Friday, February 25, 2011
Wednesday, February 23, 2011
What is the trick to better mortgage rates?
That’s what folks at the Bank of Canada (BoC) wanted to know.
It led them to undertake an extensive study on mortgage discounting. A draft of that study was released this month and below are its conclusions.
All quotes that follow originate from the paper’s authors: Jason Allen, Robert Clark and Jean-François Houde.
According to their research, the Canadians who get the best mortgage rates are those who:
1. Bargain
Research proves that bank profits “are significantly higher in haggle environments.” As a result, banks prefer not to put all of their cards on the table.
This leads to “price discrimination” whereby banks give better deals to skilled negotiators and well-informed borrowers, and stick it to people who don’t watch out for themselves.
2. Have larger mortgages
“…since few negotiate the renewal of their mortgage…(this) provides lenders with an incentive to attract consumers with larger loans who have large outstanding balances at the time of renewal.”
3. Use a broker
The report states that brokers lower the “search costs” of getting multiple quotes. Multiple quotes (lower search costs) are strongly correlated with lower rates.
“Over the full sample the average impact of a mortgage broker is to reduce rates by 17.5 basis points.” That’s ~$1,670 of interest savings on a typical $200,000 mortgage over five years.
Bank “mortgage specialists offer convenience to consumers, although they do not reduce search costs. This is because they work for one lender only.”
4. Do significant non-mortgage business with a lender
“Branch managers have an incentive to offer larger discounts to consumers…that are, or will be, more profitable to the bank.”
5. Have more equity
Those who put the minimum down (e.g., 5%) “pay higher rates than other borrowers—about 12 basis points more” than those with LTVs below 85%.
6. Are new clients
“…new clients receive larger discounts than existing clients, on the order of 10 basis points.”
The authors state that research by Oxford professor, Paul Klemperer, suggests that “consumer switching costs” (i.e., the time, uncertainty and expense of changing lenders) provide banks with “market power” over existing customers.
7. Use smaller lenders
“We conclude that the larger a bank’s market share, the higher are the rates that it can charge to borrowers.”
“…Borrowers who are new clients at one of the Big 8 banks receive less of a discount than borrowers who are new clients elsewhere.”
8. Are financially capable
BoC: “…poorer borrowers may face greater levels of price discrimination when bargaining in person at the branch than they do when transacting through a broker.”
9. Have better credit
“Financial institutions…offer better rates to high credit score consumers.”
There are, of course, other factors that impact one’s mortgage rate. Moreover, there are exceptions to the findings above. As one example, not all bank reps are uncompetitive. We know some excellent mortgage specialists that are highly competitive—meaning they’re within 10 basis points of the best industry rate most of the time. (Mind you, as this Bank of Canada report concludes, that is not typical.)
Tuesday, February 22, 2011
Thursday, February 17, 2011
NEW MORTGAGE RULES!!
On January 17th, Finance Minister Jim Flaherty announced adjustments to the rules for government-backed insured mortgages that will come into force March 18th, 2011.
So, if you’re looking to refinance your mortgage after this date, you will only be able to access 85% of the value of your home (instead of the current 90%). As well, the maximum amortization will be lowered from 35 years to 30 years – resulting in increased mortgage payments for those who would typically opt for longer amortizations.
Additionally, on April 18th, 2011, the government will withdraw its insurance backing on lines of credit secured by homes, such as home equity lines of credit (HELOCs).
Did you know interest rates are now at their lowest level in history? One thing I can tell you for certain is that rates will definitely be going up soon – and some industry professionals think they’ll rise substantially.
Today, Canadians are carrying more personal debt than ever before. It may be really worthwhile to have a quick look at your existing mortgage to see if it makes sense to refinance. We’re finding that even when there’s a penalty for paying out early, you can lower your payments and save thousands of dollars of interest over your mortgage term.
Most consumer debt is at a much higher interest rate, so we have the opportunity to consolidate into a single payment, and save you several hundred dollars per month – while, at the same time, saving you thousands of dollars in interest. Why make several different payments each month and throw away tons of money in unnecessary interest when rates are so good? The money you save in interest can be used for savings such as RRSPs or RESPs for your family’s future. And with the timing of the new changes, it makes sense to act now.
If this has got you thinking, I’d love to speak to you more about it. It’s a really simple process for me to conduct a confidential mortgage review. You may gain complete certainty you’re already receiving the best rate and mortgage available! Otherwise, we can save you some money and make life a little easier. Please let me know if you have any questions.
Andrea Johnston A.M.P.
Mortgage Agent Lic#M08002475
DLC Metro City Mortgages
Tel: 613-968-5151 or Dir: 613-847-0797
E-mail: andrea005@sympatico.ca
Website: www.mortgagesbyandrea.com
Tuesday, February 15, 2011
Looking for a New Career?
We are expanding our Team at Metro City Mortgages! All skill and education levels welcome, full training provided. Call today to set up an appointment to speak with myself directly to see if this is the right career for you! 613.968.5151 or email: andrea005@sympatico.ca
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