read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Will Canadian Mortgage Rates Get Trumped? Monday Morning Interest Rate Update (January 30, 2017)

by David Larock

In today’s post we’ll look at how the tumultuous start to the Trump Presidency is likely to affect Canadian mortgage rates, because really, given the current news cycle, how could we not?

Last week President Trump announced a series of controversial immigration measures that touched off waves of condemnation both at home and abroad. The implementation of these new measures served as confirmation, and a warning, that President Trump plans to follow through on the promises he made on the campaign trail, even in the face of overwhelming opposition.  Say what you will about President Trump – he is doing what he said he would as candidate Trump.

This is a concerning development for America’s main trading partners, who until last week might have held out some hope that President Trump’s protectionist trade rhetoric would eventually be tempered by the light of cold, hard economic reality. But we now find ourselves in a world where every traditional, evidence-based warning  by economic experts about the damage that trade barriers will inflict on the U.S. economy is met with “alternative facts” that are free from any burden of proof (or reality).

To cite a few examples: read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Uncertainty Reigns at The Bank of Canada – Monday Morning Interest Rate Update (January 23, 2017)

by David Larock

The Bank of Canada (BoC) left its overnight rate unchanged last week, which was widely expected, and that means that variable mortgage rates should continue to hold steady. (I say “should” to allow for the possibility that another lender follows TD Bank and arbitrarily raises its prime rate for its entire book of existing variable-rate borrowers.)

The BoC also published its latest Monetary Policy Report (MPR), which provides us with its assessment of current economic momentum both at home and abroad, and includes projections of how the Bank thinks our economy will progress in future.

If you’re trying to get a handle on where our mortgage rates may be headed over the next several years, this document gives you a good idea of our policy makers’ thinking.

Bluntly put, the overriding theme of this MPR was uncertainty, and today’s post will provide a summary of the January MPR’s key points, along with my take on what the BoC said. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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All Eyes on the Bank of Canada This Week – Monday Morning Interest Rate Update (January 16, 2017)

by David Larock

Mortgage Rate ConceptThe Bank of Canada (BoC) meets this week and while the Bank is not expected to move its policy rate, it will also release its latest Monetary Policy Report (MPR).

I read the MPR it with interest because it gives us the Bank’s views on the state of our economy and includes projections of where it thinks our economic growth will be headed over the next several years. In this most recent version, the key question for anyone keeping an eye on mortgage rates is how the recent uptick in our economic data will impact the Bank’s dovish rate view.

In next week’s post, we will answer that question by taking a detailed look at the BoC’s January MPR.

Five-year GoC bond yields rose by one basis point last week, closing at 1.14% on Friday. Five-year fixed-rate mortgages are available at rates anywhere from 2.59% to 2.99%, with rates at the lower end of that range offered on loans that are eligible for some form of default insurance, and rates at the higher end of that range offered on loans that are not eligible. (If you want to learn whether you and your loan are eligible for default insurance , check out Part One and Part Two of my recent posts on this topic.) Five-year fixed-rate pre-approvals are now offered at around 2.94%.

Five-year variable-rate mortgages are still available in the prime minus 0.20% to prime minus 0.60% range, which translates into rates of 2.50% to 2.10% using today’s prime rate of 2.70%.

The Bottom Line: U.S. and Canadian bond markets took a breather last week as the world waits for President-elect Trump to be sworn in. Given that, our fixed-mortgage rates should hold steady, and since the BoC isn’t expected to move when it meets this week, the same should be true of our variable mortgage rates as well.

 

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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A Look Ahead for Canadian Mortgage Rates in 2017 – Monday Morning Interest Rate Update (January 9, 2017)

by David Larock

Mortgage Rate ConceptHappy new year and welcome back.

To kick off 2017, in today’s post we’ll take a look at how the world’s largest economies are likely to impact Canadian mortgage rates in the year ahead. While it may not seem obvious at first glance, events in far off places can and do impact the rates we pay on our mortgages.

The global economy is more interconnected than ever and a small, open economy like ours is influenced by many factors beyond our borders. It is readily apparent that developments in the U.S. will have a significant impact on our economic momentum and mortgage rates in the year ahead, but so too might the next euro-zone crisis (this time involving Italian banks) or the growing pains of China as it continues to undergo its fundamental (and unprecedented) transition from an export-based manufacturing economy to one that is service-based and domestically focused instead.

Here is a look at the key factors in the world’s largest economies that mortgage borrowers should be keeping an eye on, with a brief look at the Canadian economy as well. This will serve as an outline of the themes that we will be returning to as we try to interpret and forecast mortgage-rate movements in the year ahead. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Variable Mortgage Rates Grow More Appealing for Canadians – Monday Morning Interest Rate Update (December 19, 2016)

by David Larock

Mortgage Rate ConceptThe U.S. Federal Reserve raised its policy rate from 0.50% to 0.75% last week, as expected. And while the Fed essentially left its previous projections for the U.S. economy intact, it is now positioning the U.S. bond market for three additional rate hikes in 2017 (up from two hikes in its prior forecast).

The Fed’s forecasts have been wide of the mark for years (it had previously forecast three hikes in 2016) but bond-market investors seem to be buying the Fed’s view more so now than they have over the past several years, and that has pushed U.S. bond yields sharply higher.

The current narrative is that President-elect Trump will push through corporate tax cuts that will spur business investment and increase the demand for (and cost of) labour, and that he will also introduce massive new infrastructure-spending initiatives. If these developments play out as expected they will portend higher inflation, and investors are driving up U.S. bond yields in anticipation of this outcome (and they are taking Canadian bond yields, and our fixed mortgage rates, along for the ride).

Time to scratch my contrarian itch. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The Bank of Canada Bolsters Its Cautious Rate View – Monday Morning Interest Rate Update (December 12, 2016)

by David Larock

Mortgage Rate ConceptLast week the Bank of Canada (BoC) announced that it would leave its overnight rate unchanged, as was widely expected, and in its accompanying statement the Bank explained how current economic momentum, both at home and abroad, has contributed to its cautious overall view.

Here are the highlights from the BoC’s latest statement, along with my take on the implications for both our fixed and variable mortgage rates: read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The New Canadian Mortgage Landscape – Monday Morning Interest Rate Update (December 5, 2016)

by David Larock

Mortgage Rate ConceptThe latest round of mortgage rule changes kicked in last week and lenders wasted no time in adjusting their product offerings, in some cases by adding new rate premiums and in others by pulling products altogether.

While these changes were not welcomed by borrowers, or by many people who work in mortgage-related fields, our policy makers got exactly the result they were looking for. They had become increasingly concerned that an extended period of ultra-low mortgage rates was fueling an unsustainable rise in house prices in hot regional markets and was exacerbating our average household debt levels, which today stand at record levels.

Ideally, our mortgage rates would have risen naturally, but aside from the short-term post-U.S. election spike that pushed them a little higher, that just hasn’t happened. And since market forces weren’t going to materially raise mortgage rates on their own, our policy makers decided to implement another round of mortgage rule changes to make them rise, this time by limiting the availability of government default-insurance on specific mortgage products. (Bluntly put, it was either that or close your eyes, cross your fingers and hope for the best – an approach that too many of my colleagues continue to espouse.)

Now that the latest changes have been implemented, here are the answers to five key questions to help borrowers understand how the residential Canadian mortgage landscape has now changed. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The Coming Test for Canadian Bond Yields – Monday Morning Interest Rate Update (November 28, 2016)

by David Larock

Mortgage Rate ConceptThe futures market is now giving 94% odds that the U.S. Federal Reserve will raise its policy rate when it next meets on December 13, 2016. While there is still much debate about whether the U.S. economy is ready for higher rates, the Fed seems determined to follow through, if only to restore some policy flexibility for fighting the U.S. economy’s next recession.

This sets up an interesting test for Government of Canada (GoC) bond yields, which have moved in virtual lockstep with their U.S. equivalents since the start of the Great Recession in 2008.

The Canadian economy continues to hover at just above stall speed and if the Bank of Canada changes its policy rate anytime soon, all indications are that it will move it lower. Given that dovish bias, will the growing divergence in our monetary policies finally lead to a decoupling in the direction of our bond yields?

If the answer seems obvious, it isn’t. The near 100% correlation between U.S. and Canadian bond yields over the past eight years is no accident. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The Canadian Mortgage Landscape Is About To Change – Monday Morning Interest Rate Update (November 21, 2016)

by David Larock

Mortgage Rate ConceptIn a little over a week, on Wednesday, November 30, the next round of mortgage-rule changes will take effect, and while we can’t predict exactly what the impacts will be for every lender, we do know that our mortgage market will begin to look different.

My recent post on the latest round of mortgage-rule changes provided a detailed explanation of the coming restrictions, but to quickly recap, our policy makers will now restrict the types of low-ratio mortgages that are eligible for default insurance. Affected borrowers, such as refinancers and investors who want to buy single-unit rental properties, will still have access to financing, but since their loans will no longer be eligible for default insurance, the number of lenders who can offer solutions to these borrowers will decrease, and the cost of these types of loans will increase.

Over the very short term then, if you’re a home owner who is contemplating a refinance of your existing mortgage, this is your last week to get your application in before the new changes take effect. (Purchasers who will be affected seem less likely to be able to accelerate their buying plans to get in under the wire, especially this late in the game, but they should be forewarned as well.)

Since the upcoming rule changes will be top of mind this week, here are three key questions relating to them that will be answered in the fullness of time: read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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Why It’s Too Soon to Know How a Trump Presidency Will Affect Our Mortgage Rates – Monday Morning Interest Rate Update (November 14, 2016)

by David Larock

Mortgage Rate ConceptThe growing consensus that a Trump presidency will lead to higher bond yields, and by association higher mortgage rates, has me scratching my contrarian itch.

It’s true that U.S. bond yields have surged higher since President-elect Trump’s victory, taking Government of Canada (GoC) bond yields along for the ride. But does this recent sell-off signal that the bottom for bond yields is in, or will it prove just a temporary blip?

In the immediate aftermath of the election, we just don’t know. Dow futures plunged 800 points in after-hours trading on election night, and the next day finished up 250 points, so while volatility certainly ruled the day, the market’s true conviction was not clear.

That said, contrary to what many market watchers seem to have now concluded, I think it’s going to take more than just a Trump election win to signal the end of the longest bond bull market in U.S. history. It will be Mr. Trump’s actual governing, moderated by the next U.S. Congress that will determine the direction of U.S. bond yields.

To that end, let’s take a look at the main arguments being made by those who think that a Trump presidency (I can’t lie, it still feels weird to type that) will lead to materially higher rates, with my take on why these views may be proven wrong in the fullness of time. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The Real Reason TD Raised Its Mortgage Prime Rate Last Week – Monday Morning Interest Rate Update (November 7, 2016)

by David Larock

Mortgage Rate ConceptLast Tuesday, TD Canada Trust increased its mortgage prime rate (which is the rate that it uses to price its variable-rate mortgages) from 2.70% to 2.85%. In today’s post, I’ll provide a quick example to illustrate the impact of this change, and offer an insider’s point-of-view on why there was more to it than first meets the eye.

Let’s assume that a TD borrower has an existing $300,000 five-year variable-rate mortgage at prime minus 0.50%, and that this loan is amortized over twenty-five years.

Prior to last Tuesday, his rate would have been 2.20% (which we calculate by taking the TD’s previous mortgage prime rate of 2.70% minus his discount of 0.50%), and his monthly payment would have been set at $1,299. As of last Tuesday, his variable rate has now risen to 2.35%, but whereas most borrowers would expect the bank to increase his mortgage payment by the additional $22.10/month that would be needed to maintain his original amortization, TD’s standard practice is to hold his payment steady and extend his amortization period instead.

To understand the impact that this extension in amortization will have over time, let’s look at the borrower’s mortgage balance at renewal both before and after TD’s most recent rate hike.

Before the rate increase, the borrower’s balance at renewal would have been $252,363, assuming that his rate had held steady over his mortgage term. After the rate hike, because TD didn’t increase his monthly payment by the additional $22.10 and extended his amortization period instead (which is TD’s standard approach unless specifically instructed otherwise), his balance at renewal will increase to $253,763, which is $1,400 more than it would have been had TD not raised its rate.

To be clear, if you are a TD variable-rate borrower you can call the bank and have your payment increased to account for last week’s rate hike, but you have to initiate the call. Otherwise, expect to have a higher balance at renewal.

Most market watchers quickly concluded that this rate hike was tied to the Department of Finance’s latest mortgage rule changes, but I don’t see it that way. These changes reduce the availability of mortgage insurance going forward, and will thus raise a lender’s cost to fund some of its mortgages in the future. But TD’s mortgage prime-rate hike raises borrowing costs for all of its existing customers, even though their mortgages were set up prior to the latest rule changes. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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The Bank of Canada Changes the Way It Monitors Inflation – Monday Morning Interest Rate Update (October 31, 2016)

by David Larock

Mortgage Rate ConceptLast week the Bank of Canada (BoC) and our federal government agreed to extend the Bank’s existing inflation target of 2% and to maintain its existing inflation-control range of 1% to 3% for a new five-year period.

This was largely expected and on its own might not warrant mention in my weekly Monday updates. But the Bank also announced a significant change in the measures that it will use to monitor our overall inflation as part of its formal inflation review, and that is noteworthy for anyone keeping an eye on Canadian mortgage rates.

The BoC’s primary mandate is to maintain price stability, which is otherwise referred to as keeping inflation under control, and it uses specific measures to gauge whether this is happening. So if you are trying to figure out where mortgage rates may be headed, these measures provide the clearest indication of the Bank’s current bias (toward raising rates, lowering them, or standing pat).

In future, instead of relying on the traditional Consumer Price Index (CPI) total inflation and core inflation statistics, the Bank will now use three more detailed measures called CPI-common, CPI-trim and CPI-median. The Bank believes that these core measures will: 1) more “closely track long-run movements in total CPI inflation”, 2) “be less volatile than total inflation and capture persistent movements in inflation”, 3) “be related to the underlying drivers of inflation, notably the output gap”, and 4) “be easy to understand and explain to the public”.

Of all of the Bank’s justifications for adopting what it feels are more accurate measures, I thought the point about wanting to use measures that more closely relate to the output gap was the most important. The output gap measures the difference between our actual output and our maximum potential output, and the Bank would typically be expected to raise rates on or about the time that this gap closes. Our traditional inflation gauges, core and total CPI, have not tracked as closely to the output gap in recent years as would be expected, and I suspect that this was the main impetus for seeking more accurate gauges. read more…

David Larock is an independent full-time mortgage agent and industry insider. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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