More from Peter Kinch

This is from Peter Kinch's email newsletter.
In case you missed it, the following is a copy of the interview between Peter Kinch and Russell Byth that aired Sunday, December 13 on News 1130

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Russ:

Well, as expected, The Bank of Canada held steady on their rates last week, keeping the historically low Prime rate unchanged at 2.25%. Now given that these are so-called emergency rates, it is just a matter of time before they start to rise. On the line with me is best-selling author and Mortgage Expert, Peter Kinch with Dominion Lending; Pete, what advice do you have for Canadian families faced with the inevitability of higher rates in the future?

Peter:

Well Russ, everyone should start budgeting for an increase in rates. You know, it's a well documented fact that the Bank of Canada is using these low interest rates to kick-start the economy and their goal is to get inflation back up to 2% but as soon as they feel that they are at or near that level, rates will definitely start to rise. It's not a matter of if, but when.

Russ:

So if I'm a consumer right now either thinking of buying a house or a home owner possibly looking to renew my mortgage, what should I be considering in the New Year?

Peter:

Well, the first thing I would do is sit down and draft up a family budget - especially with Christmas coming up and all the expenses that go with it. In your budget, figure out how much you can afford to increase your mortgage payments by. If you accelerate your current mortgage payment, you will accomplish two things:

1. You will have increased the amount of money that is applied directly to your principal balance, so that when the time does come that your mortgage is up for renewal and the rates are higher, you'll be renewing with a lower principal balance and as such, your payments may not change much.
2. Increasing your payments today will allow you to adjust your current budget so that you will not experience 'payment shock' a year or two from now when the inevitability of renewing into a higher rate actually happens.

Russ:

Thanks Pete, some good advice to follow. In the Business Centre, I'm Russell Byth.

Predicting Fixed Mortgage Interest Rates -Garth Chapman

After scanning over my blog I realize we are on a lot of great mailing lists. Getting news from industry leaders is crucial to staying on top in any business. It's what separates savvy investors from "flying by the seat of my pants" investors.

One mailing list we are so grateful to be on is Garth Chapman's of Jencor Mortgages and Remasoft. Garth is a wonderful mentor to us and has helped us streamline our investments to both our and our joint venture partner's benefits. He knows real estate investing from all angles, as a successful investor, from developing a software system specifically for investors and as a mortgage broker.

An excerpt from his last mail-out:

"Here is a nice simple explanation of how fixed mortgage rates are tied to bond rates – and how to predict when they might be headed up or down.

Canadian 5 yr bond yields -.03bps to 2.73. The spread, based on the MERIX 5 yr rate published of 4.34% is 1.61. Just as a reminder, the floor and ceiling rates suggest the “comfort zone” (currently between 1.35% and 1.55%) where lenders want the spread to be.

If the “Rate Barometer” (which is the spread between the fixed 5 year rate and the 5 year bond yield) stays within the floor and ceiling range, then you likely won’t see a rate change. If the spread, dips below the floor for extended periods (over a week), then expect a rate hike.

And likewise, if the spread remains above the ceiling rate, expect a rate drop in the near future.

The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch.

If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Ideally lenders are looking for a spread between 1.35 and 1.55."

Peter Kinch on Canadian Mortgage Rates

If you're riding the variable rate it can be scary sometimes, it can even keep you up at night. With interest rates at historical lows people are starting to wonder when and how high rates will go. Peter Kinch, The Number 1 Mortgage Broker in Canada, has insight on what to expect in the short term and in the next 2 to 4 years.

He points out that interest rates are at their lowest ever which is attracting buyers to the market in turn firming up prices. Housing affordability is very good right now so take advantage while you can.

He also expects rates to go up 3% in the next 2 to 4 years.


Watch the full interview here on CTV News.

Small piece of trivia Mr. Kinch lived in the same city I do in Japan and we have mutual acquaintances - Six degrees of separation!