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Alycia
Alycia
TORONTO — The Canadian Press
Another big Canadian bank has lowered some of its mortgage rates slightly after an initial reduction by the Royal Bank over the weekend.
TD Canada Trust (TSX:TD) now has a posted discounted rate of 3.69 per cent for its five-year fixed mortgages, down from the rate of 3.79 per cent that had been in effect since August.
The bank has also made changes to several of its other closed rates.
TD said in a an email it reviews its rates on an ongoing basis to “remain competitive and provide our customers with flexible mortgage options and the right rate to meet their individual needs.”
The move comes after RBC lowered its rates on several fixed-rate mortgages over the weekend by 10 basis points, bringing its special offer five-year closed rate to 3.69 per cent.
Bank of Montreal (TSX:BMO) and Scotiabank (TSX:BNS) followed Tuesday.
Scotiabank lowered its discounted five-year closed fixed term mortgage 10 basis points to 3.49 per cent on its website Tuesday, down from 3.59 per cent posted on the site Monday.
BMO, meanwhile, lowered a number of its rates between 10 and 20 basis points, including its discounted five-year fixed rate to 3.69 per cent from 3.89 per cent.
| SECURITY | PRICE | CHANGE | |
|---|---|---|---|
| TD-T TD Bank | 97.15 | 0.15 0.155 % |
Add to watchlist |
| BMO-T Bank of Montreal | 70.54 | 0.08 0.114 % |
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| BNS-T Bank of Nova Scotia | 61.88 | Add to watchlist |
Alycia
OK let’s rephrase that. It’s not the time for a 10-year fixed for well over 90% of Canadianmortgagors.
There was a time last year when thespread between 10-year and 5-year fixed rates was below 3/4 of a percentage point. That made even the 10-year scoffers among us rethink our positions. But spreads are now back over 1%. That means 10-year terms simply aren’t worth the interest premium anymore (for all except the most payment sensitive borrowers).
Historically, the odds are stacked against 10-year terms (more on that). But the real turn-off is the fact that 5-year rates would need to climb 2.50% higher by the time a 5-year fixed matured, in order for a 10-year to cost you less.*
That could happen of course, but life is an odds game; the rate risk factors just aren’t as threatening as in the past:
Against this backdrop, some feel that five-year rates may have a hard time rising even 200 basis points in 60 months.
If you’re curious where the professional ball gazers are throwing their darts, TD and Desjardins (two of a handful of firms that publicly publish long-term rate forecasts) see a roughly 2.25 percentage point jump in 5-year government yields by year-end 2018. (Bond yields lead long-term fixed rates.)
But interestingly, Desjardins projects just a 1.46 bps jump in 5-year mortgage rates during that same period (which implies spread compression between mortgage rates and funding costs).
In any event, if Vegas posted 2.50% as the over/under for how high 5-year rates would go in 60 months, well-qualified Canadians would be smart to bet on the under.
* Assumes a 25-year amortization and equal payments (i.e., it assumes you’ll make a 10-year fixed payment on the 5-year fixed mortgage)
By Robert McLister, Editor, CanadianMortgageTrends.com
Alycia
BARRIE MCKENNA– OTTAWA — The Globe and Mail
The Bank of Canada is warning that unusually low inflation pressures will persist into 2016 – a new forecast that could further delay future interest rate hikes and send the Canadian dollar lower.
The currency plunged after the announcement, sinking to 90.3 cents U.S. by late morning.
The central bank kept its key overnight interest rate unchanged at 1 per cent Wednesday, or where it’s been since September 2010.
But the clear signal from bank governor Stephen Poloz is that disinflation is his paramount concern, and it isn’t fading any time soon.
“Inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance,” the central bank said in a statement.
Bank of Montreal chief economist Douglas Porter said Mr. Poloz is getting what he wants – a lower dollar – without actually cutting rates to get it.
“Suffice it to say that the bank is welcoming the weakening Canadian dollar with open arms,” Mr. Porter said.
The statement also makes clear that the bank’s next move, up or down, will be dictated by “how new information influences the balance of risks.”
“The bank is now saying it no longer has much conviction with respect to the direction of the next rate move,” Bank of Nova Scotia economists Derek Holt and Dov Zigler said in a research note.
The bank blamed “widespread and persistent competition among retailers, along with “significant” slack in the economy. The bank put a figure on the so-called “Target effect” of intense price competition – 0.3 percentage-points off core consumer prices in 2014 – as retailers fight for market share in a much more crowded industry.
Among the pressures is aggressive price-cutting by major chains such as Wal-Mart, Sobeys and newly arrived U.S. retailers such as Target Corp.
The bank pointed out that disinflation is not a uniquely Canadian phenomenon. It’s part of a pattern now entrenched in most advanced economies. Among the causes: lower prices for many food items and lingering effects of the deep global recession of 2008-09.
The Bank of Canada now expects inflation – running at a rate of less than 1 per cent annually in the fourth quarter – will not reach its 2 per cent target until 2016, according to its first monetary policy report of the year. In October, the bank had forecast that inflation would reach its target near the end of 2015.
“The path for inflation is now expected to be lower than previously anticipated for most of the projection period,” according to the statement.
The bank’s tone suggests an eventual return to higher rates may be delayed, yet again. Several Canadian banks this week lowered their own rates on mortgages and other loans.
The bank’s inflation angst could help push the Canadian dollar even lower. The loonie has already lost roughly 10 per cent in the past year and is now trading near 91 cents (U.S.).
A lower dollar is generally good for exporters and local tourist operators, but it increases the cost anything Canadians buy outside the country.
In spite of the “dovish” tone of the statement, the bank gave no hint that it’s actually prepared to lower its key interest rate. That might stoke inflation, but it would also encourage already heavily indebted Canadians to borrow even more. The central bank left its so-called rate-bias in neutral Wednesday, implying that its next move is just as likely to be a rate cut as a rate hike.
And yet not one of the 37 economists polled by Reuters last week expects the Bank of Canada to cut rates this year and next. All are forecasting the bank’s next move will be a rate increase, with the median forecast of a quarter-percentage-point increase in mid-2015.
The bank lowered its forecast for inflation over the next two years. In 2014, for example, the bank expects CPI to range from a 0.9 per cent annual rate in the first three months to 1.5 per cent in the fourth quarter. These forecasts are 0.2 to 0.3 percentage-points lower than its October estimates.
Mr. Poloz has repeatedly predicted that Canada’s export sector will eventually take over from consumer spending and the hot housing market.
In its statement, the bank said this “anticipated rebalancing” remains elusive. But it said stronger U.S. demand and the lower Canadian dollar should drive growth in Canada in 2014 and beyond.
As a result, the bank has increased its projections for exports in 2014 and 2015, along with its estimates for GDP growth. The Bank of Canada now expects the economy to grow at annual rates, ranging from 2.3 per cent in the final three months of 2013 to 2.5 per cent in the second quarter of this year and beyond.
“Stronger U.S. demand, as well as the recent depreciation of the Canadian dollar, should help to boost exports and, in turn business confidence and investment,” the bank said in a statement.
Alycia
Recent data indicate that Canadians are saving more. Statistics Canada reports that the Household Savings Rate is currently 5.4%, a 0.4% increase from the previous year. Likewise, a recent BMO Bank of Montreal study found that 48% of Canadians are now investing in Tax-Free Savings Accounts (TFSAs), a 23% increase from 2012.
It’s good that Canadians are saving but unfortunately too few are making the most of it. Part of the problem is that many remain puzzled by the various investment vehicles available, and much of the confusion lays in TFSAs.
The BMO study found that only 11% of Canadians can identify eligible TFSA investments. And, only 19% understand the annual contribution limit; which might explain why one in ten TFSA holders has over-contributed since inception. Investors should spend a bit of time learning the rules so they can take full advantage of this very useful investment vehicle.
TFSAs are available to Canadian residents 18 years of age or older. They can save up to $5,500 per year in cash and investments, and unused contribution room can be carried forward indefinitely. Withdrawals can be made anytime in any amount, without being taxed, and can be fully re-contributed the following calendar year. It’s important to remember that re-contributions in the same calendar year count against contribution room and could cause over-contributing, which the Canada Revenue Agency penalizes.
TFSAs can hold investments such as mutual funds, stocks, bonds, and GICs. However many investors don’t realize this, perhaps confused by the words “Savings Account,” and instead use their TFSAs to hold cash. BMO says cash is the most common component held in TFSAs, at 57%. mutual funds weigh in at 25%, followed by guaranteed investment certificates at 23%, stocks at 14%, and exchange traded funds at 5%.
The cash earns tax-free interest but the tax advantage is minimal in a low rate environment. TFSAs are best used for investments offering better growth potential. With income and capital gains accumulating tax-free, they are suitable for investments that otherwise generate greater total tax payable if held in a non-registered portfolio.
For instance, an investor who contributed $5,500 to a TFSA last year, with the full amount invested in an exchange-traded fund tracking the U.S., would be up by about 25%. The tax-free profit would be $1,375. Compare this to the investor who left the contribution in cash generating 1.50% and earning only $82.50.
Although 25% profit is an exceptional year, the tax-free advantage holds true even at lower return levels. Consider an investor who puts $5,000 into a TFSA at the beginning of every year for the next 20 years, invested in a product generating a 6% gain per year. After 20 years, the TFSA would be worth $194,964. In comparison, if the investment was made in a non-registered account and taxed at a marginal rate of 32%, the balance would be $156,258. The $38,706 difference speaks for itself.
Since 2013 the TFSA contribution limits are $5,500 per year, up from $5,000 per year from 2009 through 2012. An investor who has never contributed to a TFSA, and has been eligible to do so since 2009, can invest up to $31,000 this year.
Kim Inglis is an investment advisor & portfolio manager with Canaccord Genuity Wealth Management, a division of Canaccord Genuity Corp. www.reynoldsinglis.ca.
Alycia
After more than three decades in her Toronto bungalow amid growing mildew problems in the 1940s-era home, Ruth Wiens decided it was to start fresh.
Here we go again with dropping mortgage ratesFalling bonds yields could push mortgage rates lower as banks compete in the spring housing market, the strongest real estate period of the year
She still loved her East York neighbourhood, so the IT professional decided to demolish her existing house and build a two-storey, three-bedroom, 2,000-square-foot home from scratch.
But instead of hiring a builder to construct her new home, piece by piece, Ms. Wiens ordered one from a factory, based on a design she saw in a magazine. She didn’t want the harsh Canadian weather to pummel the shell of her home during construction, as her neighbours’ new homes had been over the years.
Ms. Wiens wanted a house that was constructed indoors, under controlled conditions.
“There would never be in an unexpected rainstorm that just soaked everything,” Ms. Wiens said. “And having watched my neighbourhood over the years, I just thought, there are alternatives. You don’t have to be the lucky one that has the two weeks of good weather.”
Most new homes are built stick by stick, brick by brick, by a construction crew on-site, but a growing number of Canadians are buying homes right off the factory floor to be assembled on the lot within days.
However, the stigma of the earlier, shoddy iterations of these prefabricated or modular homes still lingers and the Canadian construction industry is reluctant to change, industry insiders say.
These factory-built units accounted for 11% of all the single-family homes started in 2012, up from roughly 3%-4% in 2000, according to Kathleen Maynard, the chief executive of the Canadian Manufactured Housing Institute.
Last year, some 12,970 factory-built single family homes were started in 2012. This ranges from modules which are put together on site, such as Ms. Wiens’ home by Royal Homes, to homes assembled from smaller factory-built components, IKEA-style, or fully built homes.
This marks a drop of 10% from the year before, according to the CMHI, but the decline was offset in part by an uptick in factory-built multi-family homes, such as apartment buildings.
The factory-built home is gaining traction among Canadians as the construction method is embraced by architects and as technology makes way for more innovative designs on the factory floor, said Ms. Maynard.
“As technological advances introduced into factories allowed them to build anything, that has enabled them to compete,” she said.
Factory-built homes, or prefabricated homes are nothing new.
It has always been labelled in the U.S. as [for a] trailer park
As far back as the 17th century, pre-engineered housing kits were being shipped to North American East Coast ports, but it wasn’t until the late 19th century when ready-made wood frame-houses were first being produced in Nova Scotia, according to the Canada Mortgage and Housing Corporation. It was during the Second World War that the factory-built housing era began, the crown corporation said in the latest Canadian Housing Observer.
Homes needed to be built with as little material as possible in a bid to divert the least amount of resources from the war effort. These factory-built houses were later needed to meet the severe housing shortage when the troops returned home, according to the CHMC.
That image of a prefabricated home as a shoddily built, boxy structure made of poor-quality components, even decades later, is still hard to shake.
“It’s always been labelled as cheap,” said Marc Bovet, founder of Bone Structure, a Quebec-based company which produces homes that can be assembled from several factory built-components without any nails. “It has always been labelled in the U.S. as [for a] trailer park. It’s the label that comes with it, and that has to change.”
This perception has evolved as prefabricated homes give site-built houses a run for their money. The factory-built home of today comes in sleek and airy, energy-efficient designs made of high-end materials and fixtures, he said. In a factory, the company can produce precise, custom components for a more efficient way of building, Mr. Bovet said.
“Compared to wood structure houses out there, we don’t create any garbage… For a 2,500 square foot house, the traditional home construction we have right now in Canada is filling up five of those humongous garbage containers.”
Also, architects are “embracing” industrialized building, says Pieter Venema, president of Wingham, Ont.-based Royal Homes.
“It’s got more of an upscale cache to it,” he said. “People are really beginning to understand the concept and see the benefits of it. It’s slow to change but we do see it.”
One major barrier is the construction industry’s reluctance to change, says Mr. Venema. Plus, homes built in the factory, as opposed to on site, means fewer jobs for construction workers to the chagrin of some unions, he added.
“The industry is traditional, with strong unions and owners who prefer it that way,” he said.
Geography is another big factor, as some regions of the country are more open than others to purchasing an industrialized home.
About 75% of all factory-built, single detached homes were shipped to New Brunswick, Nova Scotia, Alberta and Ontario.
However, in Ontario, factory-built homes are typically purchased in smaller communities and rural settings, rather than urban settings.
“Only in the last five years or so have they made in-roads into urban areas,” Ms. Maynard said. “Before, it was more difficult to transport a great big house into an existing neighbourhood.”
Consumers in rural areas are more likely to be able to purchase a vacant lot, which is difficult to do in established subdivisions, said Mr. Venema.
Industrialized homes are also popular among seniors and empty nesters looking for a smaller house, according to the CMHC.
Another related factor in the growth — and limits to growth — for prefab homes is the cost. Buying a custom home through Royal Homes, depending on the model and interior finishings, can cost about $175-to-$185 per square foot, or roughly $259,000 for a 1,400-square-foot house, without the lot. A home with Bone Structure can cost $250 per square foot, or $350,000 for a 1,400-square-foot home without the lot.
That’s compared to the average purchase price of a home across Canada of $389,199 in December, according to the latest figures from Ottawa-based Canadian Real Estate Association. Whether a modular home is more affordable depends on the bells and whistles, and location.
Mr. Pieter says their custom-built modular homes are “very competitive.”
“Our solution is not a cheaper option, it’s not a more expensive option,” he said. “If you go to a subdivision builder, it’s probably cheaper. But you’re getting a house that’s not customized, and usually not to the same spec as well. It’s just a different type of product.”
Alycia
What you need to know before, and after, buying a condo
ROB CARRICK– The Globe and Mail
Dan Barnabic, a former Realtor, developer and consumer advocate, has a number of tips for would-be condo owners.
(Fred Lum/The Globe and Mail)
Your life as a homeowner will likely include some time in a condo. Condos suit young adults, and retirees who want to downsize. As houses rise in price, more people in between those extremes may opt for condos. Given the strong foundations for condo demand, there are surprisingly few resources available to help people make smart buying decisions.
Into this void comes a new book called The Condo Bible For Canadians: Everything You Must Know Before and After Buying a Condo. (Read anexcerpt from the book here.) It’s written by Dan Barnabic, a former Realtor, developer and consumer advocate who now runs a paralegal firm in Toronto. Here’s an edited transcript of a recent conversation I had with Mr. Barnabic about condos.
What accounts for the big rise in popularity of the condo as a place to live?
It’s basically hype fuelled by several forces, many of them developers. The buildings themselves were built much nicer – not better – than ordinary apartment buildings, and they had more amenities. You had swimming pools, you had gyms, you had perks that made you say, why not? As a result, things mushroomed to the point of a deluge of condo towers, especially in Toronto.
Don’t you agree that condos serve a need for some people?
Yes. Condo ownership can be very advantageous for some, including older people who are tired of the hassles of maintaining a house.
What’s the main reason for unhappy condo ownership experiences?
The No. 1 reason is the management of the complex. You can hardly find a condo complex in which the tenants are very happy with the way it’s being run.
What’s the role of the condo board, and how can I make sure they know what they’re doing before I buy?
The condo board is supposed to be in charge of the governance of the complex, making sure that money is being spent properly, that management of the condo is performing its job diligently, that the proper bidding takes place for any repair – stuff like that. You have to find out for yourself if the board is doing its job. Talk to the residents and ask them if they’re happy.
When buying a condo, you suggest starting with a low offer, say 75 per cent of asking. Won’t that just insult the seller?
Is it better to try and get a chance of a better price on a condo, or should you worry about insulting the seller? You’ve got nothing to lose. The worst that will happen is that you’ll be rejected.
Can you explain your warning about buying a condo in a building where more than 25 per cent of units are rented?
If you’re an owner, then it is obvious that you will take care of your condo, that you will not abuse the common elements, that you will look after the amenities.
Tenants simply don’t have the same interest, and you don’t expect them to because they’re not owners.
How can I tell if condo fees in a particular building are reasonable – not kept low to suit the short-term interests of residents, or so high as to work against resale?
You have to basically hit the pavement and compare – go around to other buildings and ask how much people pay and how big their units are.
Special assessments in addition to regular condo fees are a recurring horror story of condo ownership – how can you avoid them?
There’s no such thing as avoiding them. In the first 10 years of a condo, not much happens and it’s unlikely you’d face a special assessment.
After that, the roof is usually good for 10 years and then you have to start patching it up. Elevators start coming into play in 10 years if they’re well made. Outside balconies can become a problem.
There have been reports about leaky condos in Vancouver and falling windows in Toronto – how do you protect yourself against buying a poorly built condo?
The idea is to check on the reputation of the builder. Buying a condo really requires two months’ preparation time to do your due diligence on everything. There are reputable builders, and we have to recognize that. But there are also guys doing things in a hurry to make a buck.
Where do you live?
I am actually renting a very nice apartment on the top floor and not worrying about what expenses the building may incur.
———-
Which makes more financial sense – owning a condo or renting an apartment? Read an excerpt here from The Condo Bible for Canadians by Dan Barnabic.
Alycia
ROMINA MAURINO- The Canadian Press
Per cent blocks.
(Golkin Oleg/Getty Images/iStockphoto)
Talk of rising interest rates tend to make homeowners jittery and, if you have a big mortgage, you may be feeling extra nervous.
But while Bank of Canada Governor Stephen Poloz may have made some people uneasy when he spoke in a televised interview last week about the likelihood of rising long-term fixed rates, experts say not to panic.
Peter Veselinovich, vice-president of banking and mortgage operations with Investors’ Group in Winnipeg, says that while rate increases are expected, any change will not be “as dramatic as the sound bite that comes out of an interview with Mr. Poloz.”
“People immediately assume that means (rates) continually rising over a short period of time and that it’s a cause for concern,” Veselinovich said.
“It’s certainly not a ‘sky is falling’ type of message. It will be modest increases.”
Poloz said last week he expected long-term interest rates to rise in response to tapering by the U.S. Federal Reserve, which has already decided to reduce its monthly $85-billion bond purchases by $10-billion.
A change in interest rates would translate to higher mortgage payments, although that would only apply to people with variable ones, since fixed-rate mortgages don’t change for the duration of their term.
Most home owners currently have fixed-rate, five-year mortgages. The mortgages come with the peace of mind of knowing what your payment will be, but with an interest of about 3.5 per cent.
Variable mortgage rates usually hover around 2.5 per cent, since they are based on a floating rate based on prime and are adjusted with each change in prime. Rates have been low since the financial crisis of 2008.
Variable rates appeal to home owners who want to minimize the size of their payment or pay the debt off sooner, but require a financial cushion to account for any changes, should interest rates increase. They also provide more flexibility than fixed mortgages, since most variable mortgages will let you convert to a fixed rate at any time during the term, for a fee.
Robert Stammers, director of investor education for the CFA Institute, said that when it comes to picking a mortgage, it’s important to consider why you purchased the home and how long you plan to live in it.
“You really have to understand — Am I buying this asset to hold it for three (years) and then go up into something else or relocate? Because that will really drive the kind of debt decision you’ll make,” he said.
“If you’re going to be in your home for a short period of time and that’s the reason that you have floating rate debt, then you may be OK because you were expecting some rise in rates over the time period,” he said.
Alycia
Interior Design Mistakes to Avoid
When it comes to designing how you want your home to look, and you plan to live there awhile, you want to give the home a look which reflects your tastes and the style of the home.
However, if you don’t do it right or make some of the following common interior design mistakes, then it just means that you’re going to have re-do it which means additional time and expense.
So, to help you avoid some of the most common interior mistakes, this guide will hopefully help save you some expense and aggravation.
Choosing Paint and Fabrics in the Right Order
One of the most common mistakes is that people go ahead and choose a colour scheme and paint the walls before they go shopping for fabrics. The colour effect of the fabrics and paint often don’t match as well as you like. When considering the interior design of your home, it’s a lot easier to first choose the fabric colour scheme first and then select the colours to paint the walls because fabrics are limited in their colours and hues while paint is much more selective and adaptable.
Don’t Jump too Quickly on Going with White Walls
Most experts suggest you should avoid plain white walls unless it’s suitable for the type of architecture you have. The reason is that white walls often don’t work is because they give the impression that things which are resting against the walls that they are floating.
If you do go with white it is best to ensure that you have a lot of contrast and colour. Interior design experts recommend that a neutral colour or a colour with a mid tone will unify the pieces in a more cohesive effect.
Ask for Help and Opinions
Before you head out shopping, it can be advantageous to seek out the advice or get some critique from style conscious friends or even to seek out the services of a professional interior designer to assist you. Getting a second opinion can help avoid unnecessary expense and help you avoid any potential flaws in your design scheme.
Always Work Out a Budget Design Conception Beforehand
Another huge rookie mistake that many people make is not having a clear cut budget in mind when considering the design scheme of their home. The second is not having a focused idea of what you want to achieve. When it comes to buying your sofas, chairs, wall units etc. you might buy it because it looks great in the store, but that does not mean that it will work in that particular room.
The biggest problem here is that many people do not consider the furnishings relative to the shape and size of the scale of the room which means the furnishings could end being too dominate or disappear, so always consider the size and scale of the furnishings relative to the size and scale of the room because otherwise they simply won’t jibe.
Another thing to consider is to avoid impulse buying because that is another major culprit that can completely offset a room’s design scheme.
Add Some Warmth or Character
Don’t be too rigid in your selection of colour and a furnishing so you end up with a space that appears too cold and lacks personalization. Often, all it takes to make a room more inviting is to add a focal point such as a piece of artwork or an antique or heirloom. And if your room contains something that you don’t like – simply get rid of it. The appearance of the décor of a room can be dramatically changed by doing something as simple as altering the location of the artwork such as at different heights.
Alycia
Starting in 2010, lenders had to ensure that borrowers getting variable or 1- to 4-year fixed mortgages could afford payments at the 5-year posted rate. That rule applied to mortgages with less than 20% equity.
In 2012, OSFI asked federally regulated lenders to apply the same rule to all variable and 1- to 4-year fixed mortgages, regardless of equity. But credit unions, which are provincially regulated, were not bound by this guideline.
As a result, some credit unions today let conventional borrowers qualify for variable-rate mortgages using significantly lower rates. That makes it easier to get approved when your debt ratio is above average.
How much easier?
Consider a qualified borrower making $70,000 a year. As of today, that person can get a variable rate mortgage as high as $483,000 at some credit unions. At a bank, he or she would be capped out at roughly $413,000.*
That’s a 17% increase in buying power (or $70,000), simply by choosing a different lender.
Whereas banks must ensure that variable or 1- to 4-year borrowers can afford payments at a posted rate (5.34% today), some credit unions are assessing those borrowers against much lower discounted rates (e.g., 3.69%). That gives CUs a sizable edge with people who want a variable mortgage but can’t overcome the banks’ posted-rate hurdle.
You’d think such a slanted playing field would frustrate federal policy-makers, and perhaps it does. But credit unions are just 12-15% of the market so Ottawa doesn’t view their lending practices as a key threat to financial stability. Moreover, credit unions have a proven ability to judge risk, as evidenced by loss rates that are comparable to the banking industry’s. (Remember also that we’re talking about mortgages with 20%+ down, which are lower risk by default.)
All this said, should you take a variable rate or shorter term if you cannot comfortably afford a 200 basis point rate hike? Probably not. Rates have jumped that much in less than 12 months on numerous occasions (not that anyone is predicting that near-term).
One exception is households who expect a cash flow boost or a significant reduction in monthly obligations soon after closing. In these cases, credit unions perform a valuable service for borrowers who’d otherwise be stuck in a government-imposed 5-year fixed rate.**
Sidebar: This mortgage stress tester can show how your payments change in an adverse rate market.
* Based on a variable-rate mortgage with 20%+ equity, a 25-year amortization, a 39% gross debt service (GDS) ratio and no non-mortgage debt. Debt ratio guidelines vary by lender.
** Or any other term longer than five years. The long-run underperformance of these mortgages, when compared to variable or 1-year fixed rates, is well documented.
“ By Robert McLister, Editor, CanadianMortgageTrends.com”
