Why are Adjustable Rate Mortgage rates on the incease?

Please be aware that there is significant pressure to increase interest rates on Adjustable Rate Mortgages.

The current pricing environment of rates as low as Prime -.90% may not be available for much longer. Some ARMs in the market have already changed to Prime -.50%, a 40 bps increase and I would like to take this opportunity to explain what is happening in the markets today that has caused this shift in product pricing.

In layman's terms, what is happening?

Adjustable Rate Mortgages are typically priced according to the current 30-day Banker Acceptances (BA), which are a very common short-term money market investment, guaranteed by the banks. A lender funding adjustable/variable rate mortgages would typically borrow money through a 30-day Banker's Acceptance. The lender is then responsible for paying the yield (rate of return) to the investor who purchased the BA. This yield is the cost of funding mortgages ("Cost of Funds") to the lender.

So, what's happening to the BA yields?

This is where the story has become interesting over the past few months.

The failure of the U.S. subprime market worried money-market investors. In Canada, investors began to sell off investments creating a strain on the market. Those who remained demanded higher yields from the BA market as no one was sure as to how much of these BA's were used to finance U.S. subprime mortgages, or subprime mortgages here in Canada or other risky ventures. Everyone was asking the same thing: What's the risk exposure? A classic example of the market overreacting.

The resulting increase in BA yields increased the cost of funds for lenders who want to finance their Adjustable Rate Mortgages. Essentially it's costing lenders much more money now to finance ARMs than it did 60 days ago.

The following is a comparison of 30-day Banker's Acceptance yields over the past 60 days:

July 17, 2007: 4.54%
August 3, 2007: 4.60%
August 14, 2007: 4.75%
August 17, 2007: 4.92%
September 11, 2007: 4.98%
September 17, 2007: 5.04%

*Source: Bank of Canada (http://www.bank-banque-canada.ca/)

So, in 60 days we've seen the yield on 30 day BA increase 50 bps.

Now consider the interest rate earned by the lenders on an ARM at Prime - .90%. Today that interest rate is 5.35%. When you compare this to the current Cost of Funds at 5.04%, which doesn't include overhead, profit margin, one can see that it's only a matter of time before prices for ARMs need to change.

How long will this continue?

Are we seeing the end of the days of Prime - .90%? Perhaps for a while, until the money markets settle down.

The silver lining in all this is that due to Canada's continued economic expansion and the reality of an $80+ barrel of oil, our longer term bonds are in high demand. As a result, we might see some interest rate decreases on the fixed rate products.

If you wish further information on how to protect yourself against further increases in rates contact the Ontario Mortgage Team Professional nearest you.

Bank of Canada keeps target for the overnight rate at 4 1/2 per cent

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 4 1/2 per cent. The operating band for the overnight rate is unchanged, and the Bank Rate remains at 4 3/4 per cent.

Near-term prospects for economic growth outside North America appear to be slightly stronger than anticipated in the July Monetary Policy Report Update (MPRU), while near-term economic prospects for the United States are weaker than expected. It now seems likely that the adjustment in the U.S. residential housing sector will be more pronounced and protracted, exacerbated by recent developments in financial markets. On balance, this implies weaker demand for Canadian exports than had been expected at the time of the July MPRU.

In Canada, total and core CPI inflation in July, at 2.2 per cent and 2.3 per cent respectively, continued to be above the inflation target but generally in line with the Bank's expectations. The Canadian dollar has also largely traded in the range assumed in the July MPRU. At the same time, the pace of economic growth in the first half of this year was above the Bank's expectations. It now appears that the Canadian economy is operating further above its production potential than was estimated in July. Domestic demand remains robust, buoyed by a continuing strong labour market and higher-than-expected increases in home sales and prices. However, recent developments in financial markets have led to some tightening of credit conditions for Canadian borrowers, which should temper growth in domestic demand.
Against this background, the Bank judges that the current level of the target for the overnight rate is appropriate. However, there are significant upside and downside risks to the outlook for inflation. On the upside, there is a possibility that household demand in Canada could be stronger than anticipated, while on the downside the ongoing adjustment in the U.S. housing sector could be more severe and spill over to the U.S. economy more broadly. In addition, there is uncertainty about the extent and duration of the tightening of credit conditions in Canada and, hence, about the tempering effect this will have on growth in domestic demand.

The Bank will continue to closely monitor evolving economic and financial developments. A full update of the Bank's outlook for growth and inflation, including risks to the projection, will be set out in the Monetary Policy Report, to be published on 18 October 2007.

Information note:
The Bank of Canada's next scheduled date for announcing the overnight rate target is 16 October 2007.

TransUnion report, the impact of your credit score on the true cost of your mortgage

Personally I think it is just as much an issue of lack of education on the part of the clients Lenders as it is lack of knowledge on the part of the respondents. Regardless the "price matrix" as a result of your Credit Score can cost the YOU thousands of dollars in extra interest charges. Here is the Canada News Wire release:

TORONTO, July 18 /CNW/ -- Do Canadians really know how much a mortgage will cost them? With the summer home buying season now in full swing, TransUnion recently commissioned GfK Roper Public Affairs & Media to survey consumer perceptions and attitudes about mortgages. The findings indicate that 45 per cent of Canadians underestimate the lifetime cost of a mortgage.

Only one-fifth of respondents correctly answered that due to interest payments, the average Canadian homeowner will ultimately pay in the range of 151 to 200 per cent of the original loan amount over the course of a 25-year mortgage.

"By the end of a 25-year term, if you a have a traditional fixed-rate mortgage at 6.43 per cent, you'll actually pay close to $200,000 on top of your $200,000 mortgage, just in interest," says Tom Reid, director, Consumer Solutions at TransUnion.ca. "That's a significant cost that could be reduced by tens of thousands of dollars if you have a higher credit score in hand when you go to secure your home loan."

Perceptions Similar across Demographics, with Education Proving the Exception

Surprisingly, home ownership makes no difference for mortgage loan knowledge. Only one in five home owners (20 per cent) gave the correct answer for true mortgage costs, identical to the 20 per cent among those who rent or live at the home of their parents. Similarly, 19 per cent of men and 20 per cent of women correctly identified the 151-200 per cent figure.

However, education level does seem to make a significant difference. Among those who completed no more than grade school, just 5 per cent chose the correct response, rising to 15 per cent among those who completed high school and to 25 per cent among those with at least some college education. Still, even among the most educated Canadians, just one in four gave the correct response.

"Reviewing your credit profile and score frequently and taking steps to maintain or improve your credit standing puts you in the driver's seat when shopping for a loan," adds Reid. "All else being equal, the higher your credit score, the stronger your position to negotiate lower mortgage or home equity rates. That's a fact you can bank on."

For more information on your credit score and how it will impact your mortgage contact:

Ontario Mortgage Team
Mortgage Intelligence Inc.
Leading the way to a better mortgage

web: www.OntarioMortgageTeam.com

Bank of Canada raises overnight rate target by 1/4 percentage point to 4 1/2 per cent

OTTAWA – The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 4 1/2 per cent. The operating band for the overnight rate is correspondingly increased, and the Bank Rate is now 4 3/4 per cent.

Economic growth and inflation in Canada in the first half of this year have been stronger than expected in the April Monetary Policy Report (MPR). Final domestic demand has remained the key driver of economic growth in Canada, bolstered by firm commodity prices. The Bank judges that the economy is now operating further above its production potential than was projected at the time of the April MPR. Both total CPI and core inflation have been higher than projected in April and are above the 2 per cent inflation target. Longer-term interest rates have increased and the Canadian dollar has appreciated sharply, moving well above the trading range assumed in the last MPR.

The Canadian economy is now projected to grow by 2.5 per cent in 2007, somewhat stronger than was expected in April, and to grow somewhat more slowly in 2008 and 2009 than previously projected. In this new projection, higher interest rates across the yield curve and a higher assumed range for the Canadian dollar of 93 to 95.5 cents U.S. act to moderate growth in 2008 and 2009 to an average of about 2 1/2 per cent. This brings aggregate demand and supply in Canada back into balance in 2009.

Inflation is projected to be slightly higher and more persistent than in the April MPR. However, as excess demand diminishes, total CPI and core inflation should decline to 2 per cent by early 2009.

There are both upside and downside risks to the Bank's inflation projection. The main upside risk is that household demand in Canada could be stronger than expected. The main downside risks are related to the higher Canadian dollar and the ongoing adjustment in the U.S. housing sector. In the context of the Bank's new projection, these risks appear to be roughly balanced.

In line with this outlook, the Bank is raising the target for the overnight rate to 4 1/2 per cent. Some modest further increase in the overnight rate may be required to bring inflation back to the target over the medium term.

An analysis of the Bank's outlook for growth and inflation, including economic and financial developments and risks to the projection, will be set out in the Monetary Policy Report Update, to be published on 12 July 2007.

Information note: The Bank of Canada's next scheduled date for announcing the overnight rate target is 5 September 2007.

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For more information on this and other money saving strategies contact:

Ontario Mortgage Team
Mortgage Intelligence Inc.
Leading the way to a better mortgage.

Purchase * Refinance * Renewal * Investment
FREE Mortgage Information and Apply On-Line at:
www.OntarioMortgageTeam.com

A Gentleman offers you $11,000 for your medium double double

Just imagine - as you're going through your favourite coffee drive-thru this week - that a well-dressed gentleman stops and offers you $11,000 for your medium double double. Who would hesitate? We'd take the cash. It's not so far-fetched. In fact, if you take that coffee budget and apply it to your monthly mortgage payment - a mere $30 extra per month -you could save yourself about $11,000 over the life of your mortgage.

Most of us can accept the idea that we must borrow money to purchase a home. We look for the best mortgage, and then just keep doling out the money for as long as it takes to pay it off. Most Canadians choose to amortize their mortgage over 25 years. That's a long financial commitment, and it could more than double the cost of your home. But with good planning - and a few smart tactics - you should be able to enjoy your mortgage-burning party much earlier.

Here are a few strategies for fast-tracking your mortgage:

1. Increase your monthly payments. Rather than choosing your amortization period first, ask yourself how much you can afford each month. For example, you may feel that you can afford $1,000 per month. You're delighted when your $125,000 mortgage only demands an $800/month payment (at a 6% interest). But make a monthly payment of $1,000 instead, and you'll shave 8.75 years and almost $46,000 off your total interest cost.

2. Take advantage of lower rates. In addition to reducing the overall interest component of your mortgage, you can take the opportunity to pay down more principal faster - simply by maintaining your original payment. You should even increase your payment if you can, to reap the benefits of the cheapest mortgage money in memory. Again, you could take years - and thousands of dollars -- off your mortgage.

3. Tie mortgage payments to your pay schedule. Many Canadians are paid on a bi-weekly schedule. If you accelerate your payments to bi-weekly instead of monthly, you could improve your own cash flow and fit in an extra payment each year. That means that you're paying off principal faster - leaving you with less interest to pay overall. It doesn't seem like much but - like putting your coffee budget to work - the bi-weekly strategy can have you mortgage free four years sooner, with almost $22,000 in savings.

4. Use any bonuses, tax refunds or "found money" to pay down principal. This is especially valuable in the early years of your mortgage. If you receive an annual bonus or other lump-sum compensation, see if you can put it against the principal. An extra $1,000 per year is a great way to fast-track to mortgage-free!

5. Consolidate your loans into a new mortgage and use the savings to boost your payments. If you're a homeowner with some equity, you can use your mortgage to consolidate your other loans: student loans, car loans, etc. Add the money you've been spending on loan payments to your mortgage payments, and you could see big savings in overall interest.

With mortgage rates at historic lows, you should take the opportunity to get an expert mortgage analysis from an independent mortgage broker with access to mortgages from a wide spectrum of lenders. You've got a great opportunity to put some fast-track tactics in place. You'll remember what a good decision you made at your mortgage-burning party.

For more information on this and other money saving strategies contact:

Ontario Mortgage Team
Mortgage Intelligence Inc.
Leading the way to a better mortgage.

Purchase * Refinance * Renewal * Investment
FREE Mortgage Information and Apply On-Line at:
www.OntarioMortgageTeam.com/

“Subject to sale” clause requires a reality check

It’s been a ball, hasn’t it? The real estate market has been so hot for so long, we can hardly believe what houses are selling for these days. Everyone’s got a story about a friend or neighbour who got some fantastic price for a home. However there are some down sides to an up market. Among other things, buyers and sellers with stars in their eyes don’t always act rationally. We all want to believe that we can strike a big win in a hot real estate market. And sometimes we do.

But when we pin those hopes to a ‘subject to sale” clause in an Offer to Purchase, those hopes need to be accompanied by a solid reality check.

Here’s what can happen if you’re the buyer: You’ve found the home of your dreams, and while they’re asking a pretty penny for the place, you’re not really worried because your current home is also expected to sell very well. After all, the neighbours are still talking about how much the family around the corner got for their place last year! You put in a great offer on the house of your dreams, and use a “subject to sale” clause to give yourself a few months to nab a good price for your own place. Sure, you could have offered the vendor a lower price, but you can’t “go cash”, and you want to offer a price that’s attractive enough to make it worth the vendor’s while to wait for you, while you hope it all works out.

You might both be lucky: the home you’re buying might be worth what you’re offering, and your own home might be worth what you hope. And the banks might agree with your assessment of the value of both. But that’s a lot of “might”s. If you don’t get the price you want for your own home, are you prepared to honour your Offer to Purchase? Or will you need to scramble financially or plead with the vendor to negotiate a lower price? And what if the vendor is similarly counting on the offered price to purchase his or her next home? When your high hopes are disappointed, the result can be a nerve-racking and even ruinous game of financial dominoes that leaves lenders, brokers and several sets of homeowners in a cold sweat.

What if you’re the vendor? A buyer has paid you the compliment of a very attractive offer on your home – “subject to sale” of their own home, of course. Usually, an offer which contains a “subject to sale” clause requires a longer completion date so the buyer has a reasonable amount of time to capture a good price for his own home. The immediate result, then is that your home will be generally considered “off the market” during this period of time, and other buyers
will look elsewhere for a home which is clear of existing offers. Sure, you can entertain other offers, but an existing offer always puts a damper on interest – particularly if the offered price seems a little high.

The result is that your perfect buyer may not even get through your front door. And while it’s flattering to get a great offer on your home, keep in mind that you don’t have the money in your hand yet. A buyer who has unrealistic expectations about what his own house may sell for, could also have offered you an unrealistic price for yours. If he is disappointed on his own sale, you can expect to be disappointed on yours. Your buyer may either be forced to collapse the Offer to Purchase. or come back to negotiate for a lower price – after you’ve spent a few months of missed opportunities with other buyers.

These “subject to sale” clauses don’t need to be an obstacle to a smart and realistic transaction. But in a strong real estate market, optimism sometimes overcomes good sense. Before either offering or accepting a “subject to sale” clause in an Offer to Purchase, do a reality check. An independent mortgage broker can explain the consequences for both buyers and sellers, and help you chart the best course for your own financial situation.

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For more information click here for the Ontario Mortgage Team Professional nearest you:

Ontario Mortgage Team
Mortgage Intelligence Inc.
Leading the way to a better mortgage

Purchase * Refinance * Cottages * Investment
Click here for FREE Information and apply on-line

One in four Canadians aim to buy a recreational property

The un-official start to the cottage season is here, and as Canadians look for ways to make the most of their summer, many are looking to the country's hot recreational property market to maximize their seasonal enjoyment. And, even as prices continue to rise and more people turn to a mortgage provider to realize their vacation property dreams, consumers still want to pay down their mortgage as quickly as possible.

According to a recent poll conducted on behalf of Mortgage Intelligence Inc. and GMAC Residential Funding of Canada Limited:

> One in seven Canadians (14 per cent) currently own a vacation property and one in four (28 per cent) would like to purchase a vacation property in the future.
> Forty-one per cent of vacation property owners are over the age of 55, while 47 per cent of those who wish to purchase are between the ages of 35 and 54.
> Fifty-four per cent of Canadians would like to pay down their vacation property mortgage in 15 years or fewer. This is particularly true of retirement-age Canadians, with 83 per cent of those aged 55- plus preferring to pay down their mortgage within this time frame.
> Significant regional preferences exist for the types of recreational properties people wish to buy:
> Consumers in Quebec prefer to purchase chalets (39 per cent).
> Forty-nine per cent of people in Ontario wish to purchase a waterfront property.
Waterfront properties are also most popular in British Columbia (39 per cent), Manitoba / Saskatchewan (47 per cent) and the Atlantic Provinces (30 per cent).
People in Alberta prefer all-season properties (32 per cent).
> Most people in Alberta (69 per cent), and many in Manitoba/Saskatchewan (40 per cent), Ontario (39 per cent) and Quebec (45 per cent) plan to use 11 to 20 per cent of the purchase price as a down payment for their recreational property, while 47 per per cent of people in British Columbia and 54 per cent of people in the Atlantic Provinces plan to use more than 20 per cent.

"A growing number of Canadians are factoring a vacation property into their retirement planning and are looking for flexible mortgage solutions that will enable them to buy the property they want and retire with financial peace of mind," says Stan Falkowski, President, Mortgage Intelligence Inc. "These are hard-working Canadians who want to enjoy their retirement without making mortgage payments for years on end."

In the past, financing for a recreational property has been more challenging than for a principal residence, as traditional lending institutions have found second homes to be a less than desirable investment. But as the recreational property market continues to grow across the country, fuelled by affluent Baby Boomers preparing for their retirement years, consumers are finding they have other options that provide the flexibility and payment options that will help them pay down their mortgage faster. With a recreational property mortgage like irelax, consumers can purchase a vacation property with as little as 15 per cent down and take advantage of up to 20 per cent prepayment and up to a 20 per cent increase in payments annually.

"Vacation properties are more than just a financial investment for most Canadians. They quite often become the spot where families come together," adds Falkowski. "While recreational property mortgages are still relatively new to the market, a product like this provides an easy and affordable way to start a whole new string of family traditions."

The poll was conducted by Angus Reid Strategies between May 9 and May 10, 2007 among a representative sample of 1,046 adult Canadians. The results are accurate to within plus or minus three percentage points, 19 times out of 20.

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For more information click here for the Ontario Mortgage Team Professional nearest you:

Ontario Mortgage Team
Mortgage Intelligence Inc.
Leading the way to a better mortgage

Purchase * Refinance * Cottages * Investment
Click here for FREE Information and apply on-line