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The battle of the bank rates is starting to heat up with the start of the spring mortgage season—one that is expected to be particularly heated. By getting a head start and lowering rates on five-year fixed mortgages, Canada’s big banks are hoping to attract first-time home buyers, especially in Canada’s hottest real estate markets, where there is a scarcity in supply. However, first-time home buyers looking for great rates and flexibility can do better with a private mortgage broker.

Rates at All-Time Lows

The Bank of Montreal (BMO) and TD Canada Trust have both cut their five-year fixed mortgages (the industry’s most popular phrase) to 2.79%. While the rates from the big banks are certainly lower than what they were this past winter, they come with certain restrictions.

With Canada’s big banks, there’s always a catch. For example, the 2.79% rate from BMO will only let home buyers prepay up to 10% of their mortgage in a lump sum payment each year, compared to the industry norm of 20%. On top of that, consumers that lock in that term cannot refinance their mortgage and have to stay with BMO for the duration of the mortgage. If you sell your home during that five-year term, you have to transfer the mortgage to your next one.

The Canadian Imperial Bank of Commerce is also trying to attract first-time home buyers with seemingly attractive rates; the CIBC even posted a four-year fixed mortgage at 1.99%! But read the fine print: that rate is only in place for the first nine months. After all, it’s at 2.83% for a total blended rate of 2.69% over four years. Of particular note, to get that 1.99% teaser rate, first-time home buyers need to qualify on the higher five-year rate.

There are much better mortgage products out there for first-time home buyers with more flexible options. Unfortunately, you won’t hear about them from Canada’s big banks. That’s because they only pitch their own financial products, whether it is in your best interests or not.

Housing Prices Moderating in Most of Canada

The fact of the matter is that first-time home buyers need to find a mortgage best suited to their financial and lifestyle needs. What they don’t need is to take whatever the big banks tell them they need. Over the life of your mortgage, every little bit helps save you more.

This is important to keep in mind, especially when you consider that, for the first half of March, the average detached home in Toronto was selling for almost $1.1 million; that’s up 21.3% over the same time last year. For the Greater Toronto Area, the average selling price for the same two-week period is up 10.6% year-over-year at $620,106.

It’s the same story for Vancouver, where the benchmark price for a detached home in February increased 7.9% year-over-year to $1.02 million. The price for a detached unit increased 4.6% year-over-year to $481,500.

Housing prices are not as heated in most of Canada, though. In fact, housing prices fell in eight of 11 major housing markets in February. Calgary prices are down for the fourth month in a row for a cumulative decline of 2.3%; in Winnipeg, it was the fourth decline in five months, for a cumulative decline of three percent; and housing prices are down even more east of Toronto.

Canadalend.com: Getting Home Buyers the Best Rates and Products

More and more first-time Canadian home buyers are discovering the many benefits of using a private mortgage broker like Candalend.com . Among first-time buyers using a broker, 50% said they obtained a mortgage with a lender other than the financial institution they deal with the most; this compares to only 27% among first-time buyers dealing directly with their mortgage lender. What this means is that first-time buyers using a broker are 85% more likely to switch financial institutions when getting a mortgage.

With the spring real estate market getting started, now is the perfect time to contact the licensed, independent agents at Canadalend.com. Because Canadalend.com agents are independent, they have access to hundreds of different lenders.

Whether it’s a fixed or variable mortgage, Canadalend.com can help you find the best rates with the kind of flexible terms that meet your financial and day-to-day needs. To see what kind of mortgage you qualify for, contact Canadalend.com today to set up a free consultation or apply online and one of our private mortgage specialists will help you set up an appointment at your earliest convenience.

Sources:

“BMO Smart Fixed Mortgage,” Bank of Montreal web site; http://www.bmo.com/main/personal/mortgages/smartfixedmortgage?ecid=ps-AGILE17088MTG4-SNBMO20&BMO_VSC_ADC=Google%5EMortgage-Acquisition%7CBMO%20Mortgage%20Banking%5EBank%20of%20Montreal%20bank%20mortgage%20rates%20Broad, last accessed March 31, 2015.

“Fixed-Rate Closed Mortgage,” CIBC web site; https://www.cibc.com/ca/mortgages/fixed-rate-closed-mortg.html?WT.mc_id=ExtPAID_campB-E-Mortgage_Types_kwd+CIBC_+mortgage_fixed_adgrpfixed_mortage_rates-E, last accessed March 31. 2015.

“GTA Realtors® Release Mid-Month Resale Housing Figures,” Marketwired web site, March 17, 2015; http://www.marketwired.com/press-release/gta-realtorsr-release-mid-month-resale-housing-figures-2001075.htm.

“Home buyer and seller activity outpaces historical averages in February,” Real Estate Board of Greater Vancouver web site, March 3, 2015; http://www.rebgv.org/news-statistics/home-buyer-and-seller-activity-outpaces-historical-averages-february.

“Teranet – National Bank National Composite House Price Index ™,” House Price Index web site; http://www.housepriceindex.ca/, last accessed March 31, 2015.

“2014 First-Time Homebuyers Survey,” Canada Mortgage and Housing Corporation web site; http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/sure/fihosu/upload/FTB-InfoBrochure_WEB_EN_Oct15.pdf, last accessed March 31, 2015.

January Home Sales Down in January

While the Canadian housing market remains robust, recent data show sales activity is slowing down. This could be setting up a buyer’s market as we near the busy spring selling season.

According to the Canadian Real Estate Association, home sales activity was down 3.1% in January on a month-over-month basis. Once again, Canadian housing data shows the major discrepancies between the different regions.

January sales were down in about 60% of all local housing markets. Provincially, the largest declines were felt in Alberta and Saskatchewan. In contrast, housing trends in the Maritimes continue to improve.

On the supply side, the number of newly listed homes increased 0.7%, led by Edmonton and the Greater Toronto Area, while Greater Vancouver, Calgary, and Regina posted the largest monthly declines in new listings. The number of months of inventory is an important supply and demand metric, and at the end of January, there were 6.5 months of inventory, the highest reading since April 2013.

Despite the increase in listings, prices remain stable. For example, in Edmonton, 666 homes were sold in the month of January; the lowest number in five years. At the same time, new listing increased about 30%, a five-year high. Selling prices haven’t really budged, though.

Regional Differences in Canadian Housing

Nationally, January housing prices, which lag sales, were 5.2% higher year-over-year. Two-storey single family homes posted the biggest year-over-year price gains (6.57%), followed by townhouse/row units (5.0%) and one-storey single family homes (4.61%). Apartment units, meanwhile, saw “modest” price growth of 3.11%.

Price gains in Calgary (7.76%), Greater Toronto (7.47%), and Greater Vancouver (5.53%) continued to post the biggest annual increases. Prices were also up in Fraser Valley, Victoria, and Vancouver Island and remained stable in Saskatoon, Ottawa, and Greater Montreal. Prices declined in Regina and Greater Moncton, however.

The national average price for homes sold in January 2015 was $401,143; this represents a year-over-year increase of 3.1%; the smallest increase since April 2013. The price, however, is skewed by sales activity in Greater Toronto and Greater Vancouver; excluding these two markets, the average price is $312,280; a year-over-year decline of 0.3%.

Mortgage Rate War Heats Up

Mortgage rates have been declining since the Bank of Canada made the surprise decision to cut interest rates on January 21 by a quarter of a percentage point to 0.75%. The Bank of Canada had held its benchmark rate at one percent since September 2010.

Low oil prices are negatively impacting the Canadian economy. And with prices expected to remain low for the near future, it is quite possible the Bank of Canada will reduce interest rates again when it next meets in March.

Today, Canada’s big banks are offering five-year fixed rate mortgages for around 3.0% and some of Canada’s smaller banks are offering the same product for as low as 2.5%. Rates are even lower for variable mortgages, with the big banks offering rates near 2.85%. But again, smaller lenders are offering better rates, some as low as 1.99%.

Canadalend.com Finds the Best Rates

When it comes to getting clients the best financial products at the best rates no one comes close toCanadalend.com . The independent, licensed agents at Canadalend.com will help you find the most competitive mortgage products.

Where Canada’s big banks only promote their own financial products, your Canadalend.com agent works to help you get the best rates possible. And because we’re independent, we have access to hundreds of different lenders.

To see what kind of loan you qualify for, contact the mortgage experts at Canadalend.com today or apply online and one of our lending specialists will help you set up an appointment for a free, personal consultation.

Sources:

“Canadian home sales slip further in January,” Canadian Real Estate Association web site, February 17, 2015; http://www.crea.ca/canadian-home-sales-slip-further-january.

Mah, B., “Falling oil prices unnerve Edmonton home buyers and sellers, but little sign of major downturn yet,” The Edmonton Journal , February 22, 2015; http://www.edmontonjournal.com/

Federal Government Takes Action to Help Economy

Between early 2006, when U.S. housing prices peaked, and early 2012, when the market bottomed, U.S. housing prices plunged 33%; that was greater than the 31% decline U.S. housing prices experienced during the Great Depression. Many were faced with paying off mortgages worth more than the value of their homes and more yet defaulted on their loans and lost their properties.

To help Canada navigate a recession and avoid a similar collapse, the federal government implemented a number of new measures. First, it initiated a number of tighter lending rules and guidelines that affect how people qualify for government-backed insured mortgages.

And second, to help kick-start the economy, the Bank of Canada lowered its key lending rate; the lending rate impacts short- and long-term interest rate loans like mortgages. Lower interest rates make it cheaper for businesses and people to borrow money from the country’s many lending institutions.

Bank of Canada Lowers Lending Rate

In April 2009, the Bank of Canada lowered its key lending rate a quarter percentage point to 0.25%. By late 2010, against the backdrop of a gradually improving economy, the Bank of Canada had raised it to one percent, where it was pegged until January 2015.

With the North American economy getting stronger, most economists expected the key rate to start creeping higher in the second half of 2015. That didn’t happen; the recent drop in oil prices and slower economic growth forced the Bank of Canada to cut its key lending rate by a quarter of a percentage point to 0.75%. Prolonged low oil prices could force the Bank of Canada to cut the key rate again when it next meets in March.

Near-record-low interest rates are used to help keep the Canadian economy moving. The ultra-low interest rate environment also makes home buying more attractive, as the average five-year mortgage rate in Canada is at a record-low 4.79%.

Government Introduces New Lending Rules & Guidelines

Since 2008, the federal government has made several changes to the rules for government-backed insured mortgages. These rules affect home buyers with less than a 20% down payment.

Some of the biggest changes included reducing the maximum amortization period for a government-insured mortgage from 40 years to 25 years. Home buyers must also have a down payment of at least five percent of the purchase price; previously, Canadians could purchase a home with no down payment. For an investment property (non-owner occupied), a minimum down payment of at least 20% is now mandatory.

The Bank of Canada also reduced the upper limit that Canadians can borrow against their home equity to 80%. Previously, homeowners could borrow as much as 95% of the value of their homes when refinancing.

These initiatives were put in place to make the Canadian housing market more stable, but because larger down payments and shorter amortization periods are now the norm, fewer people could qualify for insured mortgages in Canada.

Some feared that borrowers would end up postponing the purchase of a home or buying one that is less expensive. But the fact of the matter is that many potential home buyers have taken advantage of the low-interest-rate environment to pay off their debts and save for a home.

A survey conducted since the unexpected rate cut was announced found that approximately 15% say cheaper mortgage rates will allow them to get onto the property ladder sooner than expected. In addition, nearly half of respondents expect to buy a home in the next five years.

Canadalend.com Helps Homebuyers Find the Right Mortgage

While the new lending rules make Canada’s housing market more secure, the truth is that Canadians have always been prudent when it comes to borrowing. In fact, only less than half of one percent of all mortgages (0.28%) are in arrears.

No matter where interest rates are at, the licensed agents at Canadalend.com will help you find the most competitive mortgage products. We don’t just look at mortgage rates; we look for one that fits your long-term financial and lifestyle needs.

Unlike Canada’s big banks, which only promote their own lending products, Canadalend.com agents are independent. That means they have your best interest in mind in addition to their access to hundreds of different lends.

To see what kind of loan you qualify for, contact the mortgage experts at Canadalend.com today or apply online and one of our lending specialists will help you set up an appointment for a free, personal consultation.

Sources:

“Bank of Canada lowers overnight rate target by 1/4 percentage point to 1/4 per cent and, conditional on the inflation outlook, commits to hold current policy rate until the end of the second quarter of 2010,” Bank of Canada web site, April 21, 2009; http://www.bankofcanada.ca/2009/04/fad-press-release-2009-04-21/.

“Bank of Canada increases overnight rate target to 1 per cent,” Bank of Canada web site, September 8, 2010; http://www.bankofcanada.ca/2010/09/fad-press-release-2010-09-08/.

“Bank of Canada lowers overnight rate target to 3/4 per cent,” Bank of Canada web site, January 21, 2015; http://www.bankofcanada.ca/2015/01/fad-press-release-2015-01-21/.

Altstedter, A., “Mortgage rate thaw renews fears of Canadian housing bubble,” The Financial Post , January 21, 2015; http://business.financialpost.com/2015/01/21/mortgage-rate-thaw-renews-fears-of-canadian-housing-bubble/.

Fekete, J., “Ottawa tightens mortgage rules to avert household debt crisis,” The Financial Post , June 21, 2012; http://business.financialpost.com/2012/06/21/ottawa-cuts-mortgage-amortizations-to-25-years/.

“Number of Residential Mortgages in Arrears,” Canadian Bankers Association web site; http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf, last accessed February 2, 2015.

Interest Rates Will Rise…But When?

With the Canadian economy recovering and showing signs of sustained strength, 2015 could be the year when the central bank starts to raise its key lending rate. If so, the big question is, when? And will an increase in interest rates change the way Canadians think about mortgages?

To help kick-start the economy after the global economy sputtered back in 2009, the Bank of Canada lowered its key lending rate. The lower rates made it cheaper for businesses and people to borrow money. Pegged at one percent since September 2010, many predict rates will start to creep higher in the second half of 2015.

Once rates start to climb, it will become more expensive for potential homeowners to borrow money or take out a car loan. It will also impact those looking to refinance their variable mortgages since the rate fluctuates up or down based on the prime rate. Those looking to get onto the property ladder with a fixed-rate mortgage will not feel any immediate impact from a rise in interest rates, but they could when it comes up for renewal.

Will Fixed Interest Rates Become More Popular?

In Canada, 66% of property owners have fixed rate mortgages, 26% of Canadian homeowners have opted for a variable mortgage; and eight percent have gone with a combination mortgage. As interest rates climb, those holding variable mortgages may opt for the security of low-interest, fixed mortgages.

While those looking to make big-ticket purchases like a house or car might not like the idea of higher interest rates, they do have an important upside; if interest rates stay too low for too long, bubbles start to appear.

Many potential homeowners, especially those living in Toronto, Calgary, and Vancouver, have seen housing prices outpace the rest of the country and climb out of reach. A rise in interest rates could cool Canada’s red-hot real estate market and make some areas more affordable.

Rising Interest Rates to Cool Canada’s Red-Hot Housing Market

The Canadian Real Estate Association predicts the average national price for the existing residential market (single-family detached houses, condos, and townhouses) will rise just 0.9% to $409,300 in 2015; this compares to the six percent increase in 2014.

That said, Toronto, Vancouver, and Calgary are still expected to skew the figures. The Vancouver and Toronto regions are forecast to increase three percent and four percent, respectively. Before oil prices fell, Calgary real estate was projected to rise three percent to roughly $497,500, but Calgary area real estate could feel pressure if oil prices remain low.

If you’re thinking of buying a home or refinancing, Canadalend.com can help you figure out which kind of mortgage is best suited to your lifestyle needs. Because the licensed agents at Canadalend.com are independent, they have access to hundreds of different lenders; that means you get the best rates with the best conditions.

To see what kind of loan you qualify for, contact the experts at Canadalend.com today or apply online and a mortgage specialist will help you set up an appointment for a free, personal consultation.

Sources:

“Fixed rate mortgages trump variables, report says,” CBC web site, March 13, 2014; www.cbc.ca/news/business/fixed-rate-mortgages-trump-variables-report-says-1.2570911.

“Get Ready For Interest Rate Shock In 2015,” Huffington Post , January 5, 2015.