Increase of 0.6% for 5 year fixed rates

Banks start interest rate shake-up

| Tuesday, 30 March 2010

Four big banks have increased their posted rates on fixed mortgages, signaling the start of an upward move on record-low interest rates.

Royal Bank, TD Canada Trust and Laurentian all moved their posted rates on five-year fixed mortgages by 0.6 per cent yesterday, a move followed by CIBC today. Many non-banks have already followed, prompting a surge in requests from variable-rate clients to lock into fixed rates.

"The phones have been ringing off the hook since yesterday," said Donna Ramsay, a Mortgage Architects broker based in Orangeville, Ont. "We have several clients that we have committed to calling to see if they want to lock into a fixed. We tell them that we're not here to tell them what to do -- we'll give them the facts."

The interest rate increase will also mean higher qualifying criteria for new clients, who must meet the five-year posted fixed rate when the new mortgage insurance rules kick in on April 19.

CIBC economist Benjamin Tal told the Globe and Mail the rise in rates along with other factors means the booming housing market will slow down significantly after spring.

"Given where interest rates are now, I still think you'll see an extremely strong spring. However, after that I think the housing market will stagnate," Mr. Tal said. "We are in the ninth inning of this booming house market. We are not expecting a crash, but we will stagnate."

Interest Rates Set to Rise

Interest rates are set to rise today with one major bank already announcing a 0.6% increase in their 5 year fixed rates. There are also moderate increases in the 3 & 4 year fixed rates.

If you are considering purchasing in the near future, it would be wise to secure a rate hold before all of the lenders have followed suit. Generally rate holds last anywhere from 90-120 days and as long as the client takes possession of the new home within that time frame, the original, low rate hold is honored.

Relief in sight?

Consumer complaints about mortgage penalties pile up

| Tuesday, 16 March 2010

The Bank of Canada's record-low interest rates have been in place for almost a year and during that time, consumer complaints about mortgage prepayment penalties have been steadily rising.

A story in the Globe and Mail says the Ombudsman for Banking Services and Investments (OBSI) has opened 301 new consumer complaints in the quarter that ended in January, which is twice the number seen in the same quarter last year and almost triple the number seen in 2008.

Hein Moes, an Invis broker in Victoria, says lenders will not bend on interest rate differential (IRD) penalties when interest rates are so low, causing many clients to opt out of refinancing for a better rate.

"I don't know when we're going to see some release in that department," said Moes. "If you can't save your penalty before the original maturity date of the mortgage, then you really have to have a hard look at whether you want to do it or not. And even if you take the best discounted deal with the same lender, they're going to want to see compensation from that."

In the latest federal budget, Finance Minister Jim Flaherty said he will standardize how prepayment penalties are calculated and disclosed to consumers, but details have not yet been revealed.

Douglas Melville, the head of the OBSI, told the Globe in most cases the lender's disclosure is clear, but there are some instances when the customer's argument has legs.

"At the moment, we have about a dozen case files still open where some form of compensation is likely to result," Melville said. "We believe compensation is warranted due to a lack of clear disclosure by the firm of the prepayment penalty calculation."

Bank Maintains Overnight Rate

Bank Maintains Overnight Rate - March 2, 2010

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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 ongoing global economic recovery is being driven largely by strong domestic demand growth in many emerging-market economies and supported in advanced economies by exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

The level of economic activity in Canada has been slightly higher than the Bank had projected in its January Monetary Policy Report (MPR). The economy grew at an annual rate of 5 per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports. The underlying factors supporting Canada's recovery are largely unchanged - policy stimulus, increased confidence, improved 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.

Core inflation has been slightly firmer than projected, the result of both transitory factors and the higher level of economic activity. The outlook for inflation should continue to reflect the combined influences of stronger domestic demand, slowing wage growth, and overall excess supply.

Conditional on the current 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.

The risks to the outlook for inflation continue to be those outlined in the January 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. The Bank judges that the main macroeconomic risks to the inflation projection are roughly balanced.

The next scheduled date for announcing the overnight rate target is 20 April 2010.