Comments on: “If it seems too good to be true, it is.” http://asknolanmatthias.com/if-it-seems-too-good-to-be-true-it-is/ Wed, 10 Feb 2010 02:26:26 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Nolan Matthias http://asknolanmatthias.com/if-it-seems-too-good-to-be-true-it-is/comment-page-1/#comment-264 Nolan Matthias Sat, 02 Jan 2010 18:28:37 +0000 http://asknolanmatthias.com/?p=430#comment-264 Yes, I can see the frustration among Canadians with the failure to follow prime. I just don't think they had a choice. If they would have followed suit there would have been a large amount of prime minus 50-90 bps mortgages that would have had rates below the cost of funds (the cost of deposits). If that would have been the case I think there would have been a lot of profit loss among the banks. Who knows if it would have been enough to eliminate profits all together, but it would have definitely been dangerous. I do believe they lost money for a short period of time on some of their mortgages anyways. At one point the cost of funds got so high they had to increase adjustable rates to as much as prime plus 100 bps on new mortgages. At that time mortgages at prime minus 50 bps or better were definitely costing the banks money. Guess I just see it from both sides - definitely feel for those who were upset by the banks failures. Kind regards, Nolan Yes, I can see the frustration among Canadians with the failure to follow prime. I just don’t think they had a choice. If they would have followed suit there would have been a large amount of prime minus 50-90 bps mortgages that would have had rates below the cost of funds (the cost of deposits).

If that would have been the case I think there would have been a lot of profit loss among the banks. Who knows if it would have been enough to eliminate profits all together, but it would have definitely been dangerous.

I do believe they lost money for a short period of time on some of their mortgages anyways. At one point the cost of funds got so high they had to increase adjustable rates to as much as prime plus 100 bps on new mortgages. At that time mortgages at prime minus 50 bps or better were definitely costing the banks money.

Guess I just see it from both sides – definitely feel for those who were upset by the banks failures.

Kind regards,

Nolan

]]> By: Doctor Stock http://asknolanmatthias.com/if-it-seems-too-good-to-be-true-it-is/comment-page-1/#comment-263 Doctor Stock Sat, 02 Jan 2010 16:42:37 +0000 http://asknolanmatthias.com/?p=430#comment-263 I have to say I was quite disappointed with the major banks approach to the prime rate over the past year. It simply hasn't reflected the discounts they receive from the Bank of Canada... they take it and then charge the average Canadian more than they should. I suppose that's why they continue to make healthy profits and they have moments of being great companies for their shareholders, depending on the momentum. Cheers! I have to say I was quite disappointed with the major banks approach to the prime rate over the past year. It simply hasn’t reflected the discounts they receive from the Bank of Canada… they take it and then charge the average Canadian more than they should. I suppose that’s why they continue to make healthy profits and they have moments of being great companies for their shareholders, depending on the momentum.

Cheers!

]]> By: Nolan Matthias http://asknolanmatthias.com/if-it-seems-too-good-to-be-true-it-is/comment-page-1/#comment-261 Nolan Matthias Sat, 02 Jan 2010 02:10:46 +0000 http://asknolanmatthias.com/?p=430#comment-261 Hi DS, Thanks for joining me. I've perused your site a few times, and have had you in my reader for a while. I think it will be an interesting year as far as mortgage rates go. I could see it being one of those few times in history where fixed rates and prime move sporadically in different directions. Obviously with the bond market dictating fixed rates we will see some natural fluctuations, as we have this last week (rates will move close to 45bps in the next couple days unless there is some pullback in the bond market). As for prime rate, I can't take my eyes off the <a href="http://www.bankofcanada.ca/en/index.html" rel="nofollow">Bank of Canada's inflation numbers</a>. If the inflation rates stay low or negative, I could see the low rates lasting beyond June of 2010. On the other side of the equation I could see a big jump in inflation push prime rate above it's five year fixed rate counterpart if Carney has to step in and slow the economy. If that's the case then it could become beneficial to start taking fixed rate mortgages over variable. If you want to read some interesting analysis on fixed vs. floating rates, take a gander at <a href="http://www.ifid.ca/pdf_workingpapers/WP2001A.pdf" rel="nofollow">Moshe Milevsky's 2001 study.</a> Hi DS,

Thanks for joining me. I’ve perused your site a few times, and have had you in my reader for a while.

I think it will be an interesting year as far as mortgage rates go. I could see it being one of those few times in history where fixed rates and prime move sporadically in different directions.

Obviously with the bond market dictating fixed rates we will see some natural fluctuations, as we have this last week (rates will move close to 45bps in the next couple days unless there is some pullback in the bond market).

As for prime rate, I can’t take my eyes off the Bank of Canada’s inflation numbers. If the inflation rates stay low or negative, I could see the low rates lasting beyond June of 2010. On the other side of the equation I could see a big jump in inflation push prime rate above it’s five year fixed rate counterpart if Carney has to step in and slow the economy. If that’s the case then it could become beneficial to start taking fixed rate mortgages over variable.

If you want to read some interesting analysis on fixed vs. floating rates, take a gander at Moshe Milevsky’s 2001 study.

]]> By: Doctor Stock http://asknolanmatthias.com/if-it-seems-too-good-to-be-true-it-is/comment-page-1/#comment-258 Doctor Stock Fri, 01 Jan 2010 23:34:45 +0000 http://asknolanmatthias.com/?p=430#comment-258 1st time here... interesting site. Any comments on mortgage rates moving into 2010? 1st time here… interesting site. Any comments on mortgage rates moving into 2010?

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