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There have been many questions and concerns with what's been going on in the market these days, and how will it affect people in regards to their finances, especially their mortgages.
I wanted to send out an email to let you know if there is anything you are concerned about, or have any general questions, please feel free to call me to discuss it. I'm here to make sure you understand and are aware of all the details regarding your mortgage, and changes within the industry.
One of the biggest concerns most people have is whether they should switch their current variable rate (if they have one), into a fixed rate. If you have a variable rate I advise you on keeping it! As of recently banks and lenders have changed their variable program to Prime + 1.00% (currently Prime is at 4.00%). Anyone who acquired a mortgage at a variable rate prior to this change has something that nobody is able to get, and your most likely sitting at a current rate of 3.40%. That’s a huge savings. Something the banks and lenders are not very happy about. I have been told recently by clients and colleagues that people have been receiving phone calls from their lender advising them that they should switch from their current variable rate to a discounted fixed rate. Banks and lenders are doing this because while you’re saving money, they are losing money. And it is NOT in your best interest. If yo! u receive any calls please contact me to discuss it further before making any changes or decisions. I want to make sure it’s in your best interest, and not the banks.
I read an article not too long ago in the financial post regarding the variable rate which I thought was interesting. I have copied it below for you to read if you'd like.
I hope your having a fantastic day and look forward to speaking to you in the near future.
Mike Hattim
The Hattim Group Inc.
Dominion Lending Centres - Forest City Funding Inc.
Office: 519-652-9111
Cell: 519-200-2200
Fax: 519-858-8899
www.hattimgroup.com
"ARTICLE" - source: Financial Post
The push has come after the banks cut the discount they offered to consumers with variable-rate products tied to the prime lending rate. Two weeks ago a consumer could get a variable rate product at 0.60 percentage points below prime; today it is one percentage point above prime.
"Banks are scaring people and those people are calling us asking whether they should lock in," said Vince Gaetano, a vice-president with Monster Mortgage, a mortgage brokerage firm.
His advice is pretty emphatic. Anybody with a mortgage negotiated in the past two years would be out of their mind to lock in to, say, a five-year term, he said. They would be going from a rate as low as 3.35% to 5.79%. Lines of credit previously negotiated at a rate below prime are also still valid.
"If you've got a mortgage rate negotiated below prime, you have a dinosaur. It doesn't exist anywhere. You should hold onto until the end of the term," said Mr. Gaetano. "The banks propped up all their rates 160 basis points because they knew the Bank of Canada would be lowering rates."
Last week, the Bank of Canada lowered interest rates by 50 basis points only to see the major banks cut their prime lending rate by half that amount. After some pressure, most of the banks cut their prime lending rate by the full 50 basis points.
Joan Dal Bianco, vice-president of real estate-secured lending with Toronto-Dominion Bank, said the banks were reluctant to pass on the full 50-point rate cut because they were losing money on variable-rate products.
"At the prime minus rates we were basically earning zero or negative. We kept holding off [cutting the discount]," said Ms. Dal Bianco, adding that in the past year 50% of her bank's new mortgages were variable-rate products.
With a cost of funds generally above 4% because of the lack of liquidity in the market, the mortgages previously negotiated ended up below water after the latest rate cut.
Prime is now 4.25% at TD but two weeks ago the bank was offering a variable rate of 60 basis points below prime, meaning the consumer was borrowing at 3.65%.
For those now entering the housing market, the rate is 5.25% for a variable rate product but Ms. Dal Bianco said that might not be high enough. "We are not making much money on those if anything." she said.
The move into variable mortgages tied to prime has come in the last five year with many of the banks promoting products that allow consumers to float with prime but lock in a rate at any time during the term of their mortgage.
The Canadian Association of Accredited Mortgage Professionals says, as of 2007, 21% of mortgages were variable rate, 72% were fixed rate and 7% were a mix of the two.
Asked whether the banks are actively encouraging consumers to convert variable rate products, Ms. Dal Bianco said that hasn't happened. "We are making sure [staff] have the right conversations if people are really nervous and do not want to see their payment moving."
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