Posted in advice on locking in your mortgage, Bank of Canada, Bank of canada rates, BC Mortgages, Benchmark interest rate, Canadian Mortgage News, fixed or variable rate or both, Fixed rates, fixed term mortgages, Home Loans, Interest \rate Increases, Interior Mortgage Expert - Lisa Alentejano, kelowna mortgage, Kelowna Mortgage Broker, Kelowna Mortgage Financing - Lisa Alentejano, Mortgage Rates, Pre Approval Mortgage, rate fixed mortgage

FIXED VS VARIABLE MORTGAGES

THINGS TO CONSIDER

Fixed and Variable rate mortgages both have their advantages and disadvantages!

Historically speaking, homeowners tend to pay lower rates with variable mortgages, but these mortgages are also vulnerable to fluctuations because they’re tied to the Bank
of Canada’s prime rate (which is announced eight times per year). Fixed rates, on the other hand are primarily influenced by the yield on Canadian government bonds (bond yields) , and are typically higher than variable rates, but their rate is consistent throughout the term of the mortgage. Below are a few questions to help you determine which type
of mortgage is right for you.

CAN I AFFORD TO TAKE A VARIABLE RATE MORTGAGE

There is some risk associated with variable rate mortgages, so if  you go this route, you must be able to mitigate the risk if rates do rise.  One method of protecting yourself involves setting your payment to a fixed amount that’s higher than the minimum requirement.  For example, setting your payments based on the current 5 year fixed rate will allow you to provide a buffer in the event that rates rise and, because you’re paying more than the minimum amount, you’ll be paying more of your principal as well.

DOES A VARIABLE RATE MORTGAGE FIT MY RISK PROFILE?

Once you have decided you can afford a variable rate mortgage,  the next thing to assess is whether a variable rate mortgage fits your personality, lifestyle and comfort zone. If you’re the type of person that can’t sleep at night knowing that your rate and payment may change by 0.25%, then a variable rate mortgage may not be the best option for you.

WHAT TYPE OF VARIABLE RATE MORTGAGE SHOULD I CHOOSE?

There are three main factors to consider when choosing a variable rate mortgage:

  1. Payment frequency – Make sure you are aware of the options available before deciding. Some lenders may not allow certain variations of payment frequency (i.e.accelerated biweekly or weekly payments).
  2. Rate changes – Some lenders change their variable rates in line with the Bank of Canada eight times per year while others do it quarterly.
  3. Conversion to fixed rate – Does the lender allow the mortgage to be converted to a fixed rate mortgage at anytime? If so, what rate are you guaranteed on conversion – the best discounted rate or the posted rate?

If you would like to discuss all of your options in detail please contact me directly at 250-819-6536 or 1-888-819-6536 or email me at lisa@mortgageplayground.com

Lisa Alentejano

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BC First Time Home Buyer Downpayment Loans

save_moneyThere has been a lot of changes with regards to qualifying for a mortgage as of late, but I was happy to see that there is now some relief available for Canadian first time home buyers when it comes to buying a home and  saving for a downpayment.

The BC Government has implemented the BC Home Owner Mortgage and Equity Program granted to Canadian citizens or permanent residents who have never previously owned a property and only apply to homes worth less than $750,000. A buyer must be able to     pre-qualify for a mortgage (that’s where I come in) and have a gross household income of less than $150,000. Applications open Jan. 16, and the program ends March 31, 2020.

The government would put a second mortgage on a property to reflect the amount it loaned, but not require any interest payments or payments on the principal for the first five years. After that, the 20-year repayment plan would be set at the prime lending rate plus 0.5 per cent, leaving the homeowner to pay back both the original mortgage and the down-payment loan at the same time.  There is no restriction to pay the loan out in part or full at any time.

The loans are available for condos, townhouses or detached homes. On a property worth $600,000, the government loan could help a buyer meet or exceed the federally set minimum down payment of $35,000. In one example, provided by B.C. Housing, a person who saved $30,000 could apply to get an additional $30,000 from the province, giving the buyer a $60,000 down payment.

Another example for reference is; as the minimum downpayment requirement is 5%, you, the consumer,  would have to come up with 2.5%, then the government would match the additional 2.5% required to make up the total 5% downpayment.  There are different sources of downpayment to consider as well;  RRSP, Borrowed, gifted from a family member or your own savings.

As always if you’re considering purchasing a home in the near future, the best thing to do is be informed.  My consultations are free and there is no obligation.  If you are simply looking to explore your options or curious and have some questions, please do not hesitate to email me at lisa@mortgageplayground.com or call me toll-free at 1-888-819-6536.

Lisa Alentejano

 

 

 

Posted in Bank of canada rates, Canadian Mortgage News, fixed or variable rate or both, Interior Mortgage Expert - Lisa Alentejano, Kamloops broker, Kelowna Mortgage Financing - Lisa Alentejano, Low Interest Rates

Variable Rates looking good again

With the hike of fixed rates again last week with some of the 5 big banks variable rates are looking attractive with a discount if -40 off prime interest rate currently at 3% making a 5 year variable rate 2.6%.  A 5 year fixed is 3.39-3.79 depending on lender.

Variable rate mortgages are a great option but also come with a few challenges too,  to qualify for a variable rate we must use a higher rate which can impact your borrowing power as well they fluctuate with the Bank of Canada prime lending rate so there definitely is more risk attached.

Best way to know if variable rates are for you is get informed and look at all your options.  Any questions you can call me or email me! 1-888-819-6536 or lisa@mortgageplayground.com.

Cheers

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New Mortgage Rules Coming Effective July 9, 2012

Some changes that will come into effect on July 9, 2012.   How will this affect homebuyers or home owners in terms of dollar amounts… Heres a quick snapshot below;

Payments based on a 25 year amortization vs a 30 year amortization would cost the borrower  a difference of $52.48 per month per 100K in mortgage.   In terms of borrowing power the homeowner that could buy a home for $300k would now only be able to afford a $266K home, a difference of approximately $34k based on the above changes from 30 year amortization to 25 year.  If your in the market for a mortgage or a refinance, I would consider firming those details up before July 9, 2012 to take advantage of our current options.

READ ON; After speaking in Halifax just hours after Finance Minister Jim Flaherty announced a series of changes that come into effect next month, Mr. Carney reiterated his concerns about the effects that his ultra-low interest rates have had on the behaviour of both borrowers and lenders, warning the economy cannot “depend indefinitely” on debt-fuelled spending, especially as incomes stagnate.

At the same time, Europe’s growing crisis is expected to keep the central bank on hold for a long time yet, leaving regulation as the only real avenue for reining in housing-related investment, which Mr. Carney said now makes up “an unusually elevated share” of the economy.

“In this context, Canadian authorities are co-operating closely to monitor the financial situation of the household sector, and are responding appropriately,” Mr. Carney, who was almost certainly involved in Mr. Flaherty’s decision, said in a speech to the Atlantic Institute for Market Studies.

“Today, federal authorities have taken additional prudent and timely measures to support the long-term stability of the Canadian housing market, and mitigate the risk of financial excesses.”

Last week, Mr. Carney and his policy team warned that Europe’s worsening drama could slam Canada with a “major shock” if it is allowed to spread out of control and further infect healthier regions, particularly the still-fragile U.S. economy. They also warned that more Canadian households could find themselves under water with their debt payments if a big unemployment shock were to result, and sharpened their warnings about Toronto’s booming condo market.

Some investors are betting that the situation in Europe and the failure of the U.S. economy to gain more traction could force the central bank to cut interest rates from the current 1-per cent level sometime later this year. However, in his speech, Mr. Carney strongly hinted that he is not even considering a reduction in rates, echoing much of the language on the economy from his last interest-rate statement on June 5, indicating his domestic outlook hasn’t shifted much since then.

“Despite these ongoing global headwinds, the Canadian economy continues to grow with an underlying momentum consistent with the gradual absorption of the remaining small degree of economic slack,” said Mr. Carney, whose next decision is scheduled for mid-July. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

Still, Mr. Carney left himself the same wiggle room from recent statements, saying that the “timing and degree” of any rate hikes would depend on how things play out.

There’s good reason for him to be cagey, and not just outside of Canada’s borders. Despite the worries about consumers over-borrowing, recent economic data suggest the housing market is already slowing down, and a report from Statistics Canada today showed that in April, retail sales fell – both in terms of prices and volumes.

Some analysts have already warned that the mortgage moves could be too effective and spark a slowdown in a key area of strength before the economy is ready for it.

Earlier Thursday, Mr. Flaherty confirmed that Ottawa will reduce the maximum amortization period to 25 years from 30 years, and will cut the maximum amount of equity homeowners can take out of their homes in a refinancing to 80 per cent from 85 per cent. Also, the availability of government-backed mortgages will be limited to homes with a purchase price of less than $1-million, and the maximum gross debt service ratio will be fixed at 39 per cent, and the maximum total debt service ratio at 44 per cent. All the changes will take effect on July 9.

Mr. Carney’s speech, meanwhile, was largely a re-hash of his views on what is needed to foster the more balanced and sustainable global economy on which export-heavy Canada’s fortunes largely depend, including an “open, resilient” financial system. The central banker, who is also chairman of the Group of 20-linked Financial Stability Board, again warned against delaying the implementation of reforms designed to make international finance safer for the global economy.

“The current intensification of the euro crisis has only sharpened our resolve,” he said, adding that a system that restores confidence will need to “rebalance” the relationship between government regulation and financial markets, and in which policy makers realize they must help do what’s good for the world rather than taking a simply national approach.

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Bank of Canada Hold Key Rate “household debt” remains biggest risk

OTTAWA — The Bank of Canada kept its key interest rate on hold Thursday, as expected, but said while the outlook for the Canadian economy has “marginally improved,” household debt “remains the biggest domestic risk.”

The central bank acknowledged, in the statement accompanying its rate decision, that “heightened uncertainty around the global economic outlook has decreased,” since its monetary policy report in January.

“With tentative signs of stabilization in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased,” it said.

“However, the global economy is still expected to grow below its trend rate as the deleveraging process in advanced economies proceeds.”

The Bank of Canada said the outlook for the domestic economy “is marginally improved” since its January report. “Although the economy will likely grow faster than forecast in the first quarter due to temporary factors, underlying economic momentum remains around trend, balancing domestics strength and external weakness.”

As for inflation, the bank said “the profile . . . is somewhat firmer than previously anticipated as a result of reduced economic slack and higher oil prices.”

“After moderating in the second quarter, total inflation is expected, along with core inflation, to be around 2% over the forecast horizon, . . . “

The central bank has held its benchmark lending rate at a near-record low 1% since September 2010, in an effort to bolster the economic recovery from the 2008-09 recession.

But cheaper borrowing costs — especially for mortgages — have led to record high consumer debt. Bank of Canada governor Mark Carney, along with Finance Minister Jim Flaherty, has urged consumers not to borrow beyond their needs, as interest rates will eventually begin rising again.

“Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, “which remains the biggest domestic risk,” the bank said Thursday.

The Bank of Canada’s next interest rate decision will be on April 17.

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Bank of Canada Hold Key Rate

Best be getting used to this: Mark Carney, governor of the Bank of Canada, has again maintained interest rates at 1% and remains on track to not budge from that position any time soon as upside and downside risks remain balanced amid moderating growth.

This marks the 11th straight time the central bank has held rates at the 1% level, since a 25 basis point increase in September 2010. Since 2000, the bank has employed eight fixed dates a year when it makes decisions on the key rate. Economists expect the bank to keep interest rates at current levels until as late as next year.

The bank’s statement contained a few contradictions: It says the last quarter was stronger than expected, but growth in the future will moderate. Yet the economy will return to capacity quicker than expected.

Huh? Here are the main takeaways from the bank’s statement:

Canada muddles through, more or less

The overall outlook for the Canadian economy remains “little changed” from the bank’s October monetary policy report, with “more momentum than anticipated in the second half of 2011,” but comments Tuesday show a mixed picture with growth “expected to be more modest than previously envisaged.”

On the one hand, the bank has pushed up the schedule for the economy to return to full capacity by one quarter, to the third of 2013, and projects growth of 2.0% in 2012 and 2.8% in 2013 based off 2.4% growth last year. “While the economy appears to be operating with less slack than previously assumed, given the more modest growth profile, the economy is only anticipated to return to full capacity by the third quarter of 2013, one quarter earlier than was expected in October,” he said.

On the other hand, Mr. Carney expects the pace of growth to be more modest than previously thought, largely due to outside factors. “Prolonged uncertainty about the global economic and financial environment is likely to dampen the rate of growth of business investment … Net exports are expected to contribute little to growth, reflecting moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar,” he said. Of note, the loonie spiked to a two-week high against the greenback earlier Tuesday.

Household debt still a problem

“Very favourable financing conditions are expected to buttress consumer spending and housing activity,” he said. “Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further.” The Bank of Canada has been harping on this for a while, but the conditions created by the lengthy low interest rate environment have led Canadians to borrow and spend. Debt-to-income ratios have hit repeated record highs in the past few years, and the trend is expected to continue.

If not hawkish, at least less dovish

The outlook for inflation remains stable for now, with dynamics similar to those in October, but Mr. Carney characterized the inflation profile as “marginally firmer.” Inflation is expected to slow in 2012, before rising again to 2% in the third quarter of 2013 as excess supply is absorbed, wages grow modestly and expectations remain anchored. “Several significant upside and downside risks are present in the inflation outlook for Canada. Overall, the bank judges that these risks are roughly balanced over the projection horizon,” he said.

Europe: Still a big mess

“The sovereign debt crisis in Europe has intensified, conditions in international financial markets have tightened and risk aversion has risen,” Mr. Carney said. “The bank continues to assume that European authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks.” Children, of course, already know the schoolyard rhyme about what happens to “U and Me” when you assume anything.

The rest of the world: Not much better

“The outlook for the global economy has deteriorated and uncertainty has increased,” the bank said. In the United States, while the GDP rebound in the second half of the year was a welcome surprise, the bank remains bearish on the pace of growth in 2012 due to household deleveraging, fiscal consolidation and spillover from Europe. Chinese growth is also slowing as expected, to a more sustainable pace. Commodity prices, except oil, are expected to be below levels forecasted last October at least through to 2013.

Financial Post

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No BoC rate hike until Q1 2013: poll

No BOC rate hike until Q1 2013

A deteriorating European economy and weak global growth will keep the Bank of Canada from raising rates for at least another year, though an interest rate cut looks highly unlikely, according to a Reuters survey.

The Reuters poll of 41 economists and strategists released on Tuesday showed the median forecast for the next interest rate hike was pushed back by three months to the first quarter of 2013 from the fourth quarter of 2012 projected in a November poll. The Bank of Canada’s target for the overnight rate — its main policy rate — has been at 1% for more than a year.

“The longer we spend struggling with slower growth and the longer we go without the Europeans coming to some cohesive policy solution, the worse the economic drag will be,” said David Tulk, chief Canada macro strategist at TD Securities.

“You get the sense that growth I think is likely to remain lower for longer, just like interest rates.”

Investors in the first quarter of 2012 are expected to focus on the heavy supply of eurozone debt coming due, with fears about a possible lack of demand at auctions. Italian and Spanish bond sales in particular are viewed as the next big tests.

 

Some Canadian economic data has also been worrisome. A Bank of Canada business survey on Monday showed an increasing number of firms are pessimistic about the rate of sales growth, further reducing pressure for the central bank to take interest rates higher.

The most recent domestic jobs report also disappointed, reversing a trend that saw Canada outperform the United States both during and after the global financial crisis.
Monthly employment data on Friday showed Canada missed forecasts while the U.S. beat them. This gives the Bank of Canada even less impetus to tighten policy before the U.S. Federal Reserve, which has said it expects to keep its key interest rate near zero through mid-2013.

But many analysts expect an even longer pause, and bet the Fed’s next move will be to stimulate the economy, rather than tighten monetary policy.

“If the Fed comes out with its published interest rate forecast at the end of the month and says the consensus points to an even longer hold than the middle of 2013 then that could handicap the Bank of Canada to an even greater extent,” said Derek Holt, vice president of economics at Scotia Capital.

Yet many analysts say the case for an interest rate cut is difficult. Governor Mark Carney has repeatedly warned about the dangers of Canadians borrowing too much as a result of very low interest rates. Data last month showed the level of household debt swelled to another record high in the third quarter.

“A cut in the policy rate anytime in 2012 is extremely unlikely. It would take a global recession of 2008 proportions for the BoC to even consider cutting policy rates,” said Carlos Leitao, chief economist at Laurentian Bank Securities in Montreal. “In our view, 1% is the new, effective, zero-bound.”

Of the 41 contributors, 35 see a rate hike happening after the second quarter of 2012. Five forecasters — BNP Paribas, Capital Economics, Goldman Sachs, IFR Markets and ING Financial — predicted a rate cut across the forecast horizon, up from only three forecasters in the last poll. All five expect the cut by mid-2012.

The possibility of an ease has been anticipated in overnight index swaps for some time, though the timing has been pushed out.

Forecasts for official interest rates at the end of 2012 also dropped from the previous poll — with the median target declining to 1%, from 1.25% in November — indicating one less rate increase next year than was previously assumed.

Interest rate expectations for the four quarters of 2012 have been downgraded continuously in all nine global Reuters polls conducted since last January, with the target for the first quarter of 2012 revised down to 1% from 2.25%.

The poll showed a 99% probability there won’t be a change in rates at the next policy announcement on Jan 17.

 

© Thomson Rerters 2012