Broker: Bank releases self-serving mortgage data

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One big bank uses recently released data to encourage homebuyers to lock into longer mortgage terms, but is that the best choice in the current environment?

“The data does make it look favourable for people to lock into fixed rates as opposed to variable, and it does justify the importance of actually talking to various people – mortgage brokers, bankers – to see what is best for the client,” Omer Quenneville of Centum Regal Financial told MortgageBrokerNews.ca.

A new poll, released by CIBC and conducted by Nielsen, found that 47 per cent of Canadians would prefer a medium-term (three-to-five-years) mortgage term, yet the bank speaks to the positives of locking in for longer terms.

"If interest rates rise in the next year or two, homeowners with shorter-term mortgages or variable-rate mortgages could see their payments move higher," Barry Gollom, vice president, mortgages and lending at CIBC. "Having a medium or longer term fixed rate can act as a measure of stability and protection - especially for those who have recently bought their first home."

According to Quenneville, this advice is self-serving.

“CIBC want people to lock in for (at least) five years, they know full-well, statistically that the average person will have to do something to the mortgage in the next three-to-four years and pay a huge discharge penalty to be able to accomplish their goals,” he said. “It’s becoming standard practice now for people to just pay that discharge fee. There’s no way out of it for them.”

The study also found that 27 per cent would choose a longer (seven-10 year) term and 19 per cent would prefer a shorter (one-to-two year) term.

Data that points to a requirement for more education among Canadians, according to Quenneville.

“Definitely go into a variable rate – five year variable; if rates start to climb, the discounts increase on a variable,” he said. “It’s unlikely they will climb over a quarter to a half point in the next few years, but if it should happen to climb a whole point the discount will increase as well and at that point you just break the mortgage, pay the three month penalty, refinance with the bigger discount and get the mortgage back down again. Long-term variable always wins.”
 
  • Ron Butler on 2015-05-15 10:11:50 AM

    It is certainly true on average over the last 2 decades clients with Variable Rate mortgages have paid less interest, had lower penalties to break a mortgage and enjoyed more flexibility with refinance options. Variable has been a winner for a long time.

  • John Woods on 2015-05-15 2:10:53 PM

    A self serving bank recommendation.. I am shocked

  • Matt on 2015-05-15 6:15:43 PM

    This whole publication is self-serving... a bunch of blow hards that pitch themselves as white knights of the mortgage industry when in reality the majority are snake oil salesmen. Broker market share slipping means the rest of teh canadian public tends to agree...

  • errol on 2015-05-16 9:21:37 PM

    Do you know guys when is this fricken market going to crash finally. I want to buy my daughter a house, but don't want to get gauged.

  • Omer Quenneville on 2015-05-17 10:49:34 AM

    Errol, I have had clients wait decades waiting for the market to crash. Timing the market is very difficult. The best time to buy is when you find a house you like the and numbers make sense. Imagine if you bought a year or two ago, the equity you would have today. Even if the market goes down, you would most likely have enough equity to cushion. If the market corrects and interest rates go up, most likely it will cost the same to carry the property because of the higher interest rate. When you consider real estate is a long term investment and best hedge against inflation, don't wait. She got to live somewhere.

  • Omer Quenneville on 2015-05-17 10:49:37 AM

    Errol, I have had clients wait decades waiting for the market to crash. Timing the market is very difficult. The best time to buy is when you find a house you like the and numbers make sense. Imagine if you bought a year or two ago, the equity you would have today. Even if the market goes down, you would most likely have enough equity to cushion. If the market corrects and interest rates go up, most likely it will cost the same to carry the property because of the higher interest rate. When you consider real estate is a long term investment and best hedge against inflation, don't wait. She got to live somewhere.

  • errol on 2015-05-17 4:21:40 PM

    What equity? These non-sense numbers are hardly expression of a value so what equity are you referring to? I don't really care about mortgage rates as I don't need one. Every house I bought so far I bout for cash. Omer, I don't think I will ever buy in to your opinions and I will never look at price from the affordability point of view. You can try selling that to 5% down guys with not much to lose. There are plenty of those cowboys shooting from the hip. I don't need to do that.

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