Why are mortgages considered complex presently




Why are mortgages considered complex presently Why Mortgages Are Super Confusing Right Now

(The guest column is by Calum Ross, an internationally known leader and orator in the field of mortgage banking and financial planning. Driven and committed to usher in positive changes in mortgage industry. )

Last couple of days the mortgage industry witnessed confusing times. The reasons are many, some of them pointed below:

1) With the Bank of Canada hinting to public that overnight rates as well as prime rate will stay lower down. What they technically meant, see below.

2) The market for bonds (a parameter to predict fixed term mortgage prices) traversed more than a 25 month high. The reasons are outlined below.

3) The Finance Minister indicated last week that Ottawa was heading towards adopting stringent rules for mortgage - when these will be rolled we don't have a clue but one thing is certain that these rules are not going to be very good new for Canadian borrowers for mortgage

If you are keen and looking for more information, go through the below text: As an expert and observer I always try to explain broader economic conditions to patrons. I have gone through more than 7 years of post-secondary education in finance, saving the trouble for you to go through the same. Believe me - life is much easier then having to attend hours of economic classes.

Announcement made by the Bank of Canada last week:

The interest rates by the Bank of Canada are sets based on where the inflation indices are going to be from now in next 18-24 months. It enumerated following key things in the last week in its press statement.

1) It accredited that general public knows that, "Nature of inflation in Canada remains passive..." (Inflation control remains centre mandate for the BoC, and vastly the cause it changes interest rates.)

2) Current rates will stay suitable if the inflation remains in check, and there is "noteworthy slack" in the economy, and household arrears don't come to a boil.

3) Once new rules come into practice rate will increase but that will likely be "measured" and just sufficient to maintain inflation at the BoC's 2% inflation objective. ( Chances of 300 bps rate hike in few years can be put aside, this surely won't be a situation that aroused in early 80.Those fears can be put in back burner.)

Based on market environment these are the plausible changes in the Bond Market:

One of the most sought after bonds that everyone in our industry keeps a watch is the 5-year "Government of Canada" (GoC). This bond's yield leaped to 10 basis points on Thursday to 2.16%, a whooping new 2-year elevation.

The average yield Government of Canada marketable bonds is about 5 to 10 year

The four prominent reasons for traders to sell bonds and pushing up long-term rates are as follows:

1) Optimistic economic impetus continues down south, which many feels could speed up our GDP and spark inflation apprehensions

2) A revitalized Canadian housing marketplace (at least for the time being)

3) Weakening of Canada loonies (making holding Canadian bonds not very attractive)

4) Continuous outflows from global bond markets (the multi-decade bond bull market is shrinking, to a certain extent)

* There is an converse relationship between bond prices and yields. If one heads northwards, the other goes southwards, and vice-versa.

Observation of key Analysts hints below situation:

Derek Holt from Scotiabank Economics says the BoC carry on to reference language that has us suppose they are on hold into 2015.  

As per Doug Porter, BMO Capital Markets A long period of inactivity is expected by the Bank of Canada. This may results in unchanged rates a year from now.

Avery Shenfeld from CIBC World Markets avers that the central bank is willing to sit on the sideline and wait for considerable evidence [that]... (economic) is speeding up in progress prior to increasing the rates.  

What should one be considering if thinking of taking a loan?

Irrespective of the changes in rates- whichever new mortgage rules that will be implemented are not going to client friendly than the present ones in place. When rates decreases one gets the benefit of the lower rate - thus the advantage is to affect now. If mortgage rules are relaxed (highly doubtful) then you will get the benefit of the more lenient rules by getting accepted for a mortgage quicker rather than afterward. The BMO report card illustrates the surprise witnessed in housing this summer and offers a number of grounds on the need to tighten up mortgage rules further. I have no control over the changes in rules but can definitely help in preventing its negative impact.  Give me a call anytime and would be really happy to offer support!

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