Posted in Bank of Canada, Bank of canada rates, BC Mortgages, Benchmark interest rate, Canadian Economy, Canadian Mortgage News, Jim Flaherty, Kamloops broker, Kamloops Mortgage Broker, Kamloops mortgage consultant, kamloops mortgage financing, Low Interest Rates, mark carney, Mortgage Affordability, Mortgage Broker Kamloops, Protecting your biggest investment your mortgage, Refinance Your Mortgage, should you lock in your mortgage, Why use a mortgage broker

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

Advertisements
Posted in advice on locking in your mortgage, Applying for a mortgage - Lisa Alentejano services the interior, Bank of canada rates, BC Mortgages, BCMortgage, Kamloops Mortgage Broker - Lisa Alentejano, Kamloops mortgage consultant, kamloops mortgage financing, Kamloops Mortgages, paying a penalty to break my mortgage, Protecting your biggest investment your mortgage, Refinance Your Mortgage, Refinancing, Renewing your mortgage, Save your money, should you lock in your mortgage, Why use a mortgage broker

Renewing and refinancing mortgages is saving Canadians big bucks

Canadians saved $2.7-billion in the past year renewing or refinancing their mortgages and the betting money among consumers seems to be that interest rates are not going up any time soon, according to a new survey.

The Canadian Association of Accredited Mortgage Professionals says 37% of Canadians opted for a variable rate mortgage in the last year, pushing up the overall percentage of Canadians floating with prime — and vulnerable to Bank of Canada rate hikes — to 31%.

But the group maintains Canadians are not overexposed to a potential rising rate environment with the survey finding 84% say they could handle a rate increase that boosted their mortgage payments by $200 per month. The average amount of room Canadians say they could afford on top of their current costs is $750 per month.

“Overall, our survey paints a picture of Canadians generally and homeowners in particular as very focused on their finances,” said Jim Murphy, president of CAAMP. “They are planning ahead, aggressively paying down their mortgage in advance of any economic jolt.”

Government policy that cracked down on refinancing rules may also be having an effect on the market. Earlier this year Ottawa tweaked the rules on refinancing, restricting consumers to 85% debt on the value of their home, down from 90%.

CAAMP said Canadians have become conservative about taking equity out of their home with 10% of mortgage holders doing so in the last year, a drop from 40% a year earlier.

“There is no need for policy makers to introduce new measures that would reduce housing activity,” said Mr. Murphy, his comments clearly aimed at suggestions the market needs even more governance and tighter measures such as increased minimum downpayments.

It’s clear Canadians are enjoying the low interest rate environment that CAAMP says lowered the average mortgage rate to 3.92% from 4.22%. The effect is that among the 1.35 million mortgage borrowers who renewed or refinanced in the past year, the savings was $2.7-billion.

“Some people are coming out of 5% plus mortgages and saving a lot of money,” says Rob McLister, editor of Canadian Mortgage Trends. Someone with a $500,000 mortgage going from 5% to 3.29% with 20-year amortization could save almost $40,000 in interest over a five-year term, he says.

Mr. McLister is seeing a growing line of people looking to break a mortgage and willing to pay the interest penalty.

CAAMP said 32% of Canadians reported making some sort of change to their mortgage in the past year with almost two-thirds of those people saying they were refinancing or renewing their mortgages. Among those who renewed, 78% got a rate reduction.

 

Canadians who are looking for that better rate appear ready to shop around with 21% of respondents who renewed or refinanced their mortgages in the last year saying they switched lenders.

Mortgage rates continue to be at or near all-time lows with a flatter yield curve reducing the steep discount on variable rates and making locking in more attractive. The website ratesupermarket.ca says the best variable rate product on the market now is 2.48% while a five-year fixed rate closed mortgage is now as low as 3.19%.

“What you are facing is whether you lock in today and know what my rate will be for the next five years or go variable and gamble,” says Mr. McLister. “There is risk there.”

Sal Guatieri, senior economist with BMO Capital Markets, said the savings are positive because it is putting extra money in the pockets of Canadians. “I almost expect more people to jump into variable given the long-term interest rate environment looks so benign,” says Mr. Guatieri.

Posted in advice on locking in your mortgage, Bank of Canada, Bank of canada rates, BC Mortgages, Best Rate Mortgages, Canadian Economy, Canadian Mortgage News, Debt, fixed or variable rate or both, Fixed rates, Interest \rate Increases, Jim Flaherty, Kamloops broker, Kamloops First Time Home Buyer Tips, kamloops mortgage, Kamloops Mortgage Broker, Kamloops mortgage consultant, kamloops mortgage financing, Kamloops Mortgages, Kelowna Mortgage Broker, Kelowna Mortgage Financing - Lisa Alentejano, Low Interest Rates, mark carney, Mortgage Affordability, Mortgage Broker Kamloops, mortgage financing kamloops, Mortgage Language, Mortgage Rates, Mortgages - Get a second opinion, paying a penalty to break my mortgage, Pre Approval Mortgage, Protecting your biggest investment your mortgage, rate fixed mortgage, Real Estate Market, Refinance Your Mortgage, Renewing your mortgage, salmon Arm mortgages, should you lock in your mortgage, variable rate mortgages, Vernon Mortgage, Why use a mortgage broker

Mortgage Rates – How to protect yourself when they increase – Video message!

Heres a video I personally did on how to take a proative approach to protect and prepare yourself with rising interest rates in the future and save thousands of dollars! Click below to view video

Inflation Hedge Strategy - Learn to protect yourself from rising rates

Lisa Alentejano

Posted in advice on locking in your mortgage, BC Mortgages, Canadian Mortgage News, fixed or variable rate or both, Fixed rates, fixed term mortgages, Interior Mortgage Expert - Lisa Alentejano, Interior Mortgages, Kamloops broker, Kamloops Mortgage Broker, Kamloops mortgage consultant, kamloops mortgage financing, Kamloops Mortgages, Kelowna Mortgage Broker, Mortgage Affordability, Mortgage by Lisa Alentejano, Mortgage Rates, paying a penalty to break my mortgage, Protecting your biggest investment your mortgage, rate fixed mortgage, Refinance Your Mortgage, Refinancing, Renewing your mortgage, Salmon Arm Mortgage Broker, Save your money, should you lock in your mortgage, variable rate mortgages

Is it time to lock in your mortgage?

Do you lock in your mortgage or not?

Heres an interesting article on things to consider when locking in  your mortgage or at least considering renewing your mortgage for a better rate.  Lots of things to look at when rates are at an all time low.  You can imagine consumers are taking a good look at their mortgage and where they want to go with it. Small differences in rates can save  you thousands over the longer term.  As most of us have a mortgage for years, take advantage of at least looking at your current mortgage and consider whether making a change could be beneficial.   As always any questions or comments please feel free to contact me at 1-888-819-6536.

The gap between short-term and long-term rates has shrunk enough that it might be time for anyone renewing a mortgage to consider locking in.

Moves last week by the major banks to reduce the discount on variable-rate mortgages comes as the discounts for long-term mortgages have gotten as steep as they have ever been.

“What seems to be happening is they are focusing their attention on fixed rates. We are starting to see some aggressive competition on four-and five-year products,” says Gary Siegle, a mortgage broker and Invis Inc. regional manager in Calgary.

How aggressive? Try as much as 190 basis points. A five-year, fixed-rate mortgage with a posted rate of 5.39% is now being offered for 3.49%.

For whatever reason, the four-year, fixed-rate mortgages are being priced even more aggressively.

Mr. Siegle says he can lock consumers into a four-year, fixed mortgage for as low as 3.09%.

The discounting comes as variable-rate products, linked to prime, have become more expensive. Short-term money has become more expensive in the bond market, forcing banks to reduce discounts.

The banks traditionally move their prime rate with the Bank of Canada rate. With no flexibility there and existing customers getting huge discounts based on old deals, banks are forced to raise rates for new loans as short-term money gets more expensive.

The trend began in April when FirstLine Mortgages, a subsidiary of Canadian Imperial Bank of Commerce known for its low rates, cut its discount on variable rates.

Others banks were slow to follow, hoping to make money on volume. But refinancings have dried up under tougher mortgage rules and sales have slowed, creating the need to tighten profit margins on variable-rate products.

Today, the discount on a variable-rate mortgage is about 55 basis points off the prime rate of 3% – in other words, 2.45%. Compare that to 3.09% on a four-year mortgage and the premium to lock in is not that much.

“This gap is about as narrow as it goes,” says CIBC deputy chief economist Benjamin Tal. “It reflects a flat yield curve, which makes it difficult to make money in this business.”

Mr. Tal says variable-rate mortgages tend to be more attractive when there are inflation expectations not yet expressed in short-term rates. This time, he says, the bond market is depressed, anticipating recession, and that has shrunk spreads dramatically.

The one thing keeping people in short-term money is the sense that there is no urgency to move because the U.S. Federal Reserve Board has pledged not to raise rates for two years, which also effectively ties the hands of the Bank of Canada.

“We know the five-year rate is attractive, but we also know short-term rates are not raising,” Mr. Tal says.

What does that mean on a practical, dollars-and-cents basis?

Let’s use the Canadian Real Estate Association’s 2011 average sale price forecast of about $360,000 and assume a 20% down payment and a $288,000 mortgage.

At 2.45%, your monthly mortgage payment based on a 25-year amortization would be $1,282.98. At 3.09%, your monthly payment rises to $1,376.28.

But even at the gap, you would pay about an extra $7,000 in interest to lock in over four years.

Ultimately, the $7,000 amounts to an insurance policy. You get payment certainty for four years, but at a price.

If rates climb 200 basis points on your variable-rate mortgage, it could cost you $22,000 more in interest over four years. The reality is that rates wouldn’t jump at once and, therefore, increases would likely be gradual.

Moshe Milevsky, the York University finance professor who wrote the oft-quoted study that variable-rate mortgages do better than fixedrate mortgages 88% of the time, said if you start thinking about it like insurance, it comes down to your risk tolerance.

“There are people who pay a lot for protection on their portfolio; there are people who pay a lot for life insurance,” Prof. Mr. Milevsky says. “If the premiums are low enough, you might say, ‘Sure, I’ll pay.’ But if you have a tight budget, every basis point counts, and it might not be worth it.”

To me, he still has the ultimate answer for the tough decision whether or not to lock in.

“I still don’t get why more Canadians don’t split their mortgage,” Prof. Milevsky says. In other words, locking in half of the mortgage and floating with prime on the other half.

“When is a bank going to come to the realization Canadians hate making this choice?”

He’s right. Even with rates this low and the gap between short-term and long-term rates this narrow, it is still a tough call