# Prediction Interest Rates on Mortgages



## carllecat (Aug 3, 2010)

Hey guys, 

Just by curiosity, what do you think the interest rates on mortgages will go in the next year, 2 years and 5 years?

I believe that the rates will stay low for the next two years as we might go back in a recession soon. However, I am positive that the rates will be higher than now 5 years from now.

Your predictions are?


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## Jungle (Feb 17, 2010)

Taken from www.canadainmortgagetrends.com Aug 27 post:


The Bank of Canada's overnight target has a direct impact on variable mortgage rates.

Bank	2010	2011
BMO	1.00	2.50
CIBC	1.00	2.00
RBC	1.25	2.75
Scotia1.00	2.25
TD 1.00 2.00 
Year-end Avg	1.00	2.25

"On average, major economists now expect a 150 basis point increase in the overnight rate over the next 16 months. Their outlooks, if accurate, *imply a 4.25% prime rate by December 31, 2011.* Prime rate is currently 2.75%. "
Chg vs Today	+0.25	+1.50
(All figures rounded to the nearest 1/4 point increment.)


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## bean438 (Jul 18, 2009)

Futile question. Nobody can predict interest rates, not even the experts.


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## carllecat (Aug 3, 2010)

bean438 said:


> Futile question. Nobody can predict interest rates, not even the experts.


I am not expecting you to be an expert, but your predictions? Let's play the game as if it was a hockey pool!


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## Larry6417 (Jan 27, 2010)

The St. Louis Fed studied the ability of American economists to determine the direction of interest rates (i.e. up or down). The economists were right 42% of the time. That's right, less than chance would dictate.

That being said, interest rates will almost certainly go up. It's just a matter of how quickly or slowly. In case of weak economic growth, rates will rise very slowly. My non-economist opinion is that rates will be low for the next couple years because our main trading partner, the U.S., is struggling. It looks like the U.S. has a problem with structural unemployment. I hope, but don't know for sure, that interest rates will be higher 5 years from now. Emergency-low interest rates from the BOC in 5 years will likely mean that my equity portfolio will have had a lousy 5 years.


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## Rox (Oct 17, 2010)

Please correct me if I am wrong : when interest rates are low, it's best to pickup bonds, and vice versa, right ?


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## dogcom (May 23, 2009)

5 Year rates are really low right now, so in my opinion I wouldn't take the risk and lock in. With the way the Fed and the world is printing money there is a danger inflation takes off and then interest rates head much higher.


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## HaroldCrump (Jun 10, 2009)

Rox said:


> Please correct me if I am wrong : when interest rates are low, it's best to pickup bonds, and vice versa, right ?


Not necessarily.
Depends on the duration of the bond and the yield curve.
For example, right now is a pretty bad time to buy mid or long term bonds because the yields are so low.


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## Rox (Oct 17, 2010)

HaroldCrump said:


> Not necessarily.
> Depends on the duration of the bond and the yield curve.
> For example, right now is a pretty bad time to buy mid or long term bonds because the yields are so low.



I see,... thank you,... guess binds are out for me at the moment, but I'm still looking forward to some replies that I put up recently on an Income Fund issued by BMO which yields up to 9%,.... That looks good to me, but somebody was saying that it's questionable beause it's from BMO.

BMO is a bank, right ? What's the problem ?


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## Henry (Jul 12, 2009)

*BMO Income Fund*

Rox: Good question. 

I have researched about BMO Income Fund and I find the fund to have questionable practices to create the artificial 9% yield.

BMO Income Fund's yield consists mainly of return of capital to the fund owners. I see no benefit of returning my own money to myself when I want to invest in long term asset for dividends and interests.


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## Rox (Oct 17, 2010)

Henry said:


> Rox: Good question.
> 
> I have researched about BMO Income Fund and I find the fund to have questionable practices to create the artificial 9% yield.
> 
> BMO Income Fund's yield consists mainly of return of capital to the fund owners. I see no benefit of returning my own money to myself when I want to invest in long term asset for dividends and interests.


Ahh,.. I have heard of this...return of capital, but has the unit price been dropping since the day the fund was launched ? 

Can you point me to a link where I can read up more in this BMO Income Fund please ?


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## Rox (Oct 17, 2010)

Rox said:


> Ahh,.. I have heard of this...return of capital, but has the unit price been dropping since the day the fund was launched ?
> 
> Can you point me to a link where I can read up more in this BMO Income Fund please ?


Henry,... have managed to find the link that points to infos about this BMO Income Fund. I must say that the performance has been quite good, save of course for back in 2008 but then that was when everything fell.

The price has gone back up today. 

So, I don't really see any problem, at least till now, for this counter. Why do you say return of capital ?


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## GeniusBoy27 (Jun 11, 2010)

If I'm guessing, I'm guessing towards historical norms. However, traditionally, the recovery post-traditional fiscal recessions, is that is takes 5-7 years to return to pre-recession levels. So we're talking recovery by 2015.

So next year, Bank of Canada prime at 2.00%, 2 years at 2.50%, and 5 years at 4.0%. (which means Bank prime at 2% above that). 

Though I really only pulled the numbers out of a hat. Hmmm ... this is going to be embarassing to review in 5 years time.


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## Rox (Oct 17, 2010)

So,... rates are indeed moving up, huh ? 

Hmm, nobody has yet to tell why they think BMO is not that good,....


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## HaroldCrump (Jun 10, 2009)

Rox said:


> Hmm, nobody has yet to tell why they think BMO is not that good,....


What's this sudden obsession with BMO and its investment products?
Aren't we seeing a lot of questions/discussion about BMO recently?


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## Rox (Oct 17, 2010)

HaroldCrump said:


> What's this sudden obsession with BMO and its investment products?
> Aren't we seeing a lot of questions/discussion about BMO recently?


Yes, because it carries the safety, or should I say relative safety of a financial institution, and it has the highest yield among the others of the same category, perhaps not in total returns over a certain period, but certainly in monthly payout at the current moment, or for that matter, historically.

I think BMO has had the best monthly payout for the last few tens of years, right ?


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## HaroldCrump (Jun 10, 2009)

Rox said:


> Yes, because it carries the safety, or should I say relative safety of a financial institution


right, but so do RBC products and Scotiabank products, etc.
Why this recent obsession with BMO?
Yield is a matter of time...they have recently entered the cattle herd of ETFs and monthly income products.
As people buy into them, the yield will fall.
Also, if they are investing more or less into the same underlying securities as the other income funds, I don't see why or how their yield can be higher.


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## Rox (Oct 17, 2010)

HaroldCrump said:


> right, but so do RBC products and Scotiabank products, etc.
> Why this recent obsession with BMO?
> Yield is a matter of time...they have recently entered the cattle herd of ETFs and monthly income products.
> As people buy into them, the yield will fall.
> Also, if they are investing more or less into the same underlying securities as the other income funds, I don't see why or how their yield can be higher.


Yeah,... I am in complete agreement and concurrence with what you wrote here, being : if they are investing more or less into the same underlying securities as other income funds, why or how their yield could be higher ???

Some possible reasons I could offer would be because BMO has a lower expense, hence they could give out more dividends, another possibility would be they could be enjoying some tax benefits that other funds are not; or even they are compelled to pay out more to unitholders due to internal policies.

I am open to criticisms of my opinions in the above.

What I can see is the the BMO Income Fund does not have a dropping value, and is always servicing their dividend payout consistently, hence my strong fascination there to start with this fund. Put it this way, wouldn't be only me, I'm sure other investors among my group would go with this fund too.

Unless of course, you are saying that there is a timebomb waiting to explode at BMO which has been ticking away all these years, then well, I guessed we are all exposed to such risks, Lehman would be a good exampleof a ticking timebomb that exploded !


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## HaroldCrump (Jun 10, 2009)

Rox said:


> Some possible reasons I could offer would be because BMO has a lower expense, hence they could give out more dividends, another possibility would be they could be enjoying some tax benefits that other funds are not; or even they are compelled to pay out more to unitholders due to internal policies.
> 
> I am open to criticisms of my opinions in the above.
> 
> ...


I'm not saying any such thing...you said you agree with the fact that if their holdings are more or less the same, the yield cannot be dramatically different - unless some form of Ponzi is going on.
Right? So I don't see the validity of your reasons for thumping BMO income fund specifically.
Let's look at the facts:

BMO Monthly Income Fund:
Inception Date: 1999
Return Since Inception: 5.74%
Fees: 1.49%
Top Holdings: TD Bank, Bank of Nova Scotia, CIBC, RBC,Enbridge,CNR,Province of Ontario 8.5% DEC/02/25,TransCanada Corp.,Goldcorp Inc., Suncor Energy 

TD Monthly Income Fund (just to pick one among the other top 5 banks):
Inception Date: 1998
Return Since Inception: 8.3%
Fees: 1.40%
Top Holdings: RBC, Bank of Nova Scotia, CIBC, Toronto-Dominion Bank, Canadian Oil Sands Trust, Bank of Montreal, Suncor Energy Inc, Enbridge Inc, RioCan Real Estate Investment Trust

Based on the above, I do not see how BMO Income Fund is a stalwart compared to any other bank income fund.
In fact, just the TD one is close to 300 bps ahead in terms of annualized returns - that can add up to a lot over a period of say 20 years.


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## bean438 (Jul 18, 2009)

As a BMO shareholder i highly recommend everyone use BMO financial products.


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## Rox (Oct 17, 2010)

HaroldCrump said:


> I'm not saying any such thing...you said you agree with the fact that if their holdings are more or less the same, the yield cannot be dramatically different - unless some form of Ponzi is going on.
> Right? So I don't see the validity of your reasons for thumping BMO income fund specifically.
> Let's look at the facts:
> 
> ...


Harold,...

I appreciated this challenge, and your very factual arguments. To make things and our discussions productive, let me think about this, and I'll bounce it across my friends and fellow-immigrants too before I counter-comment...

Your comments are really helpful, I must say, and with so many of us waiting to port our funds to Canada, we must really learn hard and be able to know about where to put our money.

Thanks again, Sir,...


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## Rox (Oct 17, 2010)

bean438 said:


> As a BMO shareholder i highly recommend everyone use BMO financial products.


Dear Bean, appreciated your comment too,.. but if you can furnish some stronger data, and make comparisons with, well, TD Bank, or for that matter, any other bank in Canada, it can be very helpful...

I'm sure you must have done some research earlier before you committed your funds to BMO.


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