Category: Business

Why Mortgage Rates Are Rising

Rising Mortgage Rates

Canadian mortgage rates increased once more this month, but this time around, it wasn’t caused by new data on the economy or a rise in bond yields. Rather, one major lender increased rates, which subsequently led to everyone else following suit—a cycle many mortgage brokers have seen as of late.
Over the last few months, these instances of “Simon Says” have lowered average 5-year variable-rate discounts from prime minus 0.60 percent to prime minus 0.40 percent, and increased average 5-year fixed rates from 2.59 percent to 2.79 percent.
Such sweeping changes to mortgage rates in the country are hard to predict because they often start out as arbitrary decisions made by one lender, signaling everyone else to follow suit. What’s more, in most cases of these changes, lenders that followed have vastly different reasons for increasing rates as leaders did.

Reasons for the Recent Increases to National Mortgage Rates

1. Funding costs of lenders have slowly been increasing, and will continue to do so for much later. The gaps between government debate and the funding mechanisms used by lenders to create capital for mortgages have slowly but surely widened, with investors marking these kinds of credit as being riskier in nature.
However, this general increase and the spreads between residential-mortgage funding mechanisms pale in comparison to the figures seen on other credit types.

Expenses

2. Lenders have a limit on how much they can securitize into the Canada Mortgage Bond (CMB) program. When lenders reach this cap, they have no choice but to transition to other capital sources, which are often more expensive. Of course, some lenders will simply increase rates to compensate for higher funding costs, but some will opt to take these costs for a limited time in order to be competitive against other lenders who don’t necessarily meet their caps at the same time.
However, if competing lenders raise their rates, others will be quick to follow suit. It should also be noted that not all lenders have a viable replace to the CMB, which leads to them using rate spikes to pull themselves out of the competition until such a time that their CMB cap is reset.

3. 2015 has been an extremely busy year for lenders, with many finding themselves short of staff. Challenges to lender capacity are made tougher due to a shortage of experienced underwriters. And with backlogs continuing to accumulate, many lenders have resorted to raising rates in order to slow volume, buying their underwriters time to process applications and paperwork. Mortgage brokers must have been busy!

4. Price/rate wars are at their fiercest during the spring market, when competition is at its peak. As the year comes to a close, and when lenders have achieved their targets—as most have this year—they are more likely to recoup the funding sacrifices made during the spring market push.
Mortgage rates increased recently, but it’s not because of bond yield movements or markets reacting to economic data. Instead, the rate hikes were caused by a combination of the factors above. It’s important to note this distinction, as these kinds of rate increases are usually NOT a sign of a much wider uptrend in mortgage rates.

It doesn’t look like this trend is going away soon. Make sure to keep yourself posted and visit our site for more information. You may also reach out to us for any needed information.



My Radio Career: From News Casting to Corporate Journalism

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Back in my days at the CBC, I was a radio newscaster with a slot on the evening news every day. I wasn’t really concerned about the contents of what I told the public because the illusion of job security imbued by a good pay and a steady going job was sufficient for me. However, after the CBC lockout in 2005, it dawned on me that there was an increasing danger that the news I was telling on my radio show could be influenced by corporate powers who wanted the public to know their own version of the truth which suited their business designs. I had originally graduated as a journalist and I realized now that it was time to return to my roots and seek a source of living which involved bringing the unbiased, unfiltered truth to the public. And because it was the influence of conservative corporations on the CBC which had brought it about, I decided to enter the field of corporate journalism so I could inform the public of the truth about brands, products and advertisement campaigns.

Since then, I, along with some other colleagues disenchanted by the present state of media and journalism, have started our own radio channel where I do a weekly show on local companies and brands. It took some time, but I managed to convince these brands that the best way to generate new customers today was not by following the marketing mantra of ‘sell, sell, sell!’ but to actively inform their targeted clientele about the qualities and features of their products. My weekly radio shows would focus on a particular brand, and would dissect its pros and cons in an unbiased way, so that instead of having to believe in flashy advertisements, the people could actually decide for themselves whether the product was good for them or not. Obviously, this meant that not every local company was interested in having me do a show about them [read: many corporations have skeletons in the closet] but it did enable several local start-ups who were having a hard time getting through to the public through conventional advertising to get off the ground.

Now many of you may be wondering how it is that we managed to stay afloat when we kept reviewing local companies and corporations in an unbiased and open manner. The answer is that it wasn’t easy but as I’ve already mentioned, there were some honest local companies that had good, solid products and wanted to coexist beneficially with the local community – these were the companies that became our financial supporters. In corporate journalism, these companies are described as ‘transparent and human’ for they respond to consumer criticism by fixing their products and services. This has been my drive ever since the CBC lockout, to drive the point home to commercial companies that the old days of ads filled with superlative claims are now over, you need to actively engage and inform your clients (and think of them rather as an audience) if you want your product to sell.