Wednesday, January 21, 2009

Interest Rates drop like a stone; Toronto Real Estate

I like you have sat the past few weeks listening to others talk about how Canada is facing a recession . I have listened to your pains and frustrations. How we have to become careful and how our clients are waiting as prices are going to drop lower. I am as frustrated as you but optimistic.

How many clients I have pre approved who are now holding off buying due to uncertainty would make your head spin. That is not the point of this message.

However.. we all know this too well, It is called buyer remorse.

Now we have to respect our clients always, providing they make choices merited on facts. It is clear our clients are deciding based on what they have been presented with the news media, the reporters and all they have had to hear the last month is doom and gloom.

While we are not here to change their minds, we are here to educate them.

Today on the election of the 44th president who many see as great true humanitarian and new hope in not just the United States but worldwide as well we witnessed history.

Well in Canada we witnessed history as well for this same Bank of Canada which said one month ago we were in a recession made a bold move.

It dropped interest rates like a stone across the board from variable to long and short term closed. There has never been a better time to buy a home!

In my 22 years of lending I have never seen so many changes at one time. After all we live in Canada, we pride in being conservative, careful and watchful.

Well what the Bank of Canada has done today is aggressive and purposeful and needs to serve as a wake up call to all of us.

For starters the bank prime dropped 1/2% to now at 3% .

This is now a new historical low unprecedented in the history of banking In Canada!

Even with the 0.80% premium Closed variable rates on RBC new business are now at 3.8% closed and at 1.0 premium fully open variable rates are at 4%.

Remarkable even more so as in mid October 2008 lenders as a whole saw out of necessity the need for a premium to be added to the variable mortgage as pricing on this product was spiraling out of control and in conjunction with the sub prime market we had to be more sensible in our pricing on this product.

At that time people got negative towards the variable mortgages without knowing the facts and many locked into fixed five year rates at 4.75%. They are kicking themselves today and why, because the Bank of Canada in it's interest rate cuts did not stop at just the prime. The four year and five year rates also dropped considerably. I did a quick check back to Feb 2005 and there has not been in almost four years a time when both fixed and variable moved at the same time!

It happened today.

The new five year fixed rate at RBC is 4.39% The new four year fixed rate is 4.29%
But the short term rates yes 1 year , 2 year and 3 year rates also dropped like I said this drop in rates is the strongest I have ever seen and I have been through 4 business cycles!
The one two and three rates dropped over 1%.

The new RBC one year rate is 3.25%. I remember when in January 2001 one year renewals at 3.99% were the talk of the town for clients who did not want to lock in for a long term.
The new RBC two and three year rates are both 4.15%.

Folks as you know I believe in the split mortgage.

It is the best alternative for clients whose goal is to maximize interest costs and pay their mortgage off sooner. Well this mortgage for clients with 20% will be huge as they will have more choices for choosing their mortgage into different terms.

I am going to market the dual mortgages once again and in this way. A mortgage with flexibility and security the RBC Homeline Mortgage 1/2 of the mortgage at 4.39% 5 year closed 1/2 of the mortgage at 4.0% 5 year floating variable open at prime plus 1% Average rate of the two mortgages 4.195% or 4.2%!

This is a great mortgage as it minimizes penalty with the open term which is top of mind for clients being half the mortgage but still provides 1/2 at secured fixed rates . It allows for interest savings for the variable mortgage where since 1969 those choosing variable have saved on average $5,000 $8000 more in interest costs then those renewing on 4 nd 5 year closed terms.

It is a mortgage people will be able to plan with . I have told you how we plan our investments, we plan our vacations, our life insurance but very few plan a mortgage.

It is different unique and is truly the best of both worlds.
What is different and unique is how we are remembered by our clients.

Lindsay Doke RBC Financial 416 464 6423


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