What's your forecast for mortgage rates for the next 12 to 18 months? Advice wanted.

[macker]

You can take up to two years to realize that you should lock in to a 5,7,10 year fixed rate mortgage as we won't see rates like this again for a long time. Interesting article linked below where The Bank of Canada is hinting that rates likley won't be going anywhere in the next couple of years. Of course no one knows for sure but on this issue I would listen to the Bank of Canada.

http://business.theglobeandmail.com/.../Business/home
The Bank of Canada is mandated by law to keep inflation advancing at a rate of about 2 per cent a year. That target won't be reached until the third quarter of 2011, the central bank said.

[Cowperson]

Focus on this question first . . . . if interest rates were to rise, would you be able to afford an increased payment?

If the answer is "no," then lock in your rate immediately to give yourself certainty regarding affordability. The direction of rates is pretty much irrelevant to your situation since you can't afford rolling the dice.

If the answer is "yes," short, variable rates would probably be the cheapest approach. Even when we see rates beginning to rise, it is likely we'll only go back to what we saw through much of the 2000's, which are historically fairly average.

Cowperson

[Tower]

Originally Posted by macker

You can take up to two years to realize that you should lock in to a 5,7,10 year fixed rate mortgage as we won't see rates like this again for a long time. Interesting article linked below where The Bank of Canada is hinting that rates likley won't be going anywhere in the next couple of years. Of course no one knows for sure but on this issue I would listen to the Bank of Canada.

http://business.theglobeandmail.com/.../Business/home
The Bank of Canada is mandated by law to keep inflation advancing at a rate of about 2 per cent a year. That target won't be reached until the third quarter of 2011, the central bank said.

Some of it has to do with the sub prime mortgages in the US coming to a close. It's the last of the wave that helped to create this s* storm the world is currently in.

For some not aware a quick break down (while I am not an expert I have heard this story more than once from men and women in the field)

During the Bill Clinton era a bill was passed basically saying that everyone should have the write to own a home. Because of this the USA Govt announced to banks they would insure the mortgages.

Because of this the banks soon realized that they can offer 6% mortgage rates at 2% for the first few years then charge 9% after. Not 2 percent on a million dollar house isn't much and many people over extended instead of living in their means. What this did was allow people who DID NOT have jobs (Proof of income) to buy houses. EVERYONE means EVERYONE can buy a house if they wish. After the 2 years were up the home owners then refinanced the home. This has been going on for the last 10 years. Because the Govt insured the mortgages the funds in the country or the WELL ran dry causing the real estate bubble to burst and housing to drop to crap.

Mark Herman even met a teacher from California who bought 4 houses on $50 000 a year salary and the teacher explained the whole process to him in detail of how the houses were purchased.

Canada is different as you need proof of income and unlike the states who invest up to 90% of each dollar they have, Canada invests about 70%. This keeps Canada in a much better position to recover. Our banks are actually buying US banks (TD is one of them).

IMO this is why the American dollar is artificially high. That way other countries like Canada don't buy up the property and Corporations on USA soil.

This is not verbatim but a gist.

Don't go by USA economy as China and India will be looking to buy and become our biggest traders. This is all ready starting to happen. Our recovery will be much swifter than the States and Canada is the richest country in the world because of our resources and exports. So we could start pulling out of the recession whole in a little as 6 months possibly. More likely a year. But again this is speculation.

[macker]

[quote=Tower;1840890]Some of it has to do with the sub prime mortgages in the US coming to a close. It's the last of the wave that helped to create this s* storm the world is currently in.

For some not aware a quick break down (while I am not an expert I have heard this story more than once from men and women in the field)

During the Bill Clinton era a bill was passed basically saying that everyone should have the write to own a home. Because of this the USA Govt announced to banks they would insure the mortgages.
__________________________________________________ ____________

Kind of OT but I'll play. Clinton was a spark but George W. Bush set a blow torch to things. In 2002 he was pushing for new opportunities for home ownership and this is when the adjustible rate mortgage came out that would give you a low rate for 2 years before adjusting to much higher rates. Lenders were more than happy to sell these adjustible rate "lier loans" where no income was verifyed and you had high school drop outs providing advice on mortgages....The biggest purchase you could make in your life was unregulated. A 1 Trillion industry that was completely unregulated If you can imagine these mortgages were sold on "stated income" so you could claim whatever income you wanted. The American consumer was back in business and Wallstreet loved it as they could repackage this garbage and sell it around the world as CDO's. In 2004 homeowners used their homes like ATM machines (refinancing) to take out $900 Billion to spend on whatever they could in a most unsustainable manner. In 2004 George W.Bush was bragging that home ownership rates were the highest ever and that new home construction was at the highest level in 20 years and one month after this is when Greenspan came out and encouraged the mortgage industry to come out with new alternatives to encourage more mortgages and this is when Adjustable rate mortgages went through the roof. Greenspan had also been lowering interest rates all the while helping to encourage the irresponsible behavior. It is said that more people ruin themselves in low interest rate environments so this is when people should be the most cautious and ignore some of the so called conventional wisdom as nothing ever stays the same. So it was Bush and not Clinton who watched it all unfold. I blame : 1. Bush 2. Greenspan 3. Wallstreet 4. Rating Agencies (AAA ratings to CDO's) 5. Consumer in that order. It starts at the top and it was poor management and something that should have been avoided.

Greenspan was quoted as saying "It was failure of our best and brightest and the flaws in human nature are such that we can't change them and this will happen again at some point in the future.

So to try to bring this back semi-on topic......The mistakes around us should encourage long term thinking and taking advantage of low rates to lock in long term. Use the low interest rates to your advantage for as long as you can as they won't last forever and it will help offset the huge inflation that we are going to see in the years ahead. I truly believe Greenspan when he says that it will happen again and it will be "the best and brighest" lowering rates to make sure that it does...

http://www.youtube.com/watch?v=kNqQx7sjoS8

[Tower]

Well said and agreed.

Some interesting comments on the Youtube video.

[Potty]

Originally Posted by Tower

Mark Herman even met a teacher from California who bought 4 houses on $50 000 a year salary and the teacher explained the whole process to him in detail of how the houses were purchased.

It is really mind-blowing reading some of the stories to come out of the American housing crisis.

For an idea on just how messed up the American system was at its peak, read about Casey Serin, a 23 year old web designer who quit his job to flip real estate. He bought eight houses without a downpayment by lying about his income and even received up to $50,000 cash back on some of the mortgages. When he got into financial trouble, he started a blog detailing his situation.

http://en.wikipedia.org/wiki/Casey_Serin

An archived copy of his original blog:

http://iamfacingforeclosure.com/1/archive

[Potty]

http://www.minyanville.com/articles/.../index/a/22591

Once again, America seems more intent on reinflating the asset bubble than actually fixing the fundamentals that caused it.

[Slava]

Originally Posted by Tower

There is a Real Estate show done locally here called Makin' Stupid Money. While the content is boring at times they have some great guests. I believe this next one is on mortgages.

No matter what you think about me. I'm not selling this shizzle.

There is a guy named Mark Herman who has a masters in economics or something related to finance and is a mortgage broker who frequents this show. Great speaker and breaks everything down in a simple way for everyone to understand. Also it's local content so you'll get something specific to Calgary.

I think it's on Sunday at 12:30pm.

http://www.homeruninvestments.com/

These kinds of investments really make me wonder. How long until the cash flow dries up and there is no money for distributions? The fact that she is worth $15 million or whatever means nothing...I'm sure that Bernie Madoff was worth a lot more and that wouldn't make me want to invest with him either!

Originally Posted by Tower

Mark Herman say's the market will stay the same for about 12 months or so. Then the trading will start from Canada to other nations and the economy will recover here first. Thus increase the interest rate.

Professional Education

• Bachelor of Commerce - University of Calgary
• Master of Business Administration, Focus: Finance - Herriot-Watt Business College, University of Edinburgh.

Mark Herman is a mortgage broker. No different than CP's own Mike Oxlong. Sure Mark has a spot on a TV show and might break some things down well for viewers, but his forecasts for interest rates are really no more well founded than other like professionals.

[Mike Oxlong]

Originally Posted by Slava

These kinds of investments really make me wonder. How long until the cash flow dries up and there is no money for distributions? The fact that she is worth $15 million or whatever means nothing...I'm sure that Bernie Madoff was worth a lot more and that wouldn't make me want to invest with him either!



Mark Herman is a mortgage broker. No different than CP's own Mike Oxlong. Sure Mark has a spot on a TV show and might break some things down well for viewers, but his forecasts for interest rates are really no more well founded than other like professionals.

I have some personal experience with Candace Graf from a few years ago when I was just beginning to get involved in Real Estate investing. At that time she was involved in some shady dealings. Someone I wisely chose to stay away from. This was 5 or 6 years ago.

Now she does seem to be quite succesful and I can't say for sure what she is up to or how legit her current offerings are. I have actually been thinking about going to her seminars just to see what they are all about and see if she has changed her tune at all.

I find a lot of these so called Investment or Real estate guru's are rich not through investing but through selling their programs to people who want to get rich quick and believe people like Candace can help them get there. Darren Weeks is another guy that does a lot of advertising around the city for his get rich seminars. I have attended a number of these and 99% of the time they are basically an infomercial. They don't really give you any solid, concrete information but they lure you in to buying their DVD's, CD, books, newsletters, educational programs etc.....
Just be careful when watching/listening to these guys. Why would they want to help you get rich for FREE? Obviously there is something in it for them.

Back to the original question re: Mortgage rates.
Like others have stated in this thread the Bank of Canada is likely going to keep prime at this level for the next 12-18 months. Now that has a direct affect on the variable rate which will stay the same but fixed rates are indeed link to the bond yields.

With all the money the US and to a smaller extent Canadian government has pumped into the economy, once it works it's way through there is bound to be inflation. The way governments battle inflation is to raise interest rates. How fast they are going to rise and how high is the tough question to answer. There have been some articles in numerous papers recently that have stated that we are at the bottom of the US housing crisis and things are starting to bounce back.

In my opinion though when I can get you a 5 year fixed rate at 3.59% you really can't lose. I see what the OP is trying to do by timing his mortgage terms to maximize the lower rates. It's a risky way to do it but it might pay off. On the other hand a year from now when that 1 year term is expiring a 5 year fixed rate could also be back up to 4.5%. Which still isn't a bad rate but certainly not the obscenely low 3.59%.

This is like trying to time the exact bottom of the stock market or the real estate market. It's a tough thing to do, there are so many variables out there.

Bottom line is can you deal with 3.59% for the next 5 years and be pretty comfortable with things? Or do you want to roll the dice on a 1 year term and see where things are in a year? A lot can change in a year.

Being a mortgage broker I have an advantage of getting a bit of a sneak preview of what rates are doing. As soon as one lender drops or raises rates the others are bound to follow within a week or so.

It's tough to predict where rates are going to go and when. When 5 year fixed were at 4% I really didn't think they would get much lower but they did. I really don't think they have too much more room to drop. They may slightly but as I said 3.59% on a 5 year is unheard of.

If you asked everyone on this board a year ago if they would lock into a 5 year at 3.59% I think everyone would have jumped all over it.

[Slava]

Originally Posted by Mike Oxlong

I find a lot of these so called Investment or Real estate guru's are rich not through investing but through selling their programs to people who want to get rich quick and believe people like Candace can help them get there. Darren Weeks is another guy that does a lot of advertising around the city for his get rich seminars. I have attended a number of these and 99% of the time they are basically an infomercial. They don't really give you any solid, concrete information but they lure you in to buying their DVD's, CD, books, newsletters, educational programs etc.....
Just be careful when watching/listening to these guys. Why would they want to help you get rich for FREE? Obviously there is something in it for them.

I couldn't agree more. In case it came off wrong, I didn't mean to imply that as a mortgage broker your opinion didn't carry some weight, just that a mortgage broker with a TV spot shouldn't be considered more of an authority on the subject simply due to his having a TV spot.

[Mike Oxlong]

Originally Posted by Slava

I couldn't agree more. In case it came off wrong, I didn't mean to imply that as a mortgage broker your opinion didn't carry some weight, just that a mortgage broker with a TV spot shouldn't be considered more of an authority on the subject simply due to his having a TV spot.

No I totally agree. In fact I think I should be on TV as well

[Slava]

Originally Posted by Mike Oxlong

No I totally agree. In fact I think I should be on TV as well

I'll do a show with you? You can talk mortgages and real estate and I'll stick to investing and the stock market.

[Slava]

Originally Posted by fotze

I am trying to make the numbers work, my penalty for gettting out of my current 5.09% is $5500 which eats up any savings I may have plus its today dollars while the savings are tomorrow dollars. I guess that's the reason for the penalty.

Careful....lots of the penalites I've seen lately are calculated on Interest Rate Differential and not the 3 months interest. I've seen potential penalties as high as $40k, which might make it futile.

[Mike Oxlong]

Originally Posted by fotze

I am trying to make the numbers work, my penalty for gettting out of my current 5.09% is $5500 which eats up any savings I may have plus its today dollars while the savings are tomorrow dollars. I guess that's the reason for the penalty.

That's not too bad of a penalty. I have seen lots of people that have to pay $15,000 or even $20,000 to get our of their mortgage. All depends on the balance remaining.

One thing to consider is if you keep your payments the same as you are paying at 5.09% but switch to a 3.59% how much interest will you save yourself? How much quicker will you pay things off?

Also when your current mortgage expires where will rates be at that time? It would be quite crappy to finish that term and see rates back up at 5.09% or even higher. If you looked at refinancing now then at least you know for the next 5 years you have a great rate.

[ken0042]

Crap, I had a long post done up and lost it. Basically using real dollars, the OP stands to save $1000 this year by staying short term; assuming he can get a 3.59% rate next year. But if it goes back up to 4.5% then he will have a net loss of about $5000 over the next 5 years.

Fotze- looks like you and I are in the same boat. I looked at getting out of my mortgage and I'm looking at a similar penalty.

[Rerun]

Originally Posted by Mike Oxlong

In my opinion though when I can get you a 5 year fixed rate at 3.59% you really can't lose. I see what the OP is trying to do by timing his mortgage terms to maximize the lower rates. It's a risky way to do it but it might pay off. On the other hand a year from now when that 1 year term is expiring a 5 year fixed rate could also be back up to 4.5%. Which still isn't a bad rate but certainly not the obscenely low 3.59%.

This is like trying to time the exact bottom of the stock market or the real estate market. It's a tough thing to do, there are so many variables out there.

Bottom line is can you deal with 3.59% for the next 5 years and be pretty comfortable with things? Or do you want to roll the dice on a 1 year term and see where things are in a year? A lot can change in a year.

Being a mortgage broker I have an advantage of getting a bit of a sneak preview of what rates are doing. As soon as one lender drops or raises rates the others are bound to follow within a week or so.

It's tough to predict where rates are going to go and when. When 5 year fixed were at 4% I really didn't think they would get much lower but they did. I really don't think they have too much more room to drop. They may slightly but as I said 3.59% on a 5 year is unheard of.

If you asked everyone on this board a year ago if they would lock into a 5 year at 3.59% I think everyone would have jumped all over it.

Very helpful. Thanks for the clear advice. Locking in now, at a 5 yr fixed rate, seems to be the consensus on the way to go. You guys have definitely helped me make up my mind.

FYI, if I hadn't come on here and asked for advice I probably would have gambled on a 1 yr fixed rate at 2.9% and then at the end of the year gone for a 5 yr fixed rate mortgage. BUT, I was under the impression that mortgage rates are tied to the Bank of Canada rate (which of course they are) but not totally (thanks to everybody for clarifying that). I didn't know that a 5 yr rate was tied to the 5 yr bond rate too.. which is affected by various factors including inflation. My earlier plan now seems much more riskier.

Thanks again everybody. Please carry on with the discussion wherever it ends up. I'm learning a lot.

[Jedi Ninja]

Shoot, my bank just adjusted their rates on its 2 and 3 year mortgages, so my interest rate penalty will now be an IRD.

One thing though, if you are on anything longer than a 5 year mortgage, after 5 years, as I understand it, according to Canadian law, the penalty can only be 3 months interest. Which would be why banks here really don't offer 25 year mortgages like they do in the US.

[ken0042]

Originally Posted by fotze

If I was convinced rates were going to go up past my current then it might be worth it but there is no one that can predict where this is going with any accuracy and if they say they can then run. So I would just be spending $9000 on gambling.

And that's just it. Unlike the OP anything we can get when we renew that is below our current rate will be gravy. I was looking at combining everything to lower my final rate, but I figure I can just wait out the next 2.5 years and see what that brings.

[Slava]

Originally Posted by Jedi Ninja

Shoot, my bank just adjusted their rates on its 2 and 3 year mortgages, so my interest rate penalty will now be an IRD.

One thing though, if you are on anything longer than a 5 year mortgage, after 5 years, as I understand it, according to Canadian law, the penalty can only be 3 months interest. Which would be why banks here really don't offer 25 year mortgages like they do in the US.

That is correct. If you have the longer term you don't have to worry about IRD.

[seattleflamer]

My perspective from the States. Those ARMs you hear about are essentially the same thing as variable mortgages in Canada. They range from 3 months to 10 years. Yes, there were some exotic products like interest only and optional payments, but the vast majority of mortgages are plain old fixed rates at 15 and 30 year rates.

With the massive amount of money being printed world-wide, you will see higher inflation. To what extent and when is unknown.

A year ago in March 2008, I refinanced into a 30 year 6 1/8 fixed rate thinking that was low. One year later, I could refinance into sub 5% 30 fixed PLUS the mortgage deduction!

If anyone tells you they know what will happen in a year, I just wouldn't believe it. Noone can predict with any degree of accuracy what rates will be in 12 to 18 months. Noone including the rate makers like Carney and Bernake. They can have educated guesses and targets but it is just that...a guess based on the market conditions at the time.

So the bird in the hand metaphor is apt in this case. If you can afford the PITA at a 5 year fixed then do so and pay down as your terms allow would be my advice.