- Hey, it's Nolan Matthias from Mortgage360
and this is the mortgage update
for Monday, July the 20th.
Today we're going to talk about interest rates,
we're going to talk about Tiff Macklem
and his forward guidance
from the Bank of Canada this week,
and of course, we're going to talk about interest rates.
But before we get into it,
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So let's get into it.
Let's get into Tiff Macklem first and foremost.
A Bank of Canada governor in his first
interest rate announcement this week,
during the question answer period
said this about interest rates.
He said, Canadians can expect interest rates
to remain low for a very long period of time.
Check out the clip here.
- Our overriding message to Canadians,
is that the bank will be there
to provide monetary stimulus for an extended period,
to support the recovery
and to return inflation to the 2% target.
Interest rates are very low
and they're going to be there for a long time.
We recognize that Canadian businesses are facing
an unusual amount of uncertainty.
And so we have been unusually clear
about the future path for interest rates.
If you've got a mortgage or if you're considering
to make a major purchase or you're a business,
and you're considering making an investment,
you can be confident that interest rates
will be low for a long time.
- So clearly giving some guidance to Canadians
that they can expect low interest rates for a long time.
Now there's been some controversy back and forth,
about whether this is Tiff Macklem saying
Canadian should go out and borrow money.
I don't think that's the case,
I don't think that's what
he's suggesting Canadian should do,
especially given the fact
that CMHC has already tightened their guidelines
and, you know,
I don't think it can be said any clear in Canada
that debt is not a good thing for consumers.
So please don't go out, borrow a bunch of money.
But what he is saying is that
if you're worried about your mortgage payments,
if you're worried about your credit card interest amount,
if you're worried about, you know,
the current debt obligations that you have,
you don't need to worry about
interest rates increasing on those rapidly anytime soon.
That's the message that he's sending is
don't fear rising interest rates,
and don't fear inflation because in his mind,
that is not something that we're going to have to worry
about for at least the next two to three years.
And we made a video about how to take advantages
from a mortgage perspective
and how to expand your runway of low interest rates,
I'll link up to it right, right here
and you can go and take a look
and see how you can take advantage of what
Macklem has said and what the Bank of Canada has advised
and how you can basically make it
so that your interest rate stays lower longer,
using a variable rate mortgage.
So check that out and, you know,
let's get into interest rates on that note,
how to use variable versus fixed
and whatnot is what we talked about in that video.
So let's talk about fixed versus variable rates.
So as of this morning, Monday, July 20th,
you can get a 5-year fixed with all features,
all the balances and whistles,
low pale penalties for about 2.14%.
If you want a fully discounted mortgage
with things like bona fide sale clauses
and restocking fees and all of that jazz,
interest rates on those are running at about 1.89%.
So, pretty substantial difference
about 25 basis points or a quarter percent,
but again on most mortgages that's a cup of coffee a week
and you really have to understand the difference
between discount and non-discounted mortgages
and the features and how those
effectively cost you money over time.
To give an example we have two clients
right now that we're moving
from their existing lenders to lower rate mortgages,
one of those clients had a mortgage
with a discount lender,
the other had a client with a not so discount lender,
a great priced mortgage, full featured mortgage.
The difference in the fees
that they were being charged was $780.
The discount lender, we charged a $400 restocking fee,
and a $380 transfer fee,
and those were fees that they just tacked on
at the end in order for the client
to be able to move to a different lender for a lower price.
The normal product, the product that we liked,
the first national mortgage 2.14%, full feature.
In order to move that mortgage,
there is zero fees tacked on.
All they had to do is pay the penalty.
So there's a big difference between,
there can be a big difference
between two different mortgages,
that seem like they're priced differently
and one's priced cheaper
but at the end of the day,
a discount mortgage at a lower interest rate
can actually end up costing you mortgage with
more money over time when they tack on fees
and all those things.
Let's talk about variable rates.
Variable rates are an interesting topic right now.
We had a question on one of our YouTube videos
about whether somebody should take a 1.99%,
HSBC fixed mortgage,
or whether they should take 1.99% 5-year variable,
at a different lender.
And what we said to that person on YouTube
is that we would always,
especially given what Macklem has said
about interest rates going forward,
we would always take a 5-year variable
at 1.99% over an HSBC 1.99% 5-year fixed
because of the way that HSBC will
calculate the penalty on that.
And that's true for any big bank mortgage.
As of right now if I can get a variable
and a fixed for exactly the same interest rate,
I will take the variable all day every day
in order to avoid penalties because
having low penalties will make us have more flexibility
and the ability to make changes over time
and ultimately save money.
So as of right now, as of last week,
the strategies changed.
We think that most borrowers
should be variable rate borrowers.
As far as interest rates on those go,
we can get a fully discounted one
with a bona fide sale clause,
which I would not recommend
because of the restocking fees,
because of the transfer fees,
because of the fact that you can't refinance
to a lower rate and that's especially important
when we think that variable rates
could go to prime minus one
or prime minus 1.2 at some point
in the next three to four years,
but you can get a fully discounted variable rate
at 1.75%, you can get a normal,
fully featured variable rate at about 1.99%.
So that 1.99% fully featured 5-year variable
is the mortgage that we're recommending
at least this week, at least going forward
for the foreseeable future,
and it's the one that we definitely
are recommending right now.
So, that's what we've been seeing going on in the market.
That's where we're at on interest rates and strategy.
We also, you know,
have noticed that July has been a huge month
from a funding perspective.
So, and we expect that to follow through into August.
All those deals that normally happen
in May, June kind of got pushed back into July, August.
So we're seeing a lot of activity in the market
and, you know, what better time to buy
than right now when we're seeing interest rates
at the lowest that they've ever been.
If you need to be in a house and need a place to live,
now's the time to get into the market because
those interest rates being low,
is going to, what's going to ultimately save you
a significant amount of money over time,
not necessarily saving five, 10, $15,000
on the price of a house
by waiting for the next two or three years.
So, you know, get in the market take a look
and, you know, if you have questions,
feel free to drop them in the comments below,
and we'll see you on the next weekly update on the 27th.
Cheers.