Tuesday, December 7, 2010

No change to prime

As we thought the Bank of Canada did not do anything to the overnight lending rate.

Here's the full article from CTV.ca


Bank of Canada Governor Mark Carney kept the central bank's trendsetting interest rate unchanged in an announcement Tuesday morning.

The rate remains steady at 1 per cent and will stay there until next year at the earliest.

Carney raised the benchmark rate three times over the summer, but since then the economy has slowed and he has put the increases on hold.

The bank said Canada's economic outlook is not as bright as it was when it issued its last forecast in October. As a result, any interest rate increases would be carefully considered.

In one piece of positive news, the bank said household spending has been stronger than anticipated. But overall, there is room for improvement.

"Governor Mark Carney said there remains significant slack in the Canadian economy -- things are not banging on all cylinders as it were," said BNN's Michael Kane.

"The takeaway from all of this is the recovery is underway, the recovery is taking place, but at a moderate pace."

According to the most recent economic data, Canada's economic growth skidded to 1 per cent in the third quarter of this year. In the second quarter economic growth was double that rate.

On the employment front, November saw a slight rise in part-time work, but a drop in good full-time jobs.

Those numbers came as fewer Canadians were looking for work, meaning the actual numbers might be even higher than the 7.6 per cent on the books.

Manufacturing is also struggling due to the high Canadian loonie, which makes exports less affordable for foreign markets -- one of the factors the central bank said is slowing the economy.

Ahead of the announcement most analysts warned Carney would risk doing major damage if he were to raise the interest rate and it was more likely he would lower expectations for future growth instead.

Wednesday, November 10, 2010

Homeowners unfazed by long amortizations

Here's an article I read this morning http://bit.ly/9XevR0 that I can agree with as well as disagree.

The level of people taking amortizations longer than 25 years is a growing trend, however, a lot of my clients that I coach into the right mortgage will take a 35 year amortization.

They don't take it to make sure they have the lowest payment and buy more home (well some do). They take it as a strategy for any future possibility of needing any extra cash flow per month. Maybe a loss of a job, death in the family, whatever.

What I say is take the 35 year AM, however, keep your payments at the higher level which is based on a 25 year or less. If an unfortunate event happened and you need that extra few hundred dollars cash flow per month, simply call and have your payments brought down to that lowest level. (most clients are able to do this online)

It's a simple solution to needing cash flow at some point down the road that doesn't have you panicking as much. If you register your mortgage in a 25 year originally, then the only way to go out to 35 is to re-register which you may not qualify for as maybe you lost your job.

-----

On another note, if your mortgage is insured with CMHC, Genworth or CG, there is also the home owner assistance programs that may help. This is for those that need help in dire times. The insurer and lender would rather see you work out a deal to keep your home than see you go into foreclosure. Another reason why our foreclosure rates are so low. We care!

Friday, October 22, 2010

Collateral mortgages. Yes or No

In the news recently there's been a lot of talk of how TD is now registering ALL their mortgages as collateral mortgages. Some say this is a good thing, I truly believe it's not.

This isn't to say TD is the only one that does this. Most credit unions do and any time you bundle your mortgage with line of credits, visa's etc the same registration takes place.

This can be at 100% of the homes value a little less or in TD's case 125% of the homes value. However, in order to access the funds you have to re qualify. Dumb.

Here's just one example of why in my opinion this is a bad thing. Besides the obvious fact that the banks are giving people access to too much debt.

I have a great couple that just celebrated two daughters weddings. They used their credit cards and line of credit to pay for this. They unfortunately missed a couple payments and now their credit bureau doesn't look so good. So of course to go back to their credit union to advance some of those funds they have available they'll need to requalify. Well they can't.

The proposed solution is to do a one year second mortgage to clear things up and in a year redo their mortgage and roll everything into one.

Makes sense right?

Well in two words, they can't.

Now they're stuck with too much debt and will struggle and struggle to keep their payments up. Of course they should have consulted us first, however, when you're in the moment and you have two girls on you for wedding money, your mind isn't always there!

I just hope they can sustain the debt for another year or two so we can look at a solution at this time.

---------------

Please MAKE SURE that you're mortgage is not registered as a collateral mortgage. The banks wont tell you they're doing it as it ties you into them and their one or two products. The only way out is to do a refinance.

Tuesday, October 5, 2010

Know the penalties:

Knowing the rules of any game, usually gives
you advantage. The same goes for the mortgage
game. No one knows the rules better
than a full time mortgage professional that
deals in the “mortgage game” every day.

With record low rates a lot of borrowers are
choosing to refinance their mortgage to take
advantage of the savings. It’s important to do
the research up front to determine a number of
things:

• What exactly are the savings? Both monthly
and over the balance of my term.
• How much will my penalty be?
• How long will it take to recoup my penalty?
• Is there a way to lower my penalty?

While all points are important, the last one is
key. A true mortgage professional will easily
work through the first 3 points and do a full cost
benefit analysis to refinancing, and determine
your actual penalty and savings down to the
penny. The penalty does play a major role in
this scenario, and here’s where the twist comes
in.

With interest rates being so low right now, most
borrowers in fixed term mortgages will have to
pay an Interest Rate Differential penalty to get
out of their mortgage. These can be significant
as the amount of your penalty is determined by
the “spread” or “difference” between your old
interest rate and what rates are today for similar
terms (i.e. the amount of time you have left
on your mortgage.)

Armed with that knowledge,
there is an opportunity to hedge
yourself and lower your penalty.

If you’re not in a hurry to refinance,
and you believe interest rates have bottomed
out and will increase in the short term,
you can do the following:

• Book today’s rate for 120 days.
• Hope interest rates increase.
• Pay your mortgage off and refinance after
rates have increased.

Your mortgage professional will have to stay on
top of things to make sure your lawyer or notary
orders the discharge/payout statement from
your lender just before funding at the highest
possible interest rate day. That way your penalty
is minimized.

What this scenario accomplishes is the following:
You get your new mortgage at the bottom
of the barrel lowest rate, but your penalty is
determined on a smaller spread. You’ve got the
best of both worlds, lowest rate, and smallest
possibly penalty within the 120 day period.

I’ve performed this strategy many times in increasing
rate environments and the savings can
be substantial. The last client we did this for
saved $4,800 on their penalty by waiting 3
months to fund their refinance. Of course they
paid the higher rate on their old mortgage during
the 3 months, but the penalty savings were
worth more than the interest difference during
that period.

Monday, October 4, 2010

Mortgage Tightening In Works:

Looks like the Federal Government may be tightening the rules on buying a new home.

This comes as our debt in Canada is now averaging 146% of personal disposable income.

In the US, when we hit the big crisis, roughly the same percentage was registered, which is very high. The Fed's want to look at making sure that this doesn't happen here in Canada.

We don't think that this would happen right away, however, may happen sooner than later. This isn't a good thing as we're already in a very slow market.

The article I read is here http://bit.ly/9HyqB2

Thursday, September 30, 2010

Know the fine print of your mortgage

The fine print in your mortgage may have costly or irritating restrictions that you won’t know about unless you read or ask a mortgage professional.

Some examples:

* Restrictions on breaking your mortgage before the term is up
* Restrictions on breaking your mortgage for the first 3 years
* A penalty surcharge of 1% for mortgages broken within the first 12 or 36 months
* “Reinvestment fees” (on top of mortgage penalties)
* Interest rate differential (IRD) penalties based on an onerous bond yield calculation
* IRD penalties on variable-rate mortgages (usually IRD penalties apply to fixed mortgages)
* IRD penalties based on a costly posted vs. discounted rate formula
* Inability to port unless the purchase and sale take place on the exact same day (which can be hard to arrange)
* A poor conversion rate guarantee
* No refinances during the first year
* No free switches (for transfer-eligible mortgages)
* Amortization limits of 25 years
* Minimum amortizations of 15-18 years
* Restrictions on converting from a variable rate to a fixed rate for the first six months
* No ability to break your “open” HELOC without a penalty
* Inability to port across provincial lines
* High administrative fees when porting
* 100% clawback of cash-back if the mortgage is broken before maturity
* Requirement for a full banking relationship with the lender
* No lump-sum pre-payment privileges
* No annual payment increase allowance
* Pre-payments restricted to one specific day a year (instead of any payment date)

And the list could go on…

Keep a lookout for restrictions like this when comparing different mortgages.

It’s even more important when sizing up cut-rate mortgages because the lower the rate, the greater the likelihood that a mortgage will be somehow restricted.

from www.canadianmortgagetrends.com

Monday, September 27, 2010

In a variable at Prime -.10 or higher?

Did you redo your mortgage in the last year or so? Did you choose a variable rate mortgage? Are you in at Prime -.10% or higher i.e. Prime +.20%?

Then it's definitely time to look at a full review of your mortgage. There's potential of HUGE savings in interest by simply doing nothing different than what you're doing right now.

Below is an example of an email I sent to a client not too long ago doing a standard yearly review of their mortgage. One of the many services incorporated for free when you choose me as your trusted mortgage adviser!

Just today I read an article by Yves St-Maurice, Desjardins’ Director and Deputy Chief Economist and one thing that really stood out was this comment - "We’ll likely see no further Bank of Canada rate hikes till spring, and probably no more US rate increases "before 2012..."

---

"Looking back you are in a variable situation at Prime +.30% (3.05% today). In the last year the discounts off of prime have come down quite a bit. We’re looking at Prime -.70% now (2.05%). This is a full percentage point less than what you have now.

Seeing how just yesterday I read a report that the predictions on prime to raise in the next couple years has been dropped to about 1-2%, the thought of you locking in is probably not in your best interest long term. Today’s lock in rate at your lending institution on a five year is 3.99%, almost 2% higher.

Here’s what I propose you should do to take full maximum affect and pay down your mortgage much faster without no changes at all to what you’re doing today.

With the rate being a full 1% lower, the monthly payment would decrease by approx. $96/m. If you kept your mortgage payments at the exact same level you’re at now, you would decrease your overall amortization by 4.5 years! This is a huge interest savings. Now if you were to increase your payments by say $200/m, overall just an extra $100/m, your overall amortization will decrease by just over 8 years! Huge potential for savings.

The cost of doing this and breaking your mortgage is roughly $2,850. This will be recouped within 10 months.

Overall this could be very beneficial to you and your overall goals. And will guarantee to save you a large sum of interest overall, leaving far more money in your pocket."

Sounds pretty good!!

Call or email me for more information and to see if this is the right way to go for you. 604-786-9099 christos@bcmortgageinfo.ca

Monday, September 20, 2010

BMO's 'low frill's mortgage

You may see this crazy low rate from BMO being advertised out in the market.

As usual things aren't always as good as they seem.

There are so many ties to the mortgage that you as a consumer should be fully aware of.

Here's a few of them:
-The only way to get out of the mortgage is buy a bona fide sale of you home
-I read this morning that you actually have to qualify at a much higher rate of 5.39%. So very hard to qualify for
-Pre-payment privileges are sliced in half
-Max amortization is 25 years which can hinder a strategic plan of obtaining a longer amortization. Read more below on this.
-No skip a payment option needed if really needed. So this may put you in default if the need ever arose.

These are the main reasons why this mortgage may not be for you. Please consult with a professional mortgage broker such as myself to weigh in on ALL your options. Not just one lenders option. Right now I have access to the same rates with all the options!


In regards to the longer amortization as part of a strategic plan.
Especially if you are not paying for the option to have a longer amortization I like to explain to my clients that it's not a bad option to take. The reason is that you will always have that lower payment to fall back on in case you were in need of some extra cash flow per month. Lose your job etc. The key though is to pay your payments from the start at what the 25 year amortization would be.

I myself took a 30 year amortization on my mortgage and have taken advantage of increased payments etc. and have dropped my overall amortization by almost 10 years.

Canadians in good shape!

Here's some interesting results that were received in a recent study sponsored by Genworth Financial:

Sixty-five percent of homeowners pay off their credit card balances each month (versus 48% of non-homeowners). Furthermore, a quarter of those homeowners with mortgages have managed to make a lump-sum payment or accelerate their mortgage payments in the past year.

Nearly half (44%) of homeowners were able to pay all of their bills and save some money in the past year, suggesting a strong correlation between home ownership and financial fitness.

The Financial Fitness survey was conducted in conjunction with the Canadian Association of Credit Counseling Services. Compared to the same survey undertaken in 2007 when the economy was booming, Canadians are even more likely now to say their financial fitness is good (55% versus 50%).

Other key survey findings show:

• Mortgage holders more likely to have accelerated or made a lump-sum payment include those with incomes $75-$99k (32%) or $100k+ (30%), and women more than men (26% versus 21%).
• 49% of homeowners made down payments of 20% or more on their purchase
• 13% of homeowners say they are in great financial shape
• 12% of homeowners say they have requested a credit report within the past 12 months
• 59% of Canadians say they pay their credit cards in full each month
• 39% of Canadians say that in the past year they were able to pay their bills and save some money. A further 41% were able to pay their bills but not save
• First-time buyers/those who intend to buy a home as well as those requiring mortgage insurance are more likely to have spoken to a financial planner/coach in the past 12 months

Wednesday, September 1, 2010

Variable and fixed rate forecasts

Big bank economists have chopped their rate-hike forecasts again. TD made the biggest adjustment earlier today. It slashed its 2011 year-end overnight rate estimate by one whole percentage point. This underlines how dramatically expectations can change in just a few short months.

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%.

Based on a 70 basis point average discount from prime, this suggests 5-year variable rates in the 3.55% range by year-end 2011. That's lower than today's typical discounted 5-year fixed rate.

As for the next rate hike, the signals are mixed. Canadian bond dealers are all expecting a 1/4 point increase at the Bank of Canada's September 8 rate meeting. The financial markets, however, are pricing in just a 30% probability of a hike.

After the next rate increase, most analysts now seem to expect the BoC to pause for a while. "The coming policy pause could now easily last a year," says BMO.

Fixed-Rate Mortgage Forecast

Banks foresee 5-year bond yields climbing 127 basis points in the same 16-month time frame. That would put the 5-year yield at 3.41% by the end of next year.

Assuming a typical 120 basis point spread above yields, this suggests deep-discounted 5-year fixed rates could rise to roughly 4.61% by year-end 2011.

Monday, August 23, 2010

Know where your money goes

Surprisingly, many people never develop a budget. As long as the bills are paid each month, and they're putting some money into savings, everything seems fine. However, a budget is an essential part of managing your finances.

To see just how important it is, take the first step. Carry a journal and a pen with you at all times for one month to record your expenses. It's easier to manage if you divide the pages into columns and title them with categories such as groceries, mortgage, eating out, entertainment and utilities. Then methodically track everything, no cheating.

Seeing your expenses laid out before you provides you with a thorough understanding of how your cash flows in and out of your pocket. You'll also discover some bad habits you didn't know you had - and get on the road to changing them for the better. Budgeting software such as Quicken makes getting started easy.

Tuesday, July 20, 2010

Overnight lending rate up

The BoC did raise the overnight lending rate again as we knew they would. Remember we’ve been at the lowest ever, it’s imminent that they will go up. They don’t make it certain they will continue to raise rates.

As I’ve mentioned in the past, we cannot raise rates too quick especially when the US are not. If we jump the gun, past history has told us it doesn’t work and back fires on CDN.

Locking in to a fix rate is still not in the picture for me and shouldn’t be for you. Prime is at 2.75% and most of you are at Prime or below. Locking in today is around 4.2-4.4% depending on your lender. That’s 1.50%+ higher ALL going toward interest.

The strategy portrayed over and over is to increase your payments today to what they would be on a fixed mortgage. This will not only prepare you for any increases, it will knock down your principal much quicker and in the end you’ll be smiling more!

Here’s an article from the web:
The Bank of Canada raised its benchmark interest rate by 25 basis points Tuesday, the second straight time it has done so after keeping rates at unprecedented lows for more than a year.
In its latest policy decision, the bank opted to move its overnight lending rate to 0.75 per cent. The bank had previously raised its benchmark rate to 0.5 per cent in June after having kept rates at emergency lows since April 2009 in an attempt to stimulate the economy and spur lending.
In raising the rate, the bank moved to lightly hit the brakes on a Canadian economy that has shown signs of significant strength in recent months.
But the bank made it clear in its policy statement that it sees Canada's economy recovering more gradually than it did in its previous outlook in April. It now projects GDP growth of 3.5 per cent in 2010, 2.9 per cent in 2011 and 2.2 per cent in 2012.

The bank also made it clear that future rate hikes are not guaranteed.
"Any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," the bank said in its statement.
Further rate hikes can't be ruled out, BMO economist Michael Gregory noted.
"The bank's forward-looking language does not preclude further rate hikes," he said.
"[But] the bank now has more wiggle room to raise rates ... if they want to. And we think they will."
The next scheduled date for announcing the overnight rate target is Sept. 8.

Monday, July 12, 2010

Minimizing your personal debt

Determine if you're in the red or black

Minimizing debt means getting to know yourself better, financially. The first thing you want to do is find your net worth. Knowing your net worth is a valuable tool for monitoring your financial progress from year to year, and ensures you're headed in the right direction. Calculating it is quite simple too. You just need to gather information on what you own and what you owe.

1) In one column list your assets including home equity, cars, valuables, bank accounts and retirement savings.
2) In another column list all of your liabilities including mortgage, car loans, credit card debt and any other debt you may have.
3) Next, total the two columns and subtract your liabilities from your assets

You now know your net worth. Regardless of the amount, or even if it's a negative number, you have a starting point. Record the date on your calculation and go through the same process next year or even in six months. It can be a powerful motivator for reducing debt - a personal budget is a great way to help you achieve your goals.

Monday, June 28, 2010

Understand your credit score

You know from first-hand experience that your credit score plays an important role when purchasing a home. But for many, its contents are not entirely understood.

Canada's two major credit-reporting agencies, Equifax and TransUnion, gather a financial history about you that includes information about your credit and bank accounts, public records that reveal bankruptcies or credit-related court judgments, and any debt that went to a collection agency. It may also include a personal statement from you regarding information in your history.

This information is used to generate a score between 300 and 900 which lenders then use to determine whether or not to extend credit to you. The higher your score the lower your risk.

You should request a credit report from both credit agencies at least once a year to ensure your information is correct. Visit equifax.ca and transunion.ca to learn more.

Monday, June 14, 2010

Credit cards used wisely

HTML clipboardA credit card can be your ally when it's managed correctly. It can help build a positive credit score, get you out of a pinch, and even earn you rewards. On the other hand, poorly managed credit can be detrimental to your credit score, and cost you more than you imagined.

Keep these tips in mind:

Limit your number of cards: It's easier to keep track of expenses, and reduces the chance of a missed payment.

Transfer credit card debt: It's a goo idea to always pay your credit cards in full each month. If you are carrying a balance, a personal line of credit offers a much better interest rate.

Don't spend what you don't have: Use the convenience of a credit card only knowing the money is in the bank.

Be diligent with payments: Never pay the minimum only. Your original purchase could end up costing you twice as much.

Avoid missed or late payments: You could incur additional fees and a black mark on your credit rating

Tuesday, June 8, 2010

Analyzing Past Bank of Canada Rate Increases

BMO Capital Markets recently made some interesting observations about the Bank of Canada rate hike tendencies.

Despite a limited sample size, BMO listed the following common traits from prior rate increase cycles:

  • Bank of Canada (BoC) rate hikes come in “clusters, moving across a minimum of two consecutive announcement dates. (If this holds true, the BoC will raise rates again on July 20.)
  • 84% of the past 25 rate increases have been 25 basis points
  • The BoC has often paused its rate hikes during past tightening cycles--sometimes more than once in a given cycle
  • The BoC has shown it will tighten even with core CPI inflation below its 2% target (That’s largely because the BoC tries to anticipate inflation and because it takes roughly a year or more for rate hikes to work through the economy.)
  • Rates rose an average of 200 basis points over 18 months in the past four cycles

Rate-Hike-Cycle

(Chart via BMO Capital Markets, Author: Michael Gregory, CFA, Senior Economist)

BMO says the Bank of Canada typically sets policy after heavy consideration of five “C’s:”

  1. Core CPI (inflation)
  2. Canadian dollar
  3. Commodities
  4. Cross-border exports (to the U.S.)
  5. Crises (economic, financial, or geopolitical)

That last “C” happens to be a factor today, courtesy of the European debt crisis. Nonetheless, BMO says: “We judge the Bank’s scale will eventually tip to the domestic data side, and the new tightening cycle will toe the stylized line.”

In other words, BMO expects concerns about European debt to fade at some point, with the BoC continuing its path to more normalized (higher) interest rates.

Wednesday, June 2, 2010

Maximizing additional payments

Additional payments in your budget:
It sounds like a great idea to make additional lump-sum payments annually or at the time of renewal, but you my be asking where does this money come from? Reworking your budget to set aside funds in a savings account is an effective strategy. Automatically pay into an account before you even begin to manage your budget, you wont even notice its absence.

Bonus time may have just come or is coming:
With the end of the year just past or your tax returns coming. Whether a set amount or an unknown windfall at this time, a bonus or tax return can often lead to, 'should I pay down my mortgage or go on that trip I've always wanted'? You have to really sit down and think about your overall situation. Paying down your mortgage is always a great option.

Increase your payment amount:
It may take some adjusting to work it into your budget, but increasing your monthly payment amount can save you thousands of dollars in interest over the duration of your mortgage and reduce the life of your mortgage by several years.

Increase the frequency of your payments:
While the most common payment plan is monthly, you may be better off making smaller payments more frequently. In this way you could reduce the amount of interest you pay and reduce your principal more quickly.

Pay more when you can:
If you chose a mortgage that allows you to make contributions outside of your regular payment date, taking advantage of it whenever you can offers considerable savings. You contribution goes directly towards your outstanding principal so your mortgage is immediately reduced by the full amount.

New mortgage rules simplified

There's still some confusion so this should help clear it up a bit:

1. VRM (variable rate mortgage) and fixed mortgage terms less than 5 years are now qualified on the bank posted rate when the LTV is 80% or higher on a purchase or refinance. Today this rate is 6.25%.
If you are taking a five year fixed rate or greater, the qualifying rate is the contract rate. Today around 4.5%.

2. Minimum down payment for rental units is now 20%.

3. Maximum LTV (loan to value) is now 90% on refinances and 85% for stated income (can’t prove income).

4. BFS (business for self) are required to prove their income after year 3 of business when using CMHC insurance for their mortgage. Genworth has not yet emulated this restriction.

5. Realtors, mortgage brokers and commissioned BFS must prove their income with NOA’s (notice of assessment) or use high ratio (CMHC or Genworth) and pay a premium.

HST

The information below is from the BC Government website, and should clear up any of the questions people had about its impact on their purchase.

‘Currently, new homes in B.C. are subject to the GST, and also carry an estimated two per cent embedded tax as a result of the PST paid on most construction materials.

Under the proposed Harmonized Sales Tax, new homes will be subject to the HST but the embedded PST will be eliminated because builders will be able to recover the tax paid on materials through input tax credits.

Used homes will not be subject to the HST.

An essential part of the BC HST will be a tax rebate for new homes.

A rebate of up to $26,250 will ensure that purchasers of of new homes up to $525,000 do not pay more tax due to harmonization than is currently embedded in the price of a new home.
New homes above $525,000 will be eligible for a $26,250 rebate.
This enhanced rebate represents a 30 per cent in the threshold and maximum rebate available.
New home sales will be subject to the HST
Sales of used homes will not be subject to HST
The Province is also proposing an enhanced rebate for new rental housing, similar to the enhanced rebate for new homes, to support the construction or substantial renovation of affordable rental housing in B.C.

The new rental housing rebate would ensure that, on average, new rental housing up to $525,000 would not be subject to any more tax due to harmonization than is currently embedded as PST in the price of new rental housing.
We will also provide a provincially-administered point-of sale rebate for residential energy, ensuring the HST will not increase consumers’ costs for oil, electricity, natural gas or propane used to heat or power homes.’