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  Canada Immigration Forum > About Canada > Real Estate & Mortgages > Rates are down again!
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Rates are down again!




http://www.bankofcanada.ca/en/fixed-dates/2008/rate_040308.html

Good news for all in Variable rates :-) (me included)


 
viggy

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Post ID: 116693 04-03-08 11:32:14
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rahul_singh23
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Sometime does not effect.
What's the main reason that BOC rates are dropping but the bank rates aren't?

Because the banks need to make money.

The banks don't get the money they lend to you from the BoC, they get it from depositors. Add to this the margin they need to make up for losses on US mortgage garbage that they have bought, plus possible losses on your mortgage, and the rates are not going down any time soon.



 
Post ID: 116717 04-03-08 17:26:28
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kalia
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Can you explain what does that mean that rates are not going down soon?

Which rate are you talking about? And what does rate cut by BOC means? If BOC cut down rate, does it bring down the prime and consequently mortgage rate.

Shall apprecuiate if you could explain in detail.

Thanks Rahul


 
Last edited by: kalia on 05-03-08 07:25:14
Post ID: 116751 05-03-08 07:24:46
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viggy
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Last time, when BoC reduced the rate by 1/2 percentage, mortgage rates went down by 15 points... so I would expect the same this time too. Even the deposit interest rates came down by .25%.

 
Last edited by: viggy on 05-03-08 09:35:49
Post ID: 116760 05-03-08 09:35:08
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baliyan
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Member since: Oct 05




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Hi ,

Did fixed mortgage rate also went down ?

My bank told me that variable is slashed but fixed didn't.

What is the best mortgage rate available for the 5 year fixed ?.

Thanks,
Baliyan


 
Post ID: 116764 05-03-08 11:20:34
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investpro
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Member since: Nov 06




Posts: 1628
Location: carl sagan's universe

Rate cuts only benefit the good.
Howdy Kalia- maybe this article might help shed some light. Even though it has been posted on another thread, I am reposting for your ready reference.

http://www.globeinvestor.com/servlet/story/RTGAM.20080304.r-rates05/GIStory/

Breaking News from The Globe and Mail

Only the best customers getting rate deals on loans
BOYD ERMAN, TARA PERKINS AND KEVIN CARMICHAEL


Tuesday, March 04, 2008

TORONTO, QUEBEC, OTTAWA The rate-cutting spree by Mark Carney and Ben Bernanke isn't doing much to help Canadian consumers and corporations because banks fighting higher borrowing costs of their own are keeping the cost of money high no matter how much policy makers slash.

Despite the rash of interest rate reductions by Mr. Carney at the Bank of Canada and Mr. Bernanke at the U.S. Federal Reserve, borrowers, from first-time mortgage seekers to steady corporate customers, are finding their banks aren't passing along the full extent of the rate cuts. For some businesses facing high debt loads, rates are even rising.

The problem is that banks are paying more to borrow from investors because of concern about the financial sector. The banks are trying to hold lending rates as high as possible to preserve profit margins. For the central banks, it means that the full measure of stimulus isn't making it into the economy at large.

The rate cuts may not be as powerful from a consumer perspective as they have [been] in the past, said Frank Techar of Bank of Montreal's Canadian personal and commercial banking. Consumers may get off easy, he said, because competition in personal lending is so hot. Businesses aren't so lucky.

Most of the increase in funding costs that we're all experiencing is really having an impact on the large corporate sector and the large commercial sector, Mr. Techar said.

Roughly one-third of the banks' own financing comes from the credit market, where it has become much more expensive for them to obtain money. For example, the cost of so-called senior deposit notes that banks use to raise funds has soared since the credit crunch began last summer by more than a full percentage point relative to the price of Government of Canada debt, according to figures from Royal Bank of Canada.

The rest of the financing comes from deposits. Even there, banks have been forced to pay more, though the effect has been less pronounced.

So, while the administrative rates come down, the rates at which corporations and individuals and small businesses are borrowing are not necessarily coming down, and certainly the rates at which banks are funding are not coming down as much, either, said RBC chief executive officer Gord Nixon.

For consumers, the most tangible result is fixed-rate mortgages are not dropping as fast as central bank rates. Mortgage broker Gary Siegle reckons he will be able to find a variable-rate mortgage at about 4.75 per cent compared with a fixed-rate five-year mortgage of about 5.84 per cent. The spread, now almost a full percentage point, used to be only a quarter or a half point.

The lenders seem to be looking for more spread, Mr. Siegle of Invis, Canada's biggest mortgage brokerage firm. There does seem to be a difference between what we've seen [from the central bank] and what's going on in markets today. Most businesses are finding that rates have nudged up when looking to borrow via the bond market or directly from banks.

A Canadian Federation of Independent Business quarterly survey in December showed access to credit worsened for 13 per cent of respondents and improved for 7 per cent. We are seeing some deterioration in access to credit for companies, but not enough to ring any alarm bells, said Ted Mallett, CFIB's head of research.

The issue for corporations isn't a lack of available money. In fact, while corporate bond sales have slowed by about 20 per cent in Canada since July 31 when the credit crunch blew up, banks are taking advantage of the higher prices to lend more. RBC, for example, reported a 30-per-cent increase in business loans by its capital markets unit over the past six months. For the banks that are smart, this is an excellent time to lend, said John Aiken of Dundee Securities. They are now getting paid for risk.

The problem for many borrowers is banks are being selective, lending only to their best customers. Spreads have widened and pricing has increased generally for all but the best credits, who generally don't have a liquidity problem anyway, said one senior corporate banker. What you've seen is a lot of lenders retreat to the investment-grade market, so some of the terms there have improved for borrowers.

The borrowers hit hardest are those that need money most companies that are deep in debt and facing serious liquidity problems. Traditional lenders are shunning risky loans, and hedge funds that are lenders of last resort have begun to demand floors on floating-rate loans to prevent their returns from falling with rate cuts.

For many troubled companies such as AbitibiBowater Inc., rates have soared so much that boards of directors find it hard to stomach. With $350-million (U.S.) of debt maturing in the next four months, Abitibi is in talks with lenders to round up more cash. It warned last month that it may not be able to find financing on satisfactory terms.

It's one of those things where reality is so painful you almost don't want to acknowledge it, said the banker.

The Globe and Mail


______________________________________________________

Even as close as last year,one was able to arrange mortgages as low as prime - 1% (more were done at prime-.9%), however now I do not think there is any bank offering this rate.
So if you have a variable from last year at P-0.9%, it will still be honored now so you will pay 4.35% on your next installment.
However new variable rate mortgages are higher.
This is all referring to mortgage.
For unsecured personal loans, Trust companies and credit unions are still offerring P+1 or at 6.25% for scores of 640- which is not A class.
Some banks with whom you have long standing relationships and a mortgage with them, might give you an unsecured loan at prime even, if your score is good.
Its all a big morass.




 
Post ID: 116765 05-03-08 11:21:10
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kalia
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Member since: Dec 03




Posts: 155
Location: Canada


So, that is what my question is.

If BOC cut down rate by .50 basis points, how this going to help the current consumer or future consumer ( looking for Mortgage).

If there is no substaintial change or reduction for any type of customer, How we are concerned with the bank rate cut?

Is it worth discussing BOC rate cut under the circumstances if there is no tangible benefit to consumer ?

Thanks


 
Post ID: 116783 05-03-08 13:54:54
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investpro
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Member since: Nov 06




Posts: 1628
Location: carl sagan's universe


Quote:
Originally posted by kalia

So, that is what my question is.

If BOC cut down rate by .50 basis points, how this going to help the current consumer or future consumer ( looking for Mortgage).

If there is no substaintial change or reduction for any type of customer, How we are concerned with the bank rate cut?

Is it worth discussing BOC rate cut under the circumstances if there is no tangible benefit to consumer ?

Thanks


Howdy Kalia,

Here is an example.
Let us say bakra A (arey just to add a little levity yaar) took a variable rate mortgage last year at prime -0.75% for $250,000.

The prime late last year was 6.25% so his rate was 5.5%.
At that time his monthly payment would've been (compounded annually) approx $1515 for a 25 year mortgage. Then when the prime was adjusted downwards by 0.25% to 6%, his payment would've been adjusted accordingly.
Now, after the recent cut from BoC, the new prime rate is 5.25%. Bakra A's monthly payment will now be calculated at 4.5% or new payment will be approx $1375, or a lowering of $140 from the original. So Bakra A has now got excess of $140 which he can either invest or use to pay down extra on his mortgage, so as to get rid of it faster.
Note above is based on monthly payments and annual compounding.
When going for a mortgage you can ask for semi-annual compounding also and bi-weekly payments and possibly another few bells and whistles.
So some action does trickle down to the consumer.
The fixed rate Bakras- for the time being unka to vaat lag gaila.
Anyway as noted in my posts previously, in the long run, (mortgage is a 25 year or more commitment initially), the variable rate option has proved beneficial in both Can and the US.
You can google for confirmation.
Also if you are a new Bakra, the payment on a variable rate now is lower than before the BoC rate cut.

Similarly for LOCs, HELOCs.


 
Last edited by: investpro on 06-03-08 10:41:36
Post ID: 116819 06-03-08 10:40:08
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