Big banks raise mortgage rates in sign era of historically low rates ending
By Sunny Freeman (CP)
TORONTO — Three of Canada's biggest banks are increasing some of their residential mortgage rates effective Tuesday in the latest sign that consumers should prepare for the era of historically low rates to soon come to an end.
The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX:RY), Laurentian Bank (TSX:LB), and TD Canada Trust (TSX:TD). Rates for mid-term mortgages like these tend to reflect the banks' borrowing costs on bond markets.
Other banks are expected to follow suit.
The biggest increase announced Monday affects five-year mortgages. All three banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.
A homeowner taking on a mortgage of $250,000 at the new posted rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.
Many people applying for mortgages with decent credit history can negotiate better than posted rates.
The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.
Rising rates present a dilemma for many homeowners who face decisions about whether to lock variable rate loans into fixed terms or ride it out and hope that rates will come down again in 2011 as the economy slows and inflationary pressures subside.
Potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance?
Historically, staying short-term and flexible has been the best strategy, but banks usually advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk.
If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points to 4.75 per cent, a homeowner with a variable mortgage should expect to pay about 30 per cent more on their monthly mortgage, says Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.
"If that causes you discomfort then perhaps a fixed rate's where you want to be and if a fixed rate is where you want to be...if you're closing in the next six months, I suggest people do that quickly."
Generally, long-term fixed rates rise by about half of the variable rate, he said.
While the fixed versus variable decision is specific to each individual, McLister said if prime rates spike by more than 2.5 percentage point, odds are good homeowners will save money in a five-year fixed rate mortgage.
Potential homebuyers should get their pre-approval applications in fast and expect delays in pre-approvals due to increased application volumes, he said. And homeowners' with mortgages up for renewal would also be wise to lock in rates as far in advance as possible.
McLister said its difficult to tell if the bank prime rates will rise by 2.5 points, but he added the banks have embarked on a cycle of rate increases and rates in the near and medium term will continue to rise before falling again.
"They came down in the most recent rate cutting cycle by 4.25 (percentage points), so going up about half of that is definitely achievable," he said.
McLister added that most economists expect a half to one point increase in banks' prime rates by the end of this year.
But using recent history as a guide, its not likely rates will rise much higher than 2.5 per cent.
"When the rates go up three (percentage points) or so they don't stay there and go in a flat line. They go up and they go down."
Banks are competing more aggressively for mortgage clients than ever, but McLister noted that consumers should expect other banks to follow RBC and TD in the days ahead as banks often move rates in unison.
CIBC (TSX:CM) chief economist Avery Shenfeld said mortgage rates hikes are a trend consumers should expect to continue.
"Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."
He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of the third quarter.
That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.
"Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs," he said.
"Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates."
When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Shenfeld said.
The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise.
Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.
Gregory Klump, chief economist at the Canadian Real Estate Association, said even though mortgage rates are rising, they are still historically low.
"Even with interest rates expected to rise over the second half of this year, it's going to be a while before mortgage rates are basically neutral. Even with interest rates rising they're still going to be stimulative, just not as much."
"We're coming off emergency level rates, and clearly the emergency has passed."
Copyright © 2010 The Canadian Press. All rights reserved.
Monday, March 29, 2010
Friday, March 26, 2010
Canadian homebuyers pressured to enter market sooner on rising prices, mortgages
(CP) – 1 day ago
TORONTO — Recent first-time homebuyers say they felt pressure to enter the market as they contended with jitters about rising home prices and higher mortgage rates.
The Bank of Montreal says as many as one-third of respondents in a homebuyers survey believe their expectation that housing prices would increase, and interest rates would soar, left an impression on their decision to make a purchase in the short term.
"There's definitely a sense of urgency among home buyers," said Lynne Kilpatrick, senior vice-president of personal banking at BMO.
"While we encourage Canadians to pursue their home ownership dreams we recognize it's easy to get caught up in the emotions of the purchase and this can lead to stretching one's budget too thin."
The results come as Royal Bank released its own homeownership survey on Wednesday which showed that a majority of Canadians expect to see higher mortgage rates over the next year.
RBC's annual homeownership survey said 64 per cent of Canadians expect high rates, with about the same number of mortgage holders concerned about higher rates.
Economists expect the Bank of Canada to raise interest rates by between half a percentage point and a full point over several months beginning this summer to fight inflationary pressures in the economy.
With many Canadians taking on larger and larger mortgage debt in expensive markets across the country, higher rates could create financial problems for some homeowners.
In the Royal Bank survey, three-quarters, or 73 per cent of homeowners, feel strongly that homebuyers need to think ahead to ensure they will still be able to make their mortgage payment if rates rise.
The bank says six-in-10 mortgage holders say they have taken advantage of current low interest rates to pay more principal on their loans.
Eighteen per cent of homeowners say they've made a lump sum payment on their mortgage and 16 per cent have doubled their payment to reduce their principal.
While 84 per cent of mortgage holders believe they are doing an excellent or good job of paying down their mortgage, 49 per cent say their mortgage is larger than they thought it would be at this stage in their life.
Marcia Moffat, RBC's head of home equity financing, says the best advice for homeowners is to review their mortgage holdings with a financial adviser to position themselves for any changes.
BMO's senior economist Sal Guatieri added that a cooler housing market is "just around the corner."
Yet "with rising interest rates expected, and the introduction of the Harmonized Sales Tax in Ontario and B.C., prudence may be a good choice for many new entrants in the housing market."
(CP) – 1 day ago
TORONTO — Recent first-time homebuyers say they felt pressure to enter the market as they contended with jitters about rising home prices and higher mortgage rates.
The Bank of Montreal says as many as one-third of respondents in a homebuyers survey believe their expectation that housing prices would increase, and interest rates would soar, left an impression on their decision to make a purchase in the short term.
"There's definitely a sense of urgency among home buyers," said Lynne Kilpatrick, senior vice-president of personal banking at BMO.
"While we encourage Canadians to pursue their home ownership dreams we recognize it's easy to get caught up in the emotions of the purchase and this can lead to stretching one's budget too thin."
The results come as Royal Bank released its own homeownership survey on Wednesday which showed that a majority of Canadians expect to see higher mortgage rates over the next year.
RBC's annual homeownership survey said 64 per cent of Canadians expect high rates, with about the same number of mortgage holders concerned about higher rates.
Economists expect the Bank of Canada to raise interest rates by between half a percentage point and a full point over several months beginning this summer to fight inflationary pressures in the economy.
With many Canadians taking on larger and larger mortgage debt in expensive markets across the country, higher rates could create financial problems for some homeowners.
In the Royal Bank survey, three-quarters, or 73 per cent of homeowners, feel strongly that homebuyers need to think ahead to ensure they will still be able to make their mortgage payment if rates rise.
The bank says six-in-10 mortgage holders say they have taken advantage of current low interest rates to pay more principal on their loans.
Eighteen per cent of homeowners say they've made a lump sum payment on their mortgage and 16 per cent have doubled their payment to reduce their principal.
While 84 per cent of mortgage holders believe they are doing an excellent or good job of paying down their mortgage, 49 per cent say their mortgage is larger than they thought it would be at this stage in their life.
Marcia Moffat, RBC's head of home equity financing, says the best advice for homeowners is to review their mortgage holdings with a financial adviser to position themselves for any changes.
BMO's senior economist Sal Guatieri added that a cooler housing market is "just around the corner."
Yet "with rising interest rates expected, and the introduction of the Harmonized Sales Tax in Ontario and B.C., prudence may be a good choice for many new entrants in the housing market."
Thursday, March 11, 2010
75 years on, Bank gets it right on inflation
William Watson, Financial Post
Seventy-five years ago Thursday the newly constituted Bank of Canada took over responsibility for Canada's currency. It was supposed to have done so 10 days earlier but British American Bank Note Co. was late with its initial delivery of cash.
Since 1935, when the Bank came into being, prices in Canada have risen 16-fold. What costs $100 now would have cost just $6.25 then. It makes you wish the banknotes had been delayed a lot longer.
Those numbers, by the way, are from the very handy inflation calculator on the Bank of Canada's website. You don't really want your central bank to be good at tracking inflation. You want it to be good at crushing it. The bank took about 50 years to catch on, but it's now reasonably good at what it's supposed to do.
To be fair, in evaluating its performance the important question is "compared to what?" Until 1935, money matters were handled by the currency branch of the Department of Finance, which handed out "Dominion notes" in exchange for gold, and vice versa, and occasionally encouraged the private banks to take on more liquidity by lending them notes against financial securities, though charging them interest of 5% for the privilege. Many banks also issued their own notes, which caused problems when the public lost confidence in a given bank.
During the Depression, elite opinion became convinced that Finance should give responsibility for money and monetary policy over to a more expert and independent central bank of the sort most other countries now had, the United States since 1913.
On July 31, 1933, Prime Minister R. B. Bennett empanelled a five-person Royal Commission-two Brits, including its chair, Lord Macmillan, two bankers and the premier of Alberta. It held its first meeting eight days later and reported 50 days after that. In a 3-2 split, with a majority of the Canadians and, politically conveniently, both bankers opposed, it recommended the institution of a privately-owned central bank. (Mackenzie King was to nationalize it in 1938.)
Just a year and two days after the commission's appointment Parliament approved the Bank of Canada Act. There was no national productivity problem then: things got done. Two months later Prime Minister Bennett named the first Governor, Graham Towers, assistant to the general manager of the Royal Bank and a Montrealer trained in economics at McGill by none other than Stephen Leacock and seven months after that the Bank made its first transactions.
In the crisis of the last two years the Bank has ventured into what it sees as unorthodox areas of lending and investment. But it began in unorthodoxy. In 1936 it bailed out Alberta and Saskatchewan when they threatened to (and in Alberta's case eventually did) default on their bonds. In 1938 Governor Towers took charge of the newly-created Central Mortgage Bank, which was designed to help struggling mortgage-holders. During the war the Bank supervised exchange controls and Towers did secret planning for how to keep finance going if the Nazis over-ran Britain. (Make the Canadian dollar the Empire's new reserve currency was one possibility).
The worst inflations of our central bank era occurred in the late 1940s and the 1970s. In both cases it's easy to sympathize with the governor of the day. During the war, Canadians lent their government hundreds of millions of dollars in Victory Bonds. Most such bonds paid 3% or less. Had the Bank done what it probably should have and raised interest rates to stem the postwar boom, the value of all those bonds would have crashed: If new bonds pay 6% what are old bonds that pay 3%? Half their original value. Towers, who had run several Victory Bond campaigns, felt a moral obligation not to destroy bond-holders' savings. Ironically, the inflation that resulted may have induced him to leave the Bank. In 1935 his salary had been a majestic $30,000 a year. By 1955, when he quit, it was $50,000 but only $25,641 in inflation-adjusted 1935 dollars. And taxes were a lot higher.
The inflation of the 1970s is also understandable. Keynesian textbooks didn't say what a central bank was supposed to do when a cartel jacked up the price of oil by several hundred percent. The stagflation that followed stumped policymakers. Milton Friedman's monetarism did have a theoretical answer: keep the growth of money low and constant and inflation will be low and constant. Send a steady flow of liquidity into one end of the hose that is the economy and you'll get a steady flow of real economic activity out the other end. It's certainly plausible. But when Bank Governor Gerald Bouey tried it in the late 1970s it didn't work. The hose turned out to be unpredictably elastic. Sometimes it sucked up liquidity and produced no growth. Other times just a little liquidity brought gushing growth.
Not until the late 1980s and the governorship of the, at the time, much disliked Governor John Crow, did the Bank start directly targeting inflation with a clearly defined "reaction function" (if inflation does X, we do Y: everybody got it?).
That strategy worked pretty well for two decades. Between 1990 and 2010 prices increased by only 50%. That's not fantastic but no 20 years since 1935 have been better.
After three score years and 15 the Bank seems finally to have figured things out. Let's all tip our hats to R. B. Bennett.
William Watson, Financial Post
Seventy-five years ago Thursday the newly constituted Bank of Canada took over responsibility for Canada's currency. It was supposed to have done so 10 days earlier but British American Bank Note Co. was late with its initial delivery of cash.
Since 1935, when the Bank came into being, prices in Canada have risen 16-fold. What costs $100 now would have cost just $6.25 then. It makes you wish the banknotes had been delayed a lot longer.
Those numbers, by the way, are from the very handy inflation calculator on the Bank of Canada's website. You don't really want your central bank to be good at tracking inflation. You want it to be good at crushing it. The bank took about 50 years to catch on, but it's now reasonably good at what it's supposed to do.
To be fair, in evaluating its performance the important question is "compared to what?" Until 1935, money matters were handled by the currency branch of the Department of Finance, which handed out "Dominion notes" in exchange for gold, and vice versa, and occasionally encouraged the private banks to take on more liquidity by lending them notes against financial securities, though charging them interest of 5% for the privilege. Many banks also issued their own notes, which caused problems when the public lost confidence in a given bank.
During the Depression, elite opinion became convinced that Finance should give responsibility for money and monetary policy over to a more expert and independent central bank of the sort most other countries now had, the United States since 1913.
On July 31, 1933, Prime Minister R. B. Bennett empanelled a five-person Royal Commission-two Brits, including its chair, Lord Macmillan, two bankers and the premier of Alberta. It held its first meeting eight days later and reported 50 days after that. In a 3-2 split, with a majority of the Canadians and, politically conveniently, both bankers opposed, it recommended the institution of a privately-owned central bank. (Mackenzie King was to nationalize it in 1938.)
Just a year and two days after the commission's appointment Parliament approved the Bank of Canada Act. There was no national productivity problem then: things got done. Two months later Prime Minister Bennett named the first Governor, Graham Towers, assistant to the general manager of the Royal Bank and a Montrealer trained in economics at McGill by none other than Stephen Leacock and seven months after that the Bank made its first transactions.
In the crisis of the last two years the Bank has ventured into what it sees as unorthodox areas of lending and investment. But it began in unorthodoxy. In 1936 it bailed out Alberta and Saskatchewan when they threatened to (and in Alberta's case eventually did) default on their bonds. In 1938 Governor Towers took charge of the newly-created Central Mortgage Bank, which was designed to help struggling mortgage-holders. During the war the Bank supervised exchange controls and Towers did secret planning for how to keep finance going if the Nazis over-ran Britain. (Make the Canadian dollar the Empire's new reserve currency was one possibility).
The worst inflations of our central bank era occurred in the late 1940s and the 1970s. In both cases it's easy to sympathize with the governor of the day. During the war, Canadians lent their government hundreds of millions of dollars in Victory Bonds. Most such bonds paid 3% or less. Had the Bank done what it probably should have and raised interest rates to stem the postwar boom, the value of all those bonds would have crashed: If new bonds pay 6% what are old bonds that pay 3%? Half their original value. Towers, who had run several Victory Bond campaigns, felt a moral obligation not to destroy bond-holders' savings. Ironically, the inflation that resulted may have induced him to leave the Bank. In 1935 his salary had been a majestic $30,000 a year. By 1955, when he quit, it was $50,000 but only $25,641 in inflation-adjusted 1935 dollars. And taxes were a lot higher.
The inflation of the 1970s is also understandable. Keynesian textbooks didn't say what a central bank was supposed to do when a cartel jacked up the price of oil by several hundred percent. The stagflation that followed stumped policymakers. Milton Friedman's monetarism did have a theoretical answer: keep the growth of money low and constant and inflation will be low and constant. Send a steady flow of liquidity into one end of the hose that is the economy and you'll get a steady flow of real economic activity out the other end. It's certainly plausible. But when Bank Governor Gerald Bouey tried it in the late 1970s it didn't work. The hose turned out to be unpredictably elastic. Sometimes it sucked up liquidity and produced no growth. Other times just a little liquidity brought gushing growth.
Not until the late 1980s and the governorship of the, at the time, much disliked Governor John Crow, did the Bank start directly targeting inflation with a clearly defined "reaction function" (if inflation does X, we do Y: everybody got it?).
That strategy worked pretty well for two decades. Between 1990 and 2010 prices increased by only 50%. That's not fantastic but no 20 years since 1935 have been better.
After three score years and 15 the Bank seems finally to have figured things out. Let's all tip our hats to R. B. Bennett.
Friday, March 5, 2010
TD 90 Day PROFITS at $1,300,000,000.00 ($1.3 Billion.....in 90 days!)
Toronto, Ontario, Canada (AHN) - The Toronto-Dominion Bank reported on Thursday a profit of $1.3 billion for the first quarter ending Jan. 31.
TD Bank is the fourth major Canadian bank to report record-high profit for Q1, even while the country's economy is recovering.
Similar higher-that-expected earnings and profits were reported by the Bank of Montreal, Royal Bank of Canada, and the Canadian Imperial Bank of Commerce this week and last week.
TD Bank reported a Q1 net income of $1.3 billion, up from $653 million for same quarter in fiscal 2009. With that income level, the bank reported diluted earnings per share to $1.44 from 75 cents last year.
The bank attributed its strong Q1 performance to good earnings from its retail business and wholesale banking in Canada and solid performance from its U.S. banking operations.
TD Bank President and Chief Executive Officer Ed Clark said in a statement, "The record performance at TDCT shows that this incredibly resilient franchise is thriving despite the headwinds that continue to linger in the economy. Provision for credit losses was stable when compared to the prior quarter. Business banking provisions remained low and we are seeing signs that losses may be close to peaking in personal banking,"
Clark added, "Along with TDCT's excellent financial results, our customer satisfaction measures also hit a record in the quarter, illustrating our ongoing commitment to delivering the best possible customer experience."
Read more: http://www.allheadlinenews.com/articles/7018009666#ixzz0hJHLtxA9
Toronto, Ontario, Canada (AHN) - The Toronto-Dominion Bank reported on Thursday a profit of $1.3 billion for the first quarter ending Jan. 31.
TD Bank is the fourth major Canadian bank to report record-high profit for Q1, even while the country's economy is recovering.
Similar higher-that-expected earnings and profits were reported by the Bank of Montreal, Royal Bank of Canada, and the Canadian Imperial Bank of Commerce this week and last week.
TD Bank reported a Q1 net income of $1.3 billion, up from $653 million for same quarter in fiscal 2009. With that income level, the bank reported diluted earnings per share to $1.44 from 75 cents last year.
The bank attributed its strong Q1 performance to good earnings from its retail business and wholesale banking in Canada and solid performance from its U.S. banking operations.
TD Bank President and Chief Executive Officer Ed Clark said in a statement, "The record performance at TDCT shows that this incredibly resilient franchise is thriving despite the headwinds that continue to linger in the economy. Provision for credit losses was stable when compared to the prior quarter. Business banking provisions remained low and we are seeing signs that losses may be close to peaking in personal banking,"
Clark added, "Along with TDCT's excellent financial results, our customer satisfaction measures also hit a record in the quarter, illustrating our ongoing commitment to delivering the best possible customer experience."
Read more: http://www.allheadlinenews.com/articles/7018009666#ixzz0hJHLtxA9
Wednesday, March 3, 2010
Can you believe this?
The Royal Bank has made more than $1.6 Million A DAY over the last 90 days
Royal Bank profit rises 35 per cent
Tara Perkins
Royal Bank of Canada , the country's largest bank, reported a first-quarter profit of $1.5-billion Wednesday, up 35 per cent from a year ago.
That's the bank's second-highest quarterly profit ever, further justifying Ottawa's decision to begin scaling back the support programs it had established for the country's banks during the height of the crisis in late 2008. (Royal Bank's largest profit came in the third quarter of 2009, when it earned $1.56-billion).
The bank's cash earnings amounted to $1.03 per share, slightly shy of the consensus estimate of analysts, who forecast profits of $1.04 per share.
“We continue to see signs of improvement in market and economic conditions and we are taking advantage of opportunities,” chief executive officer Gordon Nixon stated.
The biggest contributor to the bank's bottom line is its Canadian business and consumer lending business, which earned $777-million this quarter, up 12 per cent from a year ago, despite putting aside more money for troubled loans.
RBC's international banking business narrowed its loss to $57-million, compared to $100-million a year ago, as it actually set aside less money for soured loans.
“We continue to see signs of improvement in our U.S. banking loan portfolio and we are working hard to restructure the business to improve client service and achieve greater operational efficiency,” Mr. Nixon said.
While Royal Bank's results show lower than expected provisions for troubled loans, in line with the three other Canadian banks that have reported so far, RBC was the first not to top analysts' expectations for profits.
“With expectations likely raised by the results of the previous three banks, we cannot help but believe the market will be disappointed by these results,” said Barclays Capital analyst John Aiken.
The Royal Bank has made more than $1.6 Million A DAY over the last 90 days
Royal Bank profit rises 35 per cent
Tara Perkins
Royal Bank of Canada , the country's largest bank, reported a first-quarter profit of $1.5-billion Wednesday, up 35 per cent from a year ago.
That's the bank's second-highest quarterly profit ever, further justifying Ottawa's decision to begin scaling back the support programs it had established for the country's banks during the height of the crisis in late 2008. (Royal Bank's largest profit came in the third quarter of 2009, when it earned $1.56-billion).
The bank's cash earnings amounted to $1.03 per share, slightly shy of the consensus estimate of analysts, who forecast profits of $1.04 per share.
“We continue to see signs of improvement in market and economic conditions and we are taking advantage of opportunities,” chief executive officer Gordon Nixon stated.
The biggest contributor to the bank's bottom line is its Canadian business and consumer lending business, which earned $777-million this quarter, up 12 per cent from a year ago, despite putting aside more money for troubled loans.
RBC's international banking business narrowed its loss to $57-million, compared to $100-million a year ago, as it actually set aside less money for soured loans.
“We continue to see signs of improvement in our U.S. banking loan portfolio and we are working hard to restructure the business to improve client service and achieve greater operational efficiency,” Mr. Nixon said.
While Royal Bank's results show lower than expected provisions for troubled loans, in line with the three other Canadian banks that have reported so far, RBC was the first not to top analysts' expectations for profits.
“With expectations likely raised by the results of the previous three banks, we cannot help but believe the market will be disappointed by these results,” said Barclays Capital analyst John Aiken.
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