Calgary Mortgage Rates
Commercial banks often charge in excess of 1 full percent (100 basis points) more than Preferred Lenders (Calgary Mortgage Broker) for the same mortgage product. If you'd like more information on Calgary mortgage rates or to speak with a Calgary mortgage broker, give us a call at 703-2404 or contact us today.
Calgary Mortgage Information
| Current Calgary Mortgage Rates* | |||
| Term | Preferred Rate | Bank Rate | |
| 6 Month | 6.20% | 7.05% | |
| 1 Year | 4.90% | 7.25% | |
| 2 Year | 5.49% | 7.30% | |
| 3 Year | 5.05% | 7.30% | |
| 4 Year | 5.64% | 6.85% | |
| 5 Year | 5.19% | 6.99% | |
| 7 Year | 6.00% | 7.40% | |
| 10 Year | 6.25% | 7.75% | |
Variable Rate from: 2.40%
*Increase of allowable debt servicing ratios from 40% to 44% of income!
NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
Interest Rates Will Continue To Drop
(February 05, 2008) Since August 2007 the Fed cut rates by no less than 225 basis points. This is the most aggressive easing since the early 1980s when the Fed was targeting money supply growth and not inflation. But the market is expecting more. Note that the bond market is already pricing in a recession. And in every recession the inflation-adjusted fed funds rate was negative.
Today at 3%, the fed funds rate is about one percentage point above inflation. So it’s hardly a surprise that the market is now pricing in another 100 basis points rate cut by the Fed. At the minimum, the market will get 50 basis points. And if we are indeed in a recession, the Fed will cut by additional 50 basis points.
Libor Rate Down
The good news is that the Libor rate (inter-bank loan rate) is starting to react to the Fed’s moves and it is down by 175 basis points over the past few months. But the market is still nervous—and the reason is the fate of the monoline insurers—which is probably the most critical issue facing the market at this point. What happens when a monoline is downgraded is simply that the underlying value of its written protection declines. If a monoline goes under, the underlying protection would effectively be worthless.
For a bank this means that it has to take those assets back on its balance sheet and mark those assets at fair value. So, any speculations regarding a potential downgrading of those monoline insures due to their exposure to subprime papers work as a reminder for investors that this subprime crisis is far from over.
Mortgage Default Rates Rising
As well, we are starting to see some difficulties in non-subprime mortgages, with Alt-A default rate rising at a rate never seen before. Even prime mortgages that were issued in 2007 are now facing significant challenges. The bottom line is that default rate will continue to rise very strongly—and with every basis point rise in those default rates, the level of nervousness regarding the fate of the monoline insurers will rise.
So it’s far from over. The actions taken by the federal government and the Fed will clearly help, but with the US economy slowing dramatically and house prices projected to fall by roughly 20% from its peak, we need to see more action from the government—even something along the line of a fund that would buy up mortgages and mortgage securities, perhaps via auction. This would provide liquidity to the frozen securities market and reduce pressure on the financial system.
Canadian GDP Growth Falters
In Canada, we are starting to feel the chill coming from south of the border. GDP growth was only 0.1% in November, and it seems that the fourth quarter growth number will be relatively soft. And with the Fed easing so aggressively, the Bank of Canada will have little choice but to join the party. Look for the Bank to cut by 50 basis points in its next rate announcement.
Source: CIBC World Markets (Benjamin Tal, Senior Economist)
NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
Dodging Innovation
It seems that Mr. Dodge is not a fan of mortgage innovation. In recent comments he warned that they help overheat the Canadian real estate market. And who can blame him given the experience south of the border?
In the eyes of many, the meltdown of the US sub prime market has painted the mortgage market in black and white: Plain vanilla mortgages—good, all the rest—bad.
It’s true that the surge in exotic mortgages since 2004 created an artificial demand in the housing market south of the border, and was primarily behind the current mess in the sub prime space. A sharp deterioration in underwriting standards in those years and extremely easy ways of passing on the risks were the main catalysts there.
But what’s missing from the discussion is the fact that exotic mortgages in the US existed well before 2004— and back then the market was functioning just fine. What triggered the current difficulties in the US mortgage market was not the existence of exotic mortgages, but their overuse. For example, the share of interest only mortgages in new mortgages jumped from 5% in 2003 to 20% in 2006. Ditto for the share of sub prime mortgages which reached 22% in 2006—more than double the level seen in 2003.
In Canada the exotic mortgage market that Mr. Dodge is so concerned about is still in its infancy. The sub prime market, at 5% of originations, is only half the size seen in the pre-2004 US mortgage market (when the market was still functioning normally). Interest-only mortgages are only one percent of originations - clearly not a factor. And passing along the risk is not as common in Canada, with less than 20% of mortgages being securitized.
Another innovation that Dodge is concerned about is the recent use of mortgages with long-term amortizations. Indeed, we estimate that between 40% and 50% of new mortgages taken over the past year have an amortization term of more than 25 years. But it is far from clear that this trend has added to house price inflation in any meaningful way. If, as we suspect, the vast majority of these home buyers would have bought a similar house regardless of the availability of the increased amortization option, then this trend is not inflationary since it does not represent additional demand.
Not only are mortgage innovations important to a normally functioning market, but their role in Canada should, in fact, grow over time.
Those new products are largely about serving under-served populations through more effective market segmentation and niche marketing. Self-employment is currently the fastest growing segment of the labour market, rising by a dazzling 7.5% over the past year—six times faster than the pace of growth seen among paid employees. Many of those self-employed don’t fit into traditional credit scoring matrixes and are heavy users of new mortgages products.
Ditto for new immigrants, as well as professionals with high income volatility (due to increased reliance on commissions and bonuses).
Limit mortgage innovation in Canada, and you shut-out those fast growing segments of the population from the housing market.
Source: CIBC World Markets (Benjamin Tal, Senior Economist)
Bank of Canada keeps target for the overnight rate at 4 1/2 per cent OTTAWA (Sept 05, 2007) - 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. Call us at (403) 703-2404 or contact us today for more information. Return to Home Page - Calgary Real EstateRates Staying Flat?
