2013 Prediction

A Realtor today called and asked what I think will happen in the next year, so I emailed him my thoughts and thought I would post them on my blog:

We are in another rate war with 2.99% being widely available through many lenders, with aggressive brokers offering less. Within the next six months I really don’t see any movement in Prime rate and fixed rates, but especially Prime. Matter of fact I don’t think rates will move significantly in an upwards direction for at least another year while all the global mess gets figured out. That said the US economy and housing market is seeing a bold turnaround which helps us as we export 75% of our goods down south, so perhaps an uptick in activity there will mean a rebound here. The US has said no raising of rates until 2014 and even maybe 15, so usually we follow their M.O.

I don’t anticipate any more mortgage rule changes - the last round has already had a dramatic effect on the market and that effect will continue to trickle down to borrowers. 9% of borrowers who did qualify before the rule changes don’t anymore, and it will take them 3.5 years more to save up the amount they now need to get a mortgage. All this being said as long as rates stay where they are getting financed is still relatively easy at the 5-year fixed mark. Self-employed borrowers are facing tougher and tougher times and larger minimum down payments to get any looks.

One interesting development this week was Mark Carney’s exit as our Bank of Canada Governor, as he moves to the UK in Summer of 2013. How will this impact our policy? Not much in my opinion but we must be wary whenever a head…


A Primer On Rates

I feel the need to make this post as a response to a recent deal that didn’t close because the rate offered was too high. Let me explain the situation a little more:

The clients were buying a property with 20% down from the sale of their existing property. The wife has mediocre credit and 2 part-time jobs, and the husband was a Realtor for only six months but with a bankruptcy less than one year ago discharged. Up until now they have had prime-.90% on their existing property, and when offered 4.65% on a 1-year fixed, they fell off their chairs and declined the deal altogether, instead choosing to rent.

Considering that we could stretch the amortization to 30 years, their rental payments would be as high as their mortgage payments. Adding their property taxes and maintenance fees, the difference would be approximately $500 per month. At the very least, doable for these two.

What I’d like to emphasize here is that this client is getting a second chance. Not more than a mere six months after bankruptcy he is re-entering the real estate market with a rate that a short while ago was a standard “A” rate and not a very competitive “B” rate. Furthermore, the best course of action for a recently bankrupt client is to go mid-term, 2-3 years, to re-establish their credit and establish their income, so that upon renewal they would be easily taken up by an “A” bank or lender, thus getting an “A” rate.

Simply put: if you’re an “A” client, you deserve an “A” rate. If you’re not, you don’t. Why should lenders charge less interest to lend to clients who cannot demonstrate financial responsibility or go through bankruptcy or consumer proposal? Although I’m not a fan of our simple “A”…

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