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Greta article by Robert Mclister about early mortgage renewal.
A rate in the hand is worth two in the bush.Many mortgage lenders want you to believe that rate certainty is worth paying a premium for. It is the justification, they say, for staying with them and renewing your mortgage early.Early renewal features typically let you lock in a new rate two to four months ahead of when your mortgage is due to mature. Some lenders, like Bank of Nova Scotia, even let you renew up to six months in advance.he question is, do early renewals save or cost home owners money?“Unless the consumer believes that interest rates are going to move up significantly prior to their ability to lock in, I fail to see a reason to do an early renewal with their existing lender,” says mortgage broker Calum Ross.By locking in earlier, you minimize risk of adverse rate movements. But in return, you pay a premium to the best available rates, and you’ll lose all benefit if rates drop before your term is up.Not surprisingly, Canada’s big lenders are advocates of renewing your mortgage in advance. “We think it’s a good idea to have some room to manoeuvre [when locking in a renewal rate],” says David Stafford, Scotiabank’s managing director of real estate secured lending. Having more time to make a decision is especially important if you plan to renew with your current lender, as more than 90 per cent of customers do at Scotiabank.Of course, the benefit of renewing early depends largely on the rate you’re offered. Right now, for example, you can find fully featured five-year fixed rates at 3.29 per cent or less. If your lender is letting you lock in 90 days early for 3.39 per cent – a mere 10 basis point premium – that’s worth considering (assuming a five-year fixed is the right term for you). This seems especially relevant today, given that fixed rates may climb if the U.S. Federal Reserve slows its bond buying (i.e. “tapers” its economic stimulus program).On the other hand, if your lender were pitching a “one-time-only” opportunity to renew early at 3.59 per cent or more, that warrants more skepticism. A 0.30-percentage-point rate difference would tack on $3,500 of extra interest on a $250,000 five-year term. (Note: This 3.59-per-cent rate is an actual early renewal “special” currently being offered by at least one major bank.)I use 0.30 of a percentage point in my example on purpose: That’s roughly how high today’s best fixed rates can increase until they’re equal to a good early renewal rate.But it’s not that often that rates jump 0.30 of a percentage point in 90 days. Since the 1950s, fixed rates have risen 0.30 of a percentage point over a three-month span only 21 per cent of the time. Mind you, we experienced one such case last May to July when rates soared three-quarters of a percentage point.Either way, if lenders can get you to commit early, they will. By law, banks have to send you a renewal notice at least 21 days before the end of your existing term. But they’ll often contact you well in advance of that, which reduces the odds of you shopping around.Positioning early renewals as a “convenience” or risk mitigator is a strategy that frequently pays off for lenders. According to the Canadian Association of Accredited Mortgage Professionals, almost four out of 10 people who renew with the same lender do so at the original rate proposed by that lender. In other words, they don’t negotiate.To minimize rate risk, fixed-rate borrowers should seek at least a 90- to 120-day rate hold, either at their existing lender or elsewhere. If your current lender offers to hold a decent rate for you (without making you commit right then), that’s a “no brainer,” Mr. Ross says. Having a rate hold in your back pocket limits rate risk if you choose to wait until 30 days from maturity to renew. The market’s best rates are often 30-day “quick closes.”“It is clear to me that consumers don’t do a good job at managing this part of their personal finances,” Mr. Ross adds, and that’s certainly true. If you want a great deal on yournext mortgage renewal, one that could potentially save you thousands, rememberthat your lender's first offer is seldom the best offer.Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at VERICO intelliMortgage, a mortgage brokerage. You can also follow him on Twitter at @CdnMortgageNews
Bank of Canada rate announcement
The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Global growth in the first half of 2016 was slower than the Bank had projected in its JulyMonetary Policy Report(MPR), although the Bank continues to expect it to strengthen gradually in the second half of this year.
The US economy was weaker than expected in the second quarter, notably reflecting a contraction in business and residential investment. While a healthy labour market and solid consumption should remain supportive of growth in the rest of the year, the outlook for business investment has become less certain.
While Canadas economy shrank in the second quarter, the Bank still projects a substantial rebound in the second half of this year.
Second-quarter GDP was pulled down by the Alberta wildfires in May and by a drop in exports that was larger and more broad-based than expected. Exports disappointed even after accounting for weaker business and residential investment in the United States, adjustments in the resource sector, and cutbacks in auto production.
The economy is expected to rebound in the third quarter as oil production recovers, rebuilding commences in Alberta, and consumer spending gets an additional lift from Canada Child Benefit payments. As federal infrastructure spending starts to have more impact, growth in the fourth quarter is projected to remain above potential.
Inflation is roughly in line with the Banks expectations. Total CPI inflation is below the 2 per cent target, mainly because of the temporary effects of lower consumer energy prices. Measures of core inflation remain around 2 per cent, reflecting offsetting effects of excess capacity and past exchange rate depreciation.
On balance, risks to the profile for inflation have tilted somewhat to the downside since July. At the same time, while there are preliminary signs of a possible moderation in the Vancouver housing market, financial vulnerabilities associated with household imbalances remain elevated and continue to rise.
CREA releases latest sales figures: home sales decline while prices rise
According to statistics released this week by The Canadian Real Estate Association (CREA), national home sales declined for a third consecutive month in July 2016.
National home sales fell 1.3% from June to July.
Actual (not seasonally adjusted) activity came in 2.9% below July 2015.
The number of newly listed homes rose 1.2% from June to July.
The MLSHome Price Index (HPI) rose 14.3% year-over-year in July.
The national average sale price climbed 9.9% in July from one year ago; net of the Greater Toronto Area (GTA) and Greater Vancouver, it advanced 7% year-over-year.
While national home sales fell 1.3% month-over-month in July, the average price jumped 14.3% year-over-year last month. Newly listed homes, meanwhile, increased 1.2% month-over-month.
Sales activity was down from the previous month in slightly more than half of all markets in July, led by Greater Vancouver and the Fraser Valley. Transactions in these two markets peaked in February of this year, and have since then dropped by 21.5 and 28.8 percent respectively. Accordingly, much of the national sales decline in recent months reflects slowing activity in B.C.s Lower Mainland.
National sales and price trends continue to be heavily influenced by a handful of places in Ontario and British Columbia and mask significant variations in local housing market trends and conditions across Canada, said CREA President Cliff Iverson.
Home sales continued to trend lower while price gains further accelerated in the Lower Mainland of British Columbia, said Gregory Klump, CREAs Chief Economist. This suggests that sales are being reined in by a lack of inventory and a further deterioration in affordability. The new 15 per cent property transfer tax on Metro Vancouver home purchases by foreign buyers took effect on August 2nd, so it will take some time before the effect of the new tax on sales and prices can be observed. That said, the new tax will do little in the short term to increase the supply of homes.
With sales down and new listings up, the national sales-to-new listings ratio eased to 61.6 percent in July 2016 its second monthly decline following its peak of 65.3 percent in May. A sales-to-new listings ratio between 40 and 60 percent is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers and sellers markets respectively.
The national average price continues to be pulled upward by sales activity in Greater Vancouver and Greater Toronto, which remain two of Canadas tightest, most active and expensive housing markets. The actual (not seasonally adjusted) national average price for homes sold in July 2016 was $480,743, up 9.9 percent y-o-y.
If these two housing markets are excluded from calculations, the average price is a more modest $365,033 and the gain is trimmed to 7.0 percent y-o-y.