RBC, Canadian Banks raise rates on fixed mortgages

Royal Bank, TD Canada Trust and Laurentian Bank announced Monday they are raising rates they charge on certain fixed mortgages, including the benchmark five-year mortgage, which will jump 60 basis points to 5.85 per cent effective Tuesday.

"This is actually a fairly large increase reflecting what's happening in the bond market lately," said Benjamin Tal, senior economist with CIBC World Markets.

Most other lenders will likely follow. These are the largest posted rate increases since 1996.

"The rates are tied to our funding costs, which change day to day," said an RBC spokesperson. "Our long-term funding cost has gone up significantly since December." (Globe story)

If your are thinking of buying or refinancing in the near future, contact your mortgage agent soon to obtain a pre-approval or to get a rate hold!

Bank of Canada maintains overnight rate target at 1/4 per cent

As expected BoC didn't touch overnight lending rate today, see below for press release from their website.

[Source - Bank of Canada]
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The global economic recovery is under way, supported by continued improvements in financial conditions and stronger domestic demand growth in many emerging-market economies. While the outlook for global growth through 2010 and 2011 is somewhat stronger than the Bank had projected in its October Monetary Policy Report, the recovery continues to depend on exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

Economic growth in Canada resumed in the third quarter of 2009 and is expected to have picked up further in the fourth quarter. Total CPI inflation turned positive in the fourth quarter and the core rate of inflation has been slightly higher than expected in recent months. Nevertheless, considerable excess supply remains, and the Bank judges that the economy was operating about 3 ¼ per cent below its production capacity in the fourth quarter of 2009.

Canada's economic recovery is expected to evolve largely as anticipated in the October MPR, with the economy returning to full capacity and inflation to the 2 per cent target in the third quarter of 2011. The Bank projects that the economy will grow by 2.9 per cent in 2010 and 3.5 per cent in 2011, after contracting by 2.5 per cent in 2009.

The factors shaping the recovery are largely unchanged - policy support, increased confidence, improving financial conditions, global growth, and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada. On balance, these factors have shifted the composition of aggregate demand towards growth in domestic demand and away from net exports. The private sector should become the sole driver of domestic demand growth in 2011.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. Consistent with this conditional commitment, the Bank will continue to conduct term Purchase and Resale Agreements based on existing terms and conditions and according to the accompanying schedule: http://www.bankofcanada.ca/en/notices_fmd/2010/notice_fad190110.pdf

In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April 2009 MPR.

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

Information note:

A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 21 January 2010. The next scheduled date for announcing the overnight rate target is 2 March 2010.

Looking Beyond Mortgage Rates

It’s easy to get caught up in the idea that comparing mortgage rates will guarantee you get the best bang for your mortgage buck. While this may be true for particular situations, there are many scenarios where this strategy is not effective. Following are three reasons why it doesn’t always pay to make a decision based solely on rates.

Reason #1
Your long-term plan and risk tolerance should determine which mortgage product is right for you. This product may or may not have the lowest rate.

For instance, there are cases where lenders will offer lower rates for insured mortgages. With insured mortgages, however, you’re charged an insurance premium, which is usually added to the mortgage amount. But if you’re not planning on keeping the property for a long enough time to offset that cost, it may be better to take an uninsured mortgage with a slightly higher rate. The cost difference you will pay with the higher interest rate may still be less than what you may pay in insurance premiums.

As another example, if you prefer to budget for a consistent payment and can’t handle rate fluctuations, it may be better to go with a higher fixed-rate mortgage. If you think current rates are low enough and you will be living in your property for at least five years, it may be wise to also opt for a mortgage with a longer term.

Reason #2
One of the biggest mistakes people make when merely comparing mortgage rates is failing to consider important factors such as prepayment options to help pay off the mortgage faster, whether secondary financing options are allowed, early payout penalties, or what fees are involved.

It’s not enough to simply compare mortgage rates because you have to know what “clauses” are contained within the mortgage deal. There may be cases where you will find a lender with the lowest rate and willing to pay for your closing costs, or even provide you with cash-backs after closing. I will always look at the clauses and inform you on what’s truly involved in signing up for your mortgage.

Reason #3
Lenders can change their rates at any time. As such, if you’re shopping for rates with one lender and then approach another that gives you a lower rate, it’s quite possible that the first lender has also dropped its rates. This is why it’s important to get pre-approved with a lender once I’ve helped find you a mortgage that fits your needs. In some cases, we can secure your rate and conditions for up to 120 days.

These are just three reasons why it’s not enough to merely compare mortgage rates. The mortgage rate you may qualify for is also highly dependent on your credit score among other things. In order to get the best mortgage deals, you need to have solid credit.

As always, if you have any questions or concerns about finding the best mortgage product for your unique needs or your credit score, I’m here to help!

[Source - Dominion Lending Centres]

5-Year Yields Break Above 2%

[Source - Canadian Mortgage Trends]

If you are one of those savvy people who have been waiting for fixed rates to continue to drop before you decide to refinance, or as a first time home buyer, decide to buy, we may be at - or very close to the bottom.

The following post appeared on Canadian Mortgage Trends website yesterday and has some very valid reasons to get locked in sooner than later:

"Earlier today, 5-year bond yields broke above 2% for the first time in 8 weeks.
Keep an eye on the chart. A further 10-20 basis point increase might prompt certain lenders to start lifting fixed mortgage rates.

If you’re considering a new fixed-rate mortgage or pre-approval, there has never been a better time to apply."




(Chart data courtesy of the Bank of Canada. Please note: This is not a prediction or recommendation. Market conditions can change at any time.)

The Banks are quick to match Bank of Canada's Rate Cut

BMO - http://www.newswire.ca/en/releases/archive/March2009/03/c5387.html

Royal Bank - http://www.newswire.ca/en/releases/archive/March2009/03/c5118.html

TD - http://www.newswire.ca/en/releases/archive/March2009/03/c5394.html

CIBC - http://www.newswire.ca/en/releases/archive/March2009/03/c5389.html

Scotia - http://cnw.ca/en/releases/archive/March2009/03/c5448.html

National - http://www.marketwire.com/press-release/National-Bank-Financial-Group-TSX-NA-956588.html

Mortgage rate cut won't be passed on

Mortgage rate cut won't be passed on
Kristine Owram - THE CANADIAN PRESS
Although mortgage rates are coming down as lenders respond to the Bank of Canada latest rate cut, the full benefit of the reduction won't be passed on fully to home owners and buyers.
Full Article

Lower Mortgage Rates

As expected other banks have now lowered their rates, those lowering rates included Royal Bank of Canada, Bank of Montreal, Desjardins Group, Bank of Nova Scotia, Toronto-Dominion Bank and Laurentian Bank of Canada. Others are sure to follow.

These moves should help restore some consumer confidence.

This latest rate reduction is a reaction to the drop in borrowing costs in the bond market.

Mortgage rates, car loans hit by credit crunch

[Source - By Philip Demont, CBC News]

As the global financial crisis continues, many companies and consumer face an apparent economic paradox.

While central banks in many industrialized countries chop short-term interest rates to boost economic growth, what it costs to borrow money to buy a house or a car will likely rise in the coming months.

On Wednesday, five central banks — the U.S. Federal Reserve Board, the Bank of Canada, the Bank of England, the European Central Bank and Sweden's Riksbank — all cut their near-term borrowing rates by half of a percentage point.

Car loan rates likely to rise as cost of cash jumps (David Zalubowski/Associated Press)

That followed Tuesday's breathtaking reduction of one full percentage point by the Reserve Bank of Australia.

The government banks are trying to reduce borrowing costs for other financial institutions and repair the increasingly illiquid capital markets around the globe.

"Interbank lending is essentially frozen," federal Finance Minister Jim Flaherty said Thursday in Ottawa.

Canada's central bank rate has set its target for overnight lending at 2.5 per cent while the U.S. Federal Reserve's fed funds rate now is pegged at 1.5 per cent.

At almost the same time, however, the TD Bank hiked what it charges on variable-rate mortgages, a move many analysts expect to be mimicked by other banks.

Read the whole story here: http://www.cbc.ca/money/story/2008/10/08/f-interestrates.html