Why the sudden increase to Variable Rates?

Please enjoy this September 22, 2011 press release from Mortgage Brokers Association of British Columbia in regards to the recent increase to Variable Rates.

"The secret to the sudden increase in variable rate mortgages

Why could I get Prime minus .90 last week and today it is Prime minus .25?

 September 22, 2011 (Vancouver) – A great question, says the Mortgage Brokers Association of BC (MBABC), especially when fixed interest mortgage rates are remaining the same.  The quick answer?  As with many things, it all boils down to money.
Over the last couple of months, banks and other lenders have been offering historically low variable interest rates to qualified homebuyers in an effort to attract new clients and mortgage business.  In the short term, lenders have been prepared to accept these low profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages – a similar ‘loss leader’ tactic used by retailers to get consumers into their door.

“However”, says Geoff Parkin, MBABC’s president, “the recent announcement by Bank of Canada governor, Mark Carney has changed the mortgage lending landscape.”   Carney stated that, because of poor performing global markets and continuing economic uncertainty, the benchmark interest rate would remain unchanged.  The long-term outlook indicates continuing low fixed interest rates with no significant increases to the Prime rate.  “In a nutshell”, says Parkin, “the bank’s theory of anticipating rising profits on variable rates was proven wrong.  They’ve had to quickly respond to this situation by reducing the variable rate discount in order to gain back profit.”

What does this mean for consumers who have variable rate mortgages?  Much of the same, says Parkin.  “We continue to see low fixed rates and the variable rate is under 3.0%.  There may still be value in going variable over fixed, but because consumers all have different financial situations and mortgage needs, we recommend they obtain expert financial advice from their MBABC mortgage broker.”"

Need access to your Home Equity?

Whether you need extra cash to pay off debt, renovate your home, travel, or whatever the reason may be. With mortgage rates as low as they are, this is a great time to refinance.  In the past, most people have resorted to a second mortgage or home equity line of credit to access their equity. More often than not these days, its more beneficial to pay out your first mortgage, incur a penalty, and refinance an increased amount at a lower rate. Take a look at this example of a client SharieMarieMortgageTeam recently helped gain access to their equity.

Bob is currently amortized about 27 years on his mortgage of $270,000. He has been in this mortgage for just over 3 years and is paying an interest rate of 5.29%. Since he has a penalty of almost $9000 to pay out his mortgage early, he went to his financial institution to discuss a second mortgage to access some of his equity. Bob was quoted a second mortgage for $40,000 at 7%, or a blended rate mortgage at 4.50% (for another 5 years) for the entire $310,000. Since the blend and extend option saves Bob the $9,000 penalty, he was leaning towards this option. This is what his payments would be:

Currently for the $270,000 - $1490/month

Option A - Keep current mortgage in place 2 more years and take a second mortgage - $1770/month

Option B - Lock in 5 more years at 4.50% for total $310,000 - $1565/month

Bob approached our team to double check his options and make sure he was making the best choice financially for him. We recommended Bob refinance his current mortgage to $319,000, giving him the equity he wanted and including the penalty in his new mortgage to avoid having to come up with the cash out of his own pocket. 

Option C (SharieMarieMortgageTeam Solution) 

$319,000 at 3.29% for 5 years keeping amortization the same as it currently is - $1390/month

So as you can see, our option provided Bob with a lower rate to lock in at for another 5 years and gave him access to his equity. Even though he incurred a penalty of $9000, his monthly payment is actually $175 less. Saving him almost $11,000 over the five year term, and freeing up monthly cash flow for Bob. This solution worked well and met Bob's needs. This is not necessarily always the best option for people as it does increase the balance owing on the mortgage, but in this situation it was ideal for Bob's needs. 

If you'd like to see how you can access equity and free up monthly cash flow, call SharieMarieMortgageTeam today.

Why work with a Sharie Marie Mortgage Team Professional?

As with all mortgage professionals, we have access to a large number of lenders who each have their own products and rates. This allows us to essentially do the work for you when it comes to shopping for a mortgage. Rather than spend your time going bank to bank to find the best product for yourself, we'll take on the task to save you time. Plus, many of the lenders we deal with, don't deal with the general public, giving you more options than you even realized you had.

What sets apart the SharieMarieMortgageTeam from other brokers out there? Not only will we get you a great rate in a timely fashion, but we'll take the time to educate you on your mortgage. There's so much more to a mortgage than the rate, and many people still don't know this. Staying informed and having the knowledge to fully understand your mortgage can save you hundreds of thousands of dollars in interest over the lifetime of your mortgage.

What you're not taught costs you money, so let us teach you.

Mortgage Insurance

There are a ton of options when it comes to insuring yourself and your mortgage against unwanted surprises. Its always best to get a second opinion or the advice of someone you trust when you are offered an option. At TMG The Mortgage Group Canada Inc. we will always offer you Life, Disability, and Critical Illness Insurance. Here are some scary facts:

• A life threatening cancer is diagnosed every four minutes
• Someone dies of heart disease or stroke every seven minutes
• Every day 144 people suffer a stroke - 21 of them will die and 110 will be left with some form of permanent damage

Take the necessary steps to protect yourself against these unexpected tragedies. If you've decided a Mortgage Insurance product is your best option, speak to a Sharie Marie Mortgage Team Professional today. Make sure you understand the advantages and restrictions of any insurance or mortgage product you purchase. For instance, if you purchase mortgage insurance through your LENDER and decide to refinance with a different lender, you will likely lose your coverage. If during the period of time before your switch something had happened with your health making you "Un-insurable" you may not be able to get any insurance in place. TMG's insurance products are fully portable, house to house as well as lender to lender.

Speak to a SharieMarieMortgageTeam Professional today about protecting yourself.

Prime rate remains unchanged - Lenders Prime 3%

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic outlook has deteriorated in recent weeks as several downside risks to the projection in the Bank's JulyMonetary Policy Report (MPR) have been realized. The European sovereign debt crisis has intensified, a broad range of data has signalled slower global growth, and financial market volatility has increased sharply. Recent benchmark revisions show that the U.S. recession was deeper and its recovery has been shallower than previously reported. In combination with recent economic data, this implies that U.S. growth will be weaker than previously anticipated. The Bank expects that American household spending will be even more subdued in the face of high personal debt burdens, large declines in wealth and tough labour market conditions. Fiscal stimulus in the United States will also soon turn into material fiscal drag. Acute fiscal and financial strains in Europe have triggered a generalized retrenchment from risk-taking and could prompt more severe dislocations in global financial markets. Resolution of these strains will require additional significant initiatives by European authorities. Growth in emerging-market economies has been robust, although its rate and composition will be affected by weakness in major advanced economies. While commodity prices have declined owing to diminished global growth prospects, they remain relatively high.

Largely due to temporary factors, Canadian economic growth stalled in the second quarter. The Bank continues to expect that growth will resume in the second half of this year, led by business investment and household expenditures, although lower wealth and incomes will likely moderate the pace of investment and consumption growth. The supply and price of credit to businesses and households remain very stimulative. However, financial conditions in Canada have tightened somewhat and could tighten further in the event that global financial conditions continue to deteriorate. Net exports are now expected to remain a major source of weakness, reflecting more modest global demand and ongoing competitiveness challenges, in particular the persistent strength of the Canadian dollar.

Slower global economic momentum will dampen domestic resource utilization and inflationary pressures. The Bank expects total CPI inflation to continue to moderate as temporary factors, such as significantly higher food and energy prices, unwind. Core inflation is expected to remain well-contained as labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.

The Canadian Economy and You

The Canadian economy shrank in the second quarter of 2011 according to data released by Statistics Canada on Wednesday, August 31. While this might send out alarms for some sectors of the economy, like the stock market, overall, average Canadians need not pay too much attention to the number, according to Benjamin Tal, Senior Economist at CIBC. Most economists agree that the second quarter results were due to a few temporary factors: the supply of automobiles was disrupted because of the Tsunamis in Japan; and Alberta wildfires disrupted oil production.

Even Finance Minister Jim Flaherty noted that the news of the slowdown did not negatively impact the federal government's plan to stay the course toward balancing the budget. He also said that Canada's economic and fiscal fundamentals were sound and sustainable.    Bottom line: no recession. The economy did grow strongly in the previous two quarters -- plus 3%. And the domestic economy is still strong. The bright side to all of this is that Canadian companies are purchasing equipment and machinery, investing in their infrastructure and hiring. This clearly shows that business is confident about its future prospects.     For example, in Eastern Ontario Nestle just completed a 30,000-sq-ft. expansion to boost production of its sauces, soups and other products. In Burnaby, B.C MonaVie, maker of premier acai based-nutritional products built a new facility with more than 4,000 square feet of warehouse space and 4,300 square feet of office space. Multinational agri-food firm Bunge is expanding its processing plants in Western Canada with a project to more than double its canola crush at Altona, Man. The Altona plant's processing capacity will be boosted to 2,500 tonnes per day, up from 1,100 currently.   Although Canada is not completely immune to global economic shifts, the country is resilient. The Canadian dollar did react briefly to the news and weakened slightly against the US dollar but has rebounded.   Interest rates, which impacts mortgage rates, are still expected to remain low with some economists predicting no increases to the Bank of Canada's Prime rate until well into 2012. This is good news for home owners and first time home buyers.  With bank Prime rates at 3% and fixed rates at 3.49% for those who have the need and opportunity to borrow, this is a good time.   The Canadian Real Estate Association has also revised its forecast for home sales upward for 2011, citing stronger-than-expected sales and prices in the second quarter and good momentum entering the second half of the year.   The one constant is that global economies are still fragile. However, Canadian fiscal policy has, for the most part, sheltered us somewhat from the doom and gloom happening in countries worldwide. We can be confident, given what has happened so far, our government will continue to monitor events in other countries so that we continue to grow and prosper. -Debbie Thomas - TMG The Mortgage Group Canada Inc.