The Importance of Low Interest Rates (Beside the Obvious)

Happy Thursday everyone! I hope you’re all enjoying the beautiful June weather as much as I am. It’s days like these you just want to get out of the house and into the fresh air – and I say that as someone whose job it is to help people get in to houses!

But it’s also my job to keep the good people of Northern BC (that’s you!) up to date on their mortgage news, and so before I join you in enjoying the day, I thought I’d write a quick post about the latest goings-on in the industry. My main inspiration today is a wonderful long form article by Richard Blackwell in The Globe and Mail about the dangers of rising interest rates.

As Blackwell lays out very bluntly, the “ratio of debt to disposable income [for the average Canadian] has risen to 163 per cent” since the early 90’s. The reason that hasn’t “crippled families,” as he puts it, is because “low interest rates have kept payments reasonable.” The average 5-year fixed mortgage rate in 2015 is 3.8%, which is magnitudes lower than it was thirty years ago – 19.4% was the average in 1982. These two figures – debt to disposable income and average interest rates – form a very fine balance, and Blackwell postulates that “it wouldn’t take much of a hike to play havoc with the finances of today’s homeowners.” As he puts it, particularly direly:

“If rates go up – and not even remotely close to the levels of the 1980s – many people will be paying out a far greater proportion of their income in interest, possibly forcing some to abandon their houses or declare bankruptcy.”

That’s not to say he’s predicting a sudden housing apocalypse – he isn’t. In fact, “it looks likes rates won’t be turning upward for some time yet.” However, it’s an important warning to keep in mind when picking out the right mortgage – Blackwell quotes Bank of Montreal chief economist Doug Porter as saying that “when interest rates turn, they could rise more quickly than many expect.” My fellow mortgage broker Steve Garganis points out in his latest blog post that fixed mortgage rates might be about to start climbing, and it’s certainly something to consider when selecting a mortgage now.

I’m obviously not trying to scare anybody, and I’m certainly not portending a future of doom and gloom for Canadian homeowners. I tend to think that everything will turn out alright in the end, but I want consumers like you to be aware and proactive when making one of the most important purchasing decisions of their lives. My main takeaway, as always, is that it’s important to be informed. There’s a perfect mortgage out there for you, and I want you to get it with or without my help. Of course, I’d love to help you find it, and if you can spare the incredibly reasonable cost of FREE for my services, I promise I can get it for you (for example, my 5-year fixed rate of 2.59% is well below that 3.8% average…).

On a lighter note (and as I pointed out earlier today on my Twitter page, which I up update even more frequently than this blog), RBC has backed down from newly proposed transaction fees that were to take effect June 1st – the same day that CMHC enacts its own increase on mortgage loan insurance, as I talked about at length last time. RBC’s plan was to have mortgage payments count toward a monthly transaction limit for customers, meaning essentially that customers would ‘pay to pay’ their mortgages off. Thankfully, as CBC reports, consumer outrage has put a stop to this particularly greedy plan – and I’m always in favour of a win for consumers. That said, this whole incident is a perfect example of nickle and diming from one of the Big Six Banks… the fact that it was set to take place at all is a big breach of good faith. Luckily for anyone in the market for a mortgage, I have access to a ton of other lenders who aren’t trying to take as much as they can from their customers. Give me a call at (250)-782-9665, and I’ll tell you even more about it. Remember – my phone is always on during business hours, and my business hours are always. That’s another thing that sets me apart from the banks.

On that note, I think we both have some beautiful weather to enjoy. Have a wonderful weekend!

Lori Lalonde, Your Northern BC Mortgage Broker

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Your Start of May Mortgage Update: Let’s Talk CMHC

Hello friends! I trust everyone has been having a great week and a fantastic start to the month – and if not, perhaps it will console you to know that I have. Of course, I’m here to improve your week either way, and what better way to accomplish that than with an exciting mortgage update?

To that end, let me talk a little bit about CMHC (The Canadian Mortgage and Housing Corporation), which I’ve mentioned in previous posts. The focus of those mentions was on the mortgage loan insurance premium for homebuyers with less than a 10% down payment – a premium that starting June 1st, “will increase by approximately 15%.” That’s not to villainize the CMHC (on the contrary, they provide a valuable service to millions of Canadians), but simply to provide an indication of the changing landscape of the Canadian mortgage industry.

As CMHC works to “tighten [its] mortgage rules” and “shrink… the total value of its mortgage insurance” (as reported by the Globe and Mail), they in turn “encourage the growth of private sector mortgage financing and insurance.” This accounts for their raise in premiums last year and the one that comes into effect June 1st, and sets the stage for private companies like “Genworth MI Canada Inc. [that] report they’re working to expand their presence in the market, particularly among smaller lenders.”

CBC points out that this won’t necessarily work out the way CMHC is hoping, as “Genworth Canada has matched the CMHC’s hike [of 15%].” And this isn’t some sort of opt-in fee: “By law, anyone who wants to purchase a home in Canada with less than 20 per cent as a down payment must purchase mortgage insurance from either the CMHC or one of its rivals like Genworth.” That means that if you’re in the market and want to avoid the rate hike, and you fall into that category of purchaser, you should look at getting a mortgage sometime this month – because no matter who you go with, you’ll feel the increase. The good news to come out of this is that even in a predicted housing slowdown, CMHC is “lowering the amount it sets aside to pay claims… citing ‘improving economic conditions including rising house prices and lower unemployment rate'” (that’s from the Globe and Mail again).

So why tell you all this? Most importantly, to keep you informed, because an informed consumer is a savvy consumer (and our country could use all the savvy consumers we can get). But secondly, to highlight just how complicated and dynamic the mortgage industry is – and to make it as clear as possible what my job as a mortgage broker is for. As a Canadian looking to buy a home, or refinance one, or whatever it is, you’re only interested in getting the best, most appropriate mortgage you can. It’s a very simple concept that in practice – even with an organization like the CMHC trying to make it as easy as possible (they have a detailed home-buying guide on their website, for example) – becomes very difficult to manage. You shouldn’t have to navigate the murky waters of the mortgage industry on your own, and if you give me a call, you won’t. I know the ins and outs, I spend my days keeping up with the latest changes, and I’m here exclusively to help you with all of it. Best of all for both of us, I provide this service FREE of charge for almost every client. Those ever-evolving lenders pay me out of pocket, so you don’t have to. They get a good client and you get the best mortgage possible.

If you’ve read all the way here, I hope you have a better understanding of the mortgage industry (or at least CMHC’s role in it). But more significantly, I hope you know that you don’t need to understand it all 100% – because I can do that for you, and I can do it for free.

My number is (250)-782-9665, and my phone is always on.

Lori Lalonde, Your Northern BC Mortgage Broker

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