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Wednesday, July 21, 2010


The Bank of Canada did as expected yesterday and announced it is increasing the target for the overnight rate by 0.25% to 0.75%. There was some debate earlier in the month whether the central bank would actually continue increasing interest rates, but after the strong job report that was released mid-month announcing that a record number of jobs were created in June, it became apparent that Bank Governor Mark Carney, now had strong justification to increase rates again.

Some key items in the release included:

Global economic recovery is proceeding but is not yet self-sustaining
Greater emphasis on balance sheet repair by households, banks, and governments around the world is expected to reduce global growth then the Bank originally believed back in April
The response to the European debt crisis, or Greece’s debt crisis, has reduced the risk of it blowing out of proportion, but it will slow down global growth
US consumer demand is increasing but is still not driving growth
In Canada
Economic activity in Canada is proceeding largely as expected mainly due to government stimulus and consumer spending
Housing activity is declining markedly from high levels, as the Bank believes that ultra low interest rates brought forward housing demand from this year into late last year and earlier in 2010, so we could see a continued slow down through the rest of the year
Despite the latest jobs report for June 2010 stating that employment growth has resumed, business investment still has resumed to previous levels as there is so much global uncertainty at the moment
The Bank of Canada expects economic recovery in Canada to be slower than originally thought in April, and is now expected as follows:
2010: 3.5%
2011: 2.9%
2010: 2.2%
Inflation seems to be under control, and is expected to remain around the target 2%, however, they will keep an eye on whether HST introductions in BC & Ontario will lead to inflation in the short term
The economy is expected to recover to full capacity towards the end of 2011 rather than Q2 2011 as thought in April
They then closed the announcement with a warning that:

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.

This means that another rate hike at the next meeting on September 8th, 2010, is not guaranteed. They will have to see how the Canadian economy is fairing along with the rest of the world, and some economists believe they may ‘pause’ rate hikes to see the effects of previous increases thus far.

What this means for variable mortgage holders, is that your variable mortgage rates will increase by 0.25% tomorrow.

Keep in mind that the Bank of Canada’s key interest rate doesn’t directly affect fixed mortgage rates, they’re affected by bond yields, and after the last announcement we actually saw fixed mortgage rates come down as bond yields decreased.

Thursday, July 8, 2010


IMF says Canada will likely outperform this year, sees slower growth in 2011
Thu Jul 8, 9:57 AM
Joe Mcdonald, The Associated Press
Email StoryIM StoryPrintable View.By Joe Mcdonald, The Associated Press

BEIJING, China - Canada's economy is on track to grow more quickly this year than previously expected, putting it ahead of the United States and most other advanced economies, according to new estimates from International Monetary Fund.

The IMF said Thursday it's raising the 2010 growth forecast for Canada to 3.6 per cent from its previous estimate of 3.1 per cent, issued in April.

The IMF's July report also raised its U.S. growth estimate to 3.3 per cent, up from 3.1 per cent and its world estimate to 4.6 per cent from 4.2 per cent.

Asian countries with rapidly maturing economies will grow more quickly than the United States, Japan and European countries that have historically been more advanced.

China's growth for this year, for instance, is now projected at 10.5 per cent, up five percentage points, while the IMF expects India's economy will advance 9.4 per cent this year (up six percentage points from the April projection.)

Next year isn't looking so rosey for Canada, however.

The IMF has lowered its projection for 2011 growth by four percentage points to 2.8 per cent. Also notable was a reduction in the IMF's 2011 projection for China, which has been reduced by three percentage points from April's.

In contrast, the U.S. growth projection for next year was raised by three percentage points to 2.9 per cent, slightly ahead of Canada, while the world outlook for 2011 was raised by eight percentage points to 4.3 per cent.

The IMF, a Washington-based multnational organization affiliated with the United Nations and the World Bank, said Europe's debt crisis might stall the global rebound and governments need to shore up shaky public confidence.

Its quarterly World Economic Outlook warned that "risks have risen sharply" and Europe has to quickly resolve debt problems and restore confidence in its banks.

Europe's problems "could spill over to other regions and stall the global recovery," said Jose Vinals, director of the fund's monetary and capital markets department, at a news conference in Hong Kong.

"Further credible and decisive policy action is needed to resume progress on financial stability and keep the economic recovery on track," Vinals said.

Risks so far are limited to financial markets and activity in other fields stabilized at a high level in May, the IMF said. It said industrial output and trade grew by double digits and there was a modest but steady recovery in developed economies and strong growth in emerging nations.

"The numbers for economic activity have come in strong — in fact, stronger than we have forecast," said Olivier Blanchard, director of the IMF's research department.

The fund raised this year's U.S. growth forecast from 2.7 per cent to 3.3 per cent. The outlook for Germany and other European nations that use the euro common currency was unchanged at 1 per cent.

A global "double dip," or relapse into recession, is "very unlikely," Blanchard said.

Asian economies recovered strongly this year, driven by buoyant exports and stronger domestic demand, the IMF said.

The fund raised its 2010 growth forecast for Japan to 2.4 per cent from 1.9 per cent and for India to 9.4 per cent from 8.8 per cent. The estimate of the Asia region's growth rose to 7.5 per cent from seven per cent.

However, it warned that weakness in Europe "would affect Asia through both trade and financial channels."

Weak data from major economies in recent weeks have diminished confidence in a strong rebound from last year's recession.

The fund's forecast for 2011 growth was unchanged at 4.3 per cent, a decline from this year's rate.

In a move that might fuel concern the recovery is fading, the fund lowered its 2011 growth forecast for Japan from two per cent to 1.8 per cent and for Britain to 2.1 per centfrom 2.5 per cent.

In Europe, the IMF said governments must resolve uncertainty about banks' exposure to sovereign debt and other risks and make sure lenders have enough capital and markets have adequate liquidity.

It said many advanced economies urgently need to push ahead financial reforms including recapitalizing banks, restructuring and consolidating banking industries and overhauling regulation.

"In the absence of complete banking sector recapitalization and restructuring, the flow of credit to the economy will continue to be impaired," the IMF said.

Thursday, June 17, 2010

The Case For A Variable Rate When Rates Are Rising

It’s been a great ride! Canadian homeowners have been benefiting from ultra-low interest rates over the last two years. Unfortunately the time has come: the rate climate is starting to heat up. As the Prime lending rate starts to gradually increase toward more normal lending rates of 5% to 6%, do variable-rate mortgages still make sense? Of course the answer depends on your own personal
situation, but there are definite compelling reasons to choose variable.

Fixed-rate mortgages play a significant role with many Canadian homeowners, particularly those who may lose sleep wondering what will happen next with rates. Fixed mortgages are also ideal for those on a very tight budget; a fixed rate gives you the security of knowing exactly how much your mortgage will be so you can plan accordingly. Many first-time homebuyers choose a fixed-rate mortgage for this reason

For those who are not on a tight budget, a variable-rate mortgage can be a wise financial move, even in a rising rate environment. Lenders offer variable-rate mortgages at the Prime lending rate minus a certain percentage, which varies
by lender. So as the Prime rate increases, so will your mortgage payments. How fast Prime will increase will be determined by inflation and other key economic factors.
Studies have shown that most Canadians hold their mortgage for 15 years or longer, and that over the long term, less overall interest is paid with a variable-rate
mortgage.If you believe that minimizing the total amount of interest you pay over the life of your mortgage is an important goal, then the case for variable-rate mortgages is very strong.

The question to ask is: what do you want to pay right now

– a lower variable rate, or a higher fixed rate? Prime rate increases tend to be gradual so it can take several Prime increases to reach current fixed rates. In the meantime, you can keep your savings for lifestyle, investments or to pay down your mortgage! Let’s compare using today’s rates for a $250,000 mortgage, assuming Prime increases 0.75% per year: The question to ask is: what do you want to pay right now

– a lower variable rate, or a higher fixed rate? Prime rate increases tend to be gradual so it can take several Prime increases to reach current fixed rates. In the meantime, you can keep your savings for lifestyle, investments or to pay down your mortgage! Let’s compare using today’s rates for a $250,000 mortgage, assuming Prime increases 0.75% per year:

5-year Fixed-Rate Mortgage (4.75%)
Year Monthly Payment Balance
1 $1,419 $244,620
2 $1,419 $238,982
3 $1,419 $233,073
4 $1,419 $226,880
5 $1,419 $220,390
Total Paid: $85,118

5-year Variable-Rate Mortgage (Prime -0.5%)
Year Monthly Payment Balance
1 (2.00%) $1,059 $242,205
2 (2.75%) $1,148 $234,964
3 (3.50%) $1,238 $228,171
4 (4.25%) $1,327 $221,733
5 (5.00%) $1,417 $215,569
Total Paid: $74,268
Difference in total payments = $10,850
Difference in interest paid = $4,821

In this case, choosing a variable-rate mortgage allows you to keep $15,671 over those five years, even though the Prime rate was rising. Of course, the Prime rate could increase faster than what has been used in this example. Since no one can
accurately predict interest rate movements, your best bet is to have a good conversation with an experienced mortgage planner who can help you assess your own situation, and determine if a variable-rate mortgage is right for you.

Tuesday, June 1, 2010


Bank of Canada raises interest rate
| Tuesday, 1 June 2010

After more than a year at a record low level, Bank of Canada Governor Mark Carney raised the benchmark interest rate for the first time since 2007 by one-quarter percentage point to 0.5 per cent. This is the first time since 2007 that that rate has increased and the Bank of Canada is the first in the Group of Seven to do so since the financial crisis and recession began in 2008.
In a statement Carney emphasized that the increase should not be interpreted as just the first of more to come.
"This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,'' the central bank said. ``Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.''

Thursday, February 11, 2010


The Canadian Press

Date: Thursday Feb. 11, 2010 6:56 AM ET

OTTAWA — The federal government should avoid major surgery and make only minor adjustments to deal with fears of overheating in Canada's housing market, a number of leading economists said Wednesday.

Federal Finance Minister Jim Flaherty and the Bank of Canada have expressed concern that Canadians may be assuming too much debt in home purchases, debt that could rebound on them when interest rates rise.

But some solutions being floated in advance of Flaherty's upcoming March 4 budget -- doubling the minimum down payment to 10 per cent, or reducing the maximum amortization period from 35 to 30 years -- could do more harm than good, the economists said.

"We want some sort of micro-surgery, not (taking) a pickaxe to the problem," said Avery Shenfeld, chief economist with CIBC World Markets.

Bank of Nova Scotia economist Derek Holt said such radical surgery could cause home prices to crash and shake confidence in the consumer sector, a key driver of the fragile economic recovery.

Interviews with economists at four of Canada's big banks showed some disparity of views as to the size of the problem, but general agreement that there is good reason for concern.

Most see home prices in Canada as being 10 to 15 per cent too high, largely because construction of new homes ground to a halt during the recession, decreasing available supply, and because of record-low interest rates which are luring many new entrants into the market.

The Canadian Real Estate Association said this week it expects home prices to gain another five per cent to a record average of $337,500 this year. Sales will also hit record levels this year before tailing off next year, the association said.

It is unclear whether Flaherty is contemplating measures to cool prices and activity. Last weekend, the minister told reporters he was closely watching prices, but did not believe Canada had a housing bubble as yet.

But if one were to develop it could have wider repercussions on the economic recovery, as occurred in the United States, the economists said.

The best approach now is to take baby steps that would help moderate prices and activity and create a so-called soft landing.

One measure, according to TD Bank deputy chief economist Craig Alexander, would be to tighten the "income test" banks use to assess whether a prospective homeowner can meet monthly mortgage payments.

Already, banks build in a cushion in handing out floating mortgages by judging credit worthiness based on the borrower's ability to make payments on the three-year rate, not the variable rate -- about a two percentage point difference. Alexander said that could be increased to the still higher five-year posted rate.

A variation would be for banks to judge ability to meet payments not just on the mortgage but on all outstanding debts of a prospective homebuyer.

Yet another idea would be to deny government-backed insurance on mortgages for investment properties, thereby dampening speculation.

Economists believe such measures could help deflate any housing bubble without bursting it.

"It's not in the interest of either buyers or lenders to have boom-bust cycles," said the TD's Alexander.

"That's the lesson from the U.S. experience. If you have the wrong incentives and you don't have regulations, you end up in a place you don't want to be."

Bank of Montreal economist Douglas Porter said if Ottawa chooses to raise the down payment requirement, it should do so modestly, perhaps to six or seven per cent.

Porter said, however, that he didn't think reducing the amortization period to 30 years would be dramatic enough to cause a major disruption in the market.

Economists point out that home affordability is expected to tighten this summer even if Flaherty does not change the rules.

The introduction of the harmonized sales tax starting July 1 in Ontario and British Columbia -- two of the hottest home markets -- is expected to add a couple of thousand dollars to home purchases in those provinces.

And Bank of Canada governor Mark Carney is widely expected to start raising interest rates as early as July.

Thursday, January 21, 2010

Two items of interest.

1) This past Tues. The Bank of Canada quarenteed to keep its trend-setting rate at 0.25% until the end of June. The implication was there to expect rates to rise after that. If you have a mortgage that is coming up for renewal or are looking to purchase soon, now is the time to give us a call to see how we can help.

2) Street Capital has rolled out the first nationally available 1-year adjustable rate mortgage.
Paul Grewal, President of Street Capital, says the product is well-suited to those who expect that “discounts on ARM’s will increase.” It gives people “the flexibility to choose a shorter ARM term,” he adds.
Therefore, if you think variable rates will be prime – 0.50% next year, for example, this 1-year variable lets you switch mortgages in 12 months without penalty--instead of waiting 3-5 years.
Street Capital also lets customers convert to a 3-, 4- or 5-year fixed rate at any time, with no fee, and at discounted broker rates.
Here are some of the key guidelines:
LTV: Up to 95% on purchases and 90% on refinances
Rate Hold: 60 days
Amortizations: 16-35 years
Compounded: Semi-annually
Loan Amounts: $50,000 to $1,500,000
Qualifying Rate: 3-year discounted rate or contract rate
Minimum Beacon Score: 600
Early Termination Penalty: 3 months of interest
Lump-sum Pre-payments: 20% annually
Payment Increase Option: 20% annually
Rate premiums apply on conventional mortgages between 75%-80% LTV, rentals, stated income deals, and discharged bankrupts.
In conjunction with today’s announcement, Street Capital also announced a new 3-year variable.

Doug Boswell (MO 9002332) is a mortgage planner with Mortgage Architects Belleville Ont. (# 10287)
Doug deals with first and second mortgages, renewals, refinancing, bank turndowns.
Telephone: Cell 613-242-9830
Office 613-968-6439 ex24

For more information on mortgages and latest rates visit

Friday, January 15, 2010

Canada Prepared For Rising Rates according to a recent surrvety bay CAAMP.

Claims that Canadians are taking out risky variable-rate mortgages and borrowing more than they can afford “are not based on actual data” and “are misinformed.” That’s according to CAAMP, who issued this study of 40,000 mortgages from 2009: Revisiting The Canadian Mortgage Market…
Despite rising home prices, first-time mortgagors took out “far less” than they could afford last year, says CAAMP.
"The vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions," stated Jim Murphy, president and CEO of CAAMP.
CAAMP ran simulations to estimate what would happen if the Bank of Canada hiked rates 3% over two years (and fixed rates rose 1.25%).
It found that income gains should offset much or all of the increases in mortgage payments that most Canadian’s would experience.
"The bottom line from the simulations is that even though mortgage payments will probably rise for most borrowers, the increase in their incomes will more than offset the higher payments," said CAAMP chief economist Will Dunning. “All in all, the degree of risk from rising mortgage rates appears to be small and manageable,” he writes.
A key finding in the report was that 86% of Canadian home buyers took out fixed rates in 2009. Here’s a breakdown of the terms they selected:
5% chose 1- to 2-year terms
20% chose 3-year terms
5% chose 4-year terms
70% chose 5- to 10-year terms
Other notable findings from the study:
5%: Number of Canadian households who purchase a home each year.
50-60%: Number of those who are first-time homebuyers.
0.03%: Percentage of first-time home buyers (compared to all home owners) that are “pushing the envelope” by getting mortgages they may not be able to afford. CAAMP estimates these “at-risk” borrowers amount to 4,000 households out of 13,250,000 in Canada.
10%: Annual growth rate of mortgage debt in the last five years.
”This growth rate was far in excess of growth of incomes and therefore mortgage debt has become a growing burden for Canadian households,” CAAMP said. CAAMP attributed this growth to rising home prices and increased home ownership. 70% of households now own homes, versus 63.6% in 1996.
5.425 million: Number of Canadian mortgage holders.
22.3%: Average GDS ratio of a home buyer in 2009 32% is the traditional GDS maximum. This stat is a pleasant surprise. According to CAAMP’s findings, most Canadians appear to be underbuying, not overbuying--as some critics charge.
32.8%: Average TDS ratio of a home buyer in 2009 Similar to GDS above, this is well below the standard. 40-42% is the typical TDS maximum.
0.44%: Current percentage of mortgage holders in arrears. CAAMP says arrears averaged 0.50% in the 1990s. Mortgage arrears are highly correlated with Canada’s employment rate. Reduced hours/pay and separations/divorce are secondary factors. CAAMP says it “appear(s) most likely that the arrears rate is close to peaking.”
Dunning closed the report by writing: “Virtually every Canadian who is in a position to buy a home and qualify for a mortgage is well-educated and capable of assessing what is in their best interests, of looking forward, and of anticipating threats to their financial well-being.”
Let’s keep it that way by advising homeowners to remain conservativ

More details on the study above:

Data was collected from a CAAMP survey of its corporate members
Sample size was 40,000 mortgages totalling $10 billion
This represents about one-sixth of total mortgage activity for home purchases in Canada.
The mortgages were all funded in 2009
The data included purchases only. No renewals or refinances.
The vast majority of mortgages in the dataset are high-ratio and insured.