In the last month, the mortgage rates market has been buzzing with action. Continue reading to see how mortgage rates have been trending and what is predicted to happen next.
On May 31st, the Bank of Canada announced that it was keeping the target lending rate constant at 1 percent. This pronouncement kept the prime interest rate the same and as a result, did not affect variable mortgage rates. Due to the financial instability of the EU and the US, Canadian bond yield demand increased. Due to the increased demand, bond yields prices fell and with it fixed mortgage rates (fixed rates follow Canadian bond yields).
So the announcement was made at a time when Canadian lenders were all lowering their fixed rates in an effort to remain competitive. At the moment, 5-year variable mortgage rates are around 2.10%. 5-year fixed mortgage rates are around 3.49%.Lending institutions have been fighting to keep their share of the market by decreasing fixed rates.
For the past few weeks, mortgage rates have been near all-time historic lows. But, over the weekend, 5-year Government of Canada bond yields were increased by 30 basis points. And since fixed rates follow bond yields, fixed rates are probably going to go up soon. RBC Royal Bank has already hiked up their fixed rates and other lenders will soon join in.
If you are thinking of buying a property or looking for a mortgage, try to lock in a rate as soon as possible. Do some research into the conditions and prepayment options offered by different lenders. Then, get pre-approved from the lender that meets your requirements. Lock in a rate so that you have some time before you make a final decision on your property. The current low fixed rate will be kept on hold for you for the specified length of time.
If you are looking for a property, you should pay attention to the mortgage market. Current mortgage rates in Alberta will determine how much you end up paying on interest costs over the amortization period of your mortgage. In addition, you can find resources online to calculate accurate monthly payments.
The real estate market in Calgary has been in a slump recently. What are some of the reasons for this and what do the experts predict will happen?
This year in Calgary, fewer single-family homes will be constructed than last year [3]. The Canada Mortgage and Housing Corporation (CMHC) Calgary housing market outlook stated that overall activity will probably decline by 21% when compared to a year ago.[3] A factor to consider is that people may have been scared off by the changes in mortgage rates and rules. [3]
Fixed mortgage rates declined steadily for a few weeks and are now stagnant. What does this mean? Many people have difficulty understanding what the housing market, mortgage rates and the economy have to do with each other. Here’s the bottom line: they are all inter-connected. If the economy is doing well, the population in general is doing better financially and hence, more willing to invest in real estate. The housing market booms as construction tries to meet demand. The Bank of Canada could feel comfortable with increasing interest rates if they feel the market can handle it. As a result, mortgage rates will probably be higher. Lenders could feel comfortable enough to increase interest rates without losing customers (as there will be plenty in the market for a mortgage).
Richard Cho, the senior market analyst of CMHC says that next year could bring a more balanced situation to Calgary and the buyer-controlled marketplace will come to an end. The energy industry is expected to boost housing demand by the end of this year. [3] So 2012 looks more promising for the real estate market.
In the meantime, a report came out declaring Calgary to be the 9th city with the most expensive homes in Canada. [2] According to the Coldwell Banker Real Estate Home Listing Report, Calgary’s average price for a four-bedroom, two-bathroom house is $534,912. [2] The report compared the abovementioned home in 70 Canadian markets from September 2010 to March 2011. Housing prices in Canada have reached record or near-record high levels in some areas. (One reason is the housing bubble in Vancouver.)
If you’re trying to figure out whether or not to invest in real estate, think about your options and about what is being predicted. What makes sense for you financially? Alberta is not going through a housing bubble, which is one good aspect. Consult other sources and websites to help you understand where you stand. House prices and Alberta mortgage rates could potentially both go up towards the end of the year and in 2012. Make your decision or forever hold your peace.
Sources:
[1]http://www.calgaryherald.com/Construction+expected+ease/4884512/story.html
[2]http://www.calgaryherald.com/business/Calgary+most+expensive+homes+Canada+Survey/4949290/story.html
June 17th, 2011 in
Real Estate |
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You have saved up and put in a down payment on your home, you have got your mortgage pre-approval, you’ve found one of the best mortgage rates to suit your lifestyle and you are about to purchase property in Alberta. Did you factor closing costs into your budget? It is common for many first-time home buyers to be unpleasantly surprised by the additional costs of buying a home and that show up in monthly mortgage bills. There are several costs that may be applicable to you. A general rule of thumb is to make sure you have at least 1.5% of the purchase price for closing costs [1]. The following is a breakdown of all costs.
Legal Fees
The home buying process requires careful and accurate preparation of official documents. Legal representation will probably cost around $500 – $700 in Alberta (but this amount does vary from lawyer-to-lawyer and can go up to around $1000).Unless you are fully capable of representing yourself or have a friend who is a lawyer and willing to help you out, make sure you account for this closing cost.
Title Insurance
Title insurance will speed up the transferral of your name on to title (or ownership) of the new property. This property insurance is required by lenders to protect themselves against potential losses in case of property ownership disputes. This insurance may cost you around $250. [2]
CMHC fees
If your down payment is a high enough percentage of the full value (at least 25%) [1], then it is considered a high ratio mortgage, and the CMHC insurance is financed through the mortgage. However, this does not include the Provincial Sales Tax (PST) on the insurance which must be paid at the time of the close, in full. Calculate your mortgage default insurance using this calculator.
If your down payment is not a high enough percentage, then the premium can range from .5% of the mortgage value to 2.5% depending on the size of down payment. PST of 8% on the premium is also an upfront cost and cannot be added to the mortgage [1]. An additional cost is the CMHC Application Fee which is generally a $75 underwriting fee for processing your application.
Goods and Services Tax
This tax applies only to the purchase of a newly constructed home. Usually, the GST will be charged at 5% on the complete purchase price.
Property Insurance
Every lender will want you to have insurance against property damage such as losses incurred during fires and/or floods. You must have obtained this insurance on or before closing day. Property insurance can be paid monthly or by annual premiums. The annual rate may be approximately $250. [1]
Appraisal
Most lenders will require an appraisal of the property to confirm the value of your home. Fees are higher for revenue properties or more complex purchases. This is sometimes covered by your lender. An appraisal is to certify the resale value of the home (in case you default on the mortgage) and may cost you around $300. [2]
Property Tax Adjustment
This tax is calculated as a percentage of the value of your home and must be paid every year. In some cases, you may need to reimburse the previous owner if they have already paid property taxes for the full year, so you may need to have this cash on hand. Additionally, lenders might also call for you to pre-pay a few months taxes. Generally, a good rule of thumb is to have enough money to pay six months taxes.
Property Transfer Tax
This tax is also known as Land Transfer Tax (LTT). In most provinces in Canada, this tax can add up to a significant amount as it is calculated as a percentage of the purchase price of your home. However, Alberta doesn’t have this tax.
Reimbursements
This cost is not commonly thought of but can add up to a substantial amount. You need to reimburse the seller for any expenses that were paid on your behalf. These could include municipal, school taxes or possibly pre-paid bills. You would be paying these costs for living in the chosen location anyway. These repayments can be made at the lawyer. [2]
Mortgage broker fee
By law, in Alberta any mortgage broker needs to inform you upfront of any costs that will be incurred to you.
There are a variety of free, online calculators that you can use to estimate your closing costs based on your mortgage affordability.
[1] http://www.calgary-real-estate-info.com/closefee.html
[2] www.mortgagebrokerrate.com/…/calgary-remember-the-mortgage-closing-costs/
If you are in the market for a mortgage rate, then you are in luck. For the second time in just over a week, all the big banks are dropping their fixed mortgage rates by a tenth of a percentage. The major banks in Canada include the Bank of Montreal (BMO), the Royal Bank of Canada (RBC), Scotiabank and TD Canada Trust, all of which dropped their fixed mortgage rates once again. Senior economist at BMO Capital Markets, Michael Gregory says, “Interest rates are near historic lows, and prospects for the Bank of Canada to raise interest rates are being pushed back to later this year.” [1]
The announcement from the Bank of Canada that the overnight lending rate was being kept the same at 1.00% came last Tuesday. [2]
That being said, it is important to remember that rates will go up inevitably, probably by the end of 2011.
So how does all this affect what mortgage rate type will be popular in the market? Fixed mortgage rates will probably continue to be the most popular, considering that they are consistently decreasing and are quite competitive when compared to variable rates.
The current Alberta fixed mortgage rates are definitely an opportunity for many people looking to get a competitive rate. However, the reductions in fixed rates are caused by low growth predictions which could mean that variable rates will also fall. The main difference to keep in mind is that with the fixed rate, you are locking in a low rate for a specified time. Regardless of what happens to interest rates over the next few months, you can ensure your low mortgage rate. With a variable mortgage rate in Alberta, you are susceptible to fluctuations. If interest rates do increase later in the year, so do your mortgage payments.
Surprisingly, Scotiabank reduced its 5-year variable rate to 2.05% over the weekend, making this the most competitive variable rate on the market at the moment. I can’t pinpoint exactly why this prominent bank made such a move, although I think it’s got something to do with jumpstarting sales on variable rates. These rates could go up significantly in the future, or maybe not. It’s definitely something to think about.
Whatever the rationale, the all-time low mortgage rates Canada is experiencing will be around for a while longer, so seize the opportunity Alberta!
[1] http://www.winnipegfreepress.com/business/canadian-banks-cut-residential-mortgage-rates-as-us-economy-weakens-123152708.html
[2]www.movesmartly.com
You’ve got a great home and you’ve gone through all the paperwork to get there. You’re officially a first-time home buyer. You’ve put in a down payment, got a mortgage and at least in the short term, it seems like you’ve got it figured out. Now, what about the long term? How will you repay your mortgage so that your home is finally yours? Here are 5 tips to stay on top of your mortgage and avoid foreclosure. 
1. Put your tax refund back into your mortgage
Take advantage of your pre-payments options and deposit your tax refund back into your principal. This will reduce the amount on which you are paying interest and will ultimately reduce your amortization period.
2. Consider a variable mortgage rate.
Although current fixed rates in Alberta are more popular, many people do not realize that with a variable rate you can save considerably on your total mortgage payment. A variable rate may not be for everyone, as it does depend on risk tolerance. However, if you can roll with the punches, consider the option of a variable mortgage rate because the rates are typically lower. Historically, people who use variable mortgage rates in Alberta pay less over the length of their mortgage than people with fixed rates.
3. Make a budget and stick to it.
Plan a monthly budget that includes your income and various expenses. Calculate your basic expenditure on groceries, transportation and utilities. Then, incorporate the payments such as loans that need to be repaid, including your mortgage payments. Make sure you are living within your means. To be financially secure, you would need to aim for a debt-to-income ratio of no more than 36%.
4. Pick one dispensable purchase that you make frequently and stop.
I’m referring to your fifth Starbucks coffee of the day or that indulgent purchase on overpriced shoes. If you buy meals every day, you could make the commitment to start preparing food yourself. Calculate how much you save and put the difference towards a mortgage prepayment. Keep track of the money so that you know how much you have accumulated. You may lose a few pounds, get a hold on your spending habits and best of all, stay on top of your mortgage.
5. Pay attention to the economy.
Following the economic growth in your area, and not just the housing market, is a great way to stay on top of housing trends. Since they are directly linked, but with a lag time, you can make accurate predictions by following the former. By doing this, you can stay on top of the best mortgage rates in Alberta and make an informed decision about what type of rate and term to go with once the time comes to renewing your mortgage loan.
First-time home buyers are generally faced with the question of whether to obtain a fixed or variable mortgage rate. This decision takes into consideration a variety of factors such as your risk tolerance. Generally, Alberta variable mortgage rates are significantly lower than fixed rates. A quick look at the current mortgage rates in Alberta shows us that there is a significant difference between these two rate types.
Over the long term, procuring a variable rate may save you a considerable amount of interest. However, what if variable rates start to increase? What does this mean for your mortgage?
Recently, Alberta variable mortgage rates have been trending upwards. Although this reduces some of the attraction of the variable rate, the variable rate is still considerably lower than the fixed rate. There are a couple of options that you can look into if you currently need to decide on a mortgage rate type.
1. A short term variable rate. With a short term 3-year variable rate, you can take advantage of the low rate. Since your term is short, you can still change your rate type after the agreed time period if you feel that variable rates are increasing too fast for your comfort.
2. A combination of fixed and variable mortgage rates. You could divide your mortgage so that you get the best out of each rate type. The fixed rate gives you the security of having a set mortgage rate which will avoid a potential mortgage rate increase. Meanwhile, having part of your mortgage in a variable interest rate means you can take advantage of the lower rate and potentially a rate drop. You can get both stability and savings.
Calgary has suffered a real estate decline that has lasted for about 6 years. Only recently is the market showing signs of improvement [1]. According to the Canadian Bankers Association, Alberta is seeing the highest number of people struggling to meet their mortgage payments since 1990 [1]. Interest rates are predicted to increase over the next several months, and this could result in more people having difficulty in mortgage payments. If the end of your term is approaching, or you are looking to buy for the first time, check out some of the above options.
- “Variable mortgage rate or fixed mortgage rate?”
Alberta mortgage rates and the housing market are influenced by economic growth and strongly linked to the oil and gas industry. To further illustrate this point, recent improvement in oil prices has led to higher economic activity[1]. So hopefully, the housing market will pick up for Alberta and this means that mortgage rates could stabilize in the near future.
[1] http://www.theglobeandmail.com/report-on-business/albertas-delinquent-homeowners-lead-the-pack/article2010293/
