Fixed-rate hike presents opportunity for brokers

This has always been a bit of a "crap shoot"!. With a VIRM there are risks but mainly there have been benefits. Historically the VIRM has been the winner and when most research was done VIRM were priced at PRIME and they are now PRIME -.75%. As a result it is hard to see Fixed Rates winning the battle. If rates go up by 1% over the next two years the VIRM would still be lower then the best Fixed rate available today.
There is always a down side possibility so "if you want to play be prepared to pay".

Neil "Mortgage Man" McJannet

By Vernon Clement Jones 04/07/2011 6:00:00 PM 0 comments
Selling fixed-rate mortgages may just have gotten a little easier for brokers, with the big banks leading a new round of rate hikes, threatening to kick start the “significant rise” some analysts had expect in the second quarter.


Broker channel lenders are expected to follow the lead of RBC and TD Bank, which moved Monday to raise their benchmark five-year fixed-rate mortgages by 15 basis points, to 5.54 per cent. Most other special and fixed rates at the banks, including Laurentian, also rose between 0.10 and 0.15 percentage points, with their “discounted rates” receiving a similar bump-up, climbing to 4.39 per cent. The banks are now pointing to rising bond yields, specifically a 35-basis point spike in the 5-year bond yield. It effectively increases the cost of money for prime lenders and directly impacts the interest they attach to fixed-rate product.


While mortgage rates remain historically low, analysts suggest the trend is toward further growth by the end of the first half of 2012. Canadian banks are, in fact, forecasting as much as a 100-basis point increase in 5-year bond yields over the next two years, making for a corresponding hike in fixed-rates mortgages over that same period.


The growth comes as an increasing number of brokers are helping clients lock into fixed rates in anticipation of the Central Bank’s move to raise its overnight rate later this year. Early last month economists switched their script, arguing that the Bank would continue to hold the key rate at 1 per cent until the Q2 2012 given a slower-than-expected global economic recover and fears of a double-dip recession in the U.S.


All bets may again be off as inflation fears resurface. Investors are now anticipating Bank of Canada Governor Mark Carney will boost the overnight rate by the end of the year after the country’s annual inflation rate in May jumped to the highest level in eight years. The rise could force the Central Bank to slow down consumer borrowing by raising the cost of those funds.


All the uncertainty may make it easier for brokers looking to convert preapprovals.


“With the fixed rates going up seven weeks ago and then going down and now up, it creates more momentum among risk-averse clients who were waiting to jump into the market,” Arnold Molder, a 35-year veteran of the industry and president of The Mortgage Centre Tridac Mortgages. “If it is a new client, we will offer them both options, but we are still leaning to fixed rates, which are still really near the bottom rate.”