The Mortgage Department Corporation

Interest Rate Differential

2011-12-19T13:36:00.002-05:00

Interest Rate Differentials (IRD)

Often a client needs an “idea” of how much their existing mortgage penalty might be before thye decide to refinance or do an “early switch” with pre-payment penalty.

If the penalty is based on a rate differential, here is a BASIC calculation to figure out a close amount…..

Based on a:

$200,000 with 3 years remaining on a 5 year term of 5.70%....

…because there are 3 years remaining, the current 3 year rate is used to calculate the differential.

If the lenders current 3 year rate is 4%, there is a difference of 1.7%. Because there’s still 3 years left, the principal is also multiplied by 3

$200,000 x 1.7% x 3 = $10,200 penalty

(remaining principle) (Difference btw rates) (# yrs remaining)

**This is an estimate and will change every time rates change. If the differential increases, the penalty will also increase.

Need advice? I'm happy to help. Call me today for your free, no obligation consultation. http://www.tmdc.ca/

Mortgage rates are poised to rise

2011-12-08T14:06:00.000-05:00

Mortgage rates could be drifting up again soon, even if the Bank of Canada is standing pat for now, experts say.
Already over the last few months, variable-rate mortgages have started to climb, erasing much of the advantage they had over traditional fixed-rate mortgages, says Kerri-Lynn McAllister, community manager at RateHub.ca. McAllister says we can expect more of the same.
“A few months ago, there was basically a one per cent spread between fixed and variable. Now it’s .2 or .3,” said McAllister. “I don’t think they’re done. We’re still seeing banks increase their premiums.”
Part of the reason for the hike, says McAllister, is that with mortgage rates as low as they’ve been, banks have a harder time making money.
“That’s definitely a way to improve their margins,” McAllister said. “It also creates more incentive for people to move over to fixed rates. The fixed rates are definitely more profitable for them.
Even fixed rates could be in for a rise in the new year, suggests Joseph Haimowitz, principal economist at economic think tank Conference Board of Canada.
“I think they’ll probably rise slightly in anticipation of Bank of Canada hikes, especially if the Bank communicates its intentions clearly. No bank wants to lend out money at 4 per cent today if its costs are going to be at 5 per cent next week,” said Haimowitz.
He expects fixed mortgage rates could rise by up to .25 per cent by mid-2012.
Tuesday, Bank of Canada governor Mark Carney announced the Bank was keeping its key overnight lending rate at 1 per cent. That overnight lending rate affects the prime rate which banks charge their best customers. Prime rate at most banks is currently 3 per cent.
The days of deep-discount variable rate mortgages offering rates half a per cent or more below prime are gone for now, according to Robert McLister, editor of Mortgage Rate Trends.
“Is it gone forever? I don’t think so. But it’s gone for the foreseeable future,” said McLister. He predicted variable rates could rise by as much as .2 per cent over the next few months.

While the average posted rate for a 5-year fixed rate mortgage is 5.29 per cent, many banks are offering fixed rates as low as 3.25 per cent, says McLister. That compares very favourably to the average rate of 2.8 per cent for variable rate mortgages over the same 5-year term, McLister says.
“The spread is maybe half a point. That’s a historical anomaly,” said McLister.
One contrary note came from panel put together by ratesupermarket.ca, which suggested that fixed rates could drop over the next month, while variable rates will stay put
“With no quick fix on the horizon for the European debt crisis, the global economic outlook continues to be pessimistic causing downward pressure on longer-term bond yields. Couple this with decreased demand for home loans during the busy holiday season, and it is likely that fixed mortgage rates will stay low or even drop further over the next 30-45 days,” the panel said.

Allow me to find a Mortgage that is right for you! http://www.tmdc.ca/

Why Use a Mortgage Broker?

2011-11-14T12:39:00.000-05:00

This article appeared in The Globe & Mail and hilights the benefits of using a Mortgage Broker. It's being able to offer the personal touch to my clients that I find satisfying.

Call me today and allow me to get you a great rate on your mortgage.

Canadians heed debt warnings and exhibit confidence in their ability to manage their mortgage: CAAMP

2011-11-09T11:01:00.000-05:00

Canadian Association of Accredited Mortgage Professionals releases Annual State of the Residential Mortgage Market in Canada report

TORONTO, Nov. 9, 2011 /CNW/ - Canadians have heard the many cautions about carrying too much debt and are taking action to insulate themselves from future economic downturns, according to the seventh Annual State of the Residential Mortgage Market report by the Canadian Association of Accredited Mortgage Professionals (CAAMP), released today.

Highlights:

About one-third (32 per cent) of homeowners with mortgages had some mortgage activity in 2011, with 23 per cent renewing or refinancing their mortgage.
Fixed rate mortgages remain most popular (at 60 per cent), while 31 per cent have variable rate mortgages.
Among those who renewed their mortgage in the past 12 months, 78 percent saw a reduction in their rate
Among those who renewed or refinanced their mortgages in the last year, 21 per cent changed lenders
Levels of equity takeout have dropped in 2011 - only 10 per cent of mortgage holders took out equity in the last year, a 40 per cent drop from 2010

"Overall, our survey paints a picture of Canadians generally and homeowners in particular as very focused on their finances. They are planning ahead, aggressively paying down their mortgage in advance of any further economic jolt,"" said Jim Murphy, AMP, President and CEO of CAAMP. "Prudent is the word that best sums up how Canadians are feeling at this time."

Canadians secure in their own positions; skeptical about others
The 2011 survey found an interesting contrast between individuals' own debt levels and their feelings towards other Canadians' financial positions. Forty-six per cent of respondents agreed that "as a whole, Canadians have too much debt" and many believe that "low interest rates have meant that a lot of Canadians, who probably should not have, became homeowners over the past few years."

However, among those with a mortgage, most disagree with the statement "I regret taking on the size of mortgage I did" and a substantial number agree that mortgage debt is "good debt." Canadians also agree overall that "real estate in Canada is a good long-term investment."

And, despite being concerned about overall debt levels of Canadians, they believe that they personally have acted responsibly.

Canadians could weather a potential storm

Canadians have insulated themselves by shopping for the best interest rates with the help of a mortgage broker whose market share has increased. Among those who renewed a mortgage in the past year, the number who switched lenders was up to 21 per cent in 2011. At the same time, three quarters of Canadians who renewed or refinanced their mortgage this year saw a decrease in their mortgage rates. For a five year fixed rate mortgage, the average discount has been 1.46 per cent during the past year. And fewer Canadians have taken out equity, down to 10 per cent in 2011.

By comparing rates with different mortgage lenders, aggressively paying down their mortgages, and decreasing the amount of equity they take out of their mortgages, most Canadians appear to be in a comfortable position to weather the economic challenges ahead. In fact, eighty-four per cent of mortgage holders said they can handle an increase of $200 per month in their mortgage payments, and 78 per cent have at least 25 per cent equity in their homes.

"Despite less than positive feelings towards the economy, or maybe because of that, Canadians are showing a level of prudence in their decisions that is inspiring," said Murphy. "That suggests to us that there is no need for policy makers to introduce new measures that would reduce housing activity."

The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in October 2011. For the full report
check out CAAMP

Economic Trends that affect you!

2011-09-22T14:34:00.000-04:00

Mortgage rates may rise

Variable mortgage rates are already starting to creep up, and fixed rates could soon follow if Wednesday’s higher-than-expected inflation numbers turn out not to be a fluke, says mortgage expert Robert McLister.

Canada’s inflation rate hit 3.1 per cent in August, driven by rising food and energy prices, Statistics Canada revealed Wednesday. Even the so-called core inflation rate — which excludes food and energy — hit 1.9 per cent.

“Keep your eye on inflation. If the core rate goes above 2 per cent for a couple months in a row, then we’ll start to hear (Bank of Canada governor) Mark Carney talk about cooling things down,” said McLister.

Raising interest rates is a tool used by central bankers to slow down an economy, the thinking being that if borrowing becomes more expensive, less money is being spent, resulting in less economic activity.

Already, said McLister, the spread between fixed rates and variable rates has dropped to less than one per cent, as banks eliminate much of the discounting they give on variable rates.

Stay ahead of the game, sign up for our "rate alert"

Avoiding Credit Card Debt Before it Sneaks up on You

2011-08-25T12:37:00.000-04:00

In this modern time where the economy has been such a challenge for everyday people like you and me to keep up, it’s easy to get into credit trouble when your credit bills begin to stack up. So if you are in the position to just start learning the ropes of the world of credit cards, there are a lot of things you can do to avoid credit card debt before it sneaks up on you and keep your nose clean, as they say.

This is an outstanding goal for you if you are just getting your first credit cards. If you know or talk to anyone who is battling tens of thousands of dollars of credit card debt, you know what a jail sentence it can be. Once that credit card debt gets that high, the time it will take even under the best of conditions to bring it down runs into the years if not decades. And for all that time, thousands of dollars of money goes down the drain to credit interest that doesn’t buy you any food, tickets to the movies or new clothes. It just goes away with no value to you at all.

But if you are new to the world of credit, getting a credit card is a good thing. But once you get one, keeping it under control is job one. You will find it amazingly easy to use a credit card once it comes. In fact, the retail world makes it difficult to conduct transactions any other way. You can pay for gas at the pump that way and even charge your groceries at the grocery store. And while all of these great uses for credit are helpful, you can end up with a whopper of a credit card bill at the end of the month. And if you don’t pay that bill off, that is the first step on a lifelong jail term in credit card debt jail.

So there are some guidelines you should follow to both use credit responsibly but also to keep building your credit rating which has a real value to you. Remember that what the credit card companies don’t tell you is that making a charge on a credit card is a loan. Even if you just charge ten bucks to go to the movies, you took out an unsecured loan to finance that movie ticket.

So once you start using a credit card, keep in mind that you will be paying back everything you run up on it. It is NOT free money. A good practice is to save every receipt every month and keep a running tally of what you have spent on credit. Now only can you use that to cross check your credit card, it keeps you honest because each time you add a charge to your credit card, you can update your tally so you know for certain that you will be able to pay it off when the bill comes.

Paying off the credit card each month is the number one best way to keep your credit problems under control. Now it isn’t a bad idea to let a little bit of the debt drift from month to month. This builds your credit history and credit rating which will pay you well down the road when you want to buy a larger purchase. But by staying on top of your credit and what is going onto your card, you will start out with the kind of habits that will lead to a life of good credit use without credit card jail. And that is a wonderful gift to give yourself early in life.

Interest rates expected to remain on hold

2011-08-10T09:25:00.000-04:00

By The Canadian Press - August 09, 2011

OTTAWA - A pledge by the U.S. Federal Reserve to keep its key interest rate at a record low means interest rates in Canada will likely stay on hold as well.

BMO deputy chief economist Doug Porter says the Canadian central bank will likely keep its key overnight rate target at one per cent well into next year.

Before the recent financial turmoil, Porter says he had expected two quarter-point rate hikes by the Bank of Canada by the end of this year.

The Bank of Canada last raised its key overnight rate target in September last year.

The rate affects the prime lending rate at the country's big banks and influences the rates charged on variable rate mortgages and lines of credit.

OTTAWA - A pledge by the U.S. Federal Reserve to keep its key interest rate at a record low means interest rates in Canada will likely stay on hold as well.

BMO deputy chief economist Doug Porter says the Canadian central bank will likely keep its key overnight rate target at one per cent well into next year.

Before the recent financial turmoil, Porter says he had expected two quarter-point rate hikes by the Bank of Canada by the end of this year.

The Bank of Canada last raised its key overnight rate target in September last year.

The rate affects the prime lending rate at the country's big banks and influences the rates charged on variable rate mortgages and lines of credit.

Beware the pitfals of collateral mortgages

2011-08-04T11:36:00.000-04:00

By Mark Weisleder
When you apply for a mortgage, you usually just ask about the term, amount, interest rate and monthly payment. Not many people understand the difference between a conventional mortgage and a collateral mortgage. Yet many banks are now asking borrowers to sign collateral mortgages — and it could result in them being tied to this bank, for life.

With a normal conventional mortgage you bargain for a set amount, rate and amortization. Say the property is worth $250,000 — you bargain for a $200,000 loan, at 3.5 per cent, a five-year term/25-year amortization, payments of $998.54 per month.
A conventional mortgage is registered against the property for $200,000. If all the payments are made on time, the mortgage is renewed on the same terms every five years and no prepayments are made, the balance is zero after 25 years.
Should another lender decide to lend you money as a second mortgage, there is nothing stopping them from doing so, subject to their own guidelines. Under normal circumstances the principal balance on a conventional mortgage goes only one way, down. In addition, banks will accept “transfers” of conventional mortgages from other banks, at little or no cost to the consumer.
A collateral mortgage has as its primary security a promissory note or loan agreement and as “backup,” a collateral security, being a mortgage against your property. The difference is that, in most cases, the mortgage will be for 125 per cent of the value of the property. In our example, the mortgage registered will be for $312,500. But you will only receive $200,000. The loan agreement will indicate the actual amount of the loan, interest rate and monthly payments.
The collateral mortgage may indicate an interest rate of prime plus 5-10 per cent. This will permit you to go back to this same bank and borrow more money from time to time, without having to register new security. The lender will offer you a closing service, to register the mortgage against your property, at fees that will be cheaper than what a lawyer would charge you. Sounds good so far, doesn’t it?
However, this collateral loan agreement has different consequences, which are usually not explained to the borrower.
• Most banks will not accept “transfers” of collateral mortgages from other banks, so the consumer is forced to pay discharge fees to get out of one mortgage and additional fees to register a new mortgage if they move to a new lender. Thus the bank is able to tie you to them for all your lending needs indefinitely because it will cost you too much to move.
• Lenders may be able to use the collateral mortgage to offset any other unpaid debts you have. Offset is a right under Canadian law that says a lender may be able to seize equity you have in your home, over and above the mortgage balance, to pay, for example, a credit-card balance, a car loan, or any loan you may have co-signed that is in default with the same lender. In essence any loans you may have with that lender may be secured by the collateral mortgage. Nobody goes into a mortgage thinking about default, but “stuff” happens in people’s lives and 25 years is a long time.
• Let’s say your house value is $200,000. A collateral first mortgage registered on the property is $250,000. The amount owing on the mortgage is $150,000. If you were to need an additional $20,000, but the lender declines to lend it for any reason, then practically speaking you won’t be able to approach any other lender. They will not go behind a $250,000 mortgage. Your only way out would be to pay any prepayment penalty to get out of the first mortgage and pay any additional costs to get a new mortgage.
• Let’s say your mortgage is in good standing but you default under a credit line with the same bank. The bank could in most cases still start default proceedings under your mortgage, meaning you could lose the house.
• Some lenders are offering collateral mortgages in a “negative option billing” manner. Unless you are informed enough to say you want a conventional mortgage, you will be asked to sign documents for a collateral mortgage.
One bank is only offering collateral mortgages.
I spoke with David O’Gorman, the president and principal mortgage broker with MortgageLand Inc. He tells me it is his duty under the law to ensure the “suitability” of any mortgage he arranges for a consumer.
He would be hard pressed to justify the recommendation of this type of collateral first mortgage to any consumer, without disclosing both verbally and in writing the points listed above, and he believes the consumer should have their own lawyer review everything before they sign.
Lending money to people without proper explanation of the consequences is wrong. The banking regulators need to look into this practice and stop it. In the meantime, do not sign any mortgage document without discussing it first with your own lawyer.

U.S. Default & Canadian Mortgage Rates

2011-07-29T09:10:00.001-04:00

We’ve all heard about the impending fiscal calamity south of the border. The issue, of course, is whether lawmakers in the U.S. will increase the $14.3 trillion debt ceiling by August 2 (or thereabouts) so the U.S. can pay its bills.

That’s got many Canadians concerned about how this mess will impact interest rates north of the border.

From the looks of things, it’s not quite panic time. The odds are good that U.S. lawmakers will come to an 11th hour agreement if you believe what yields in the $13.5 trillion dollar treasury market are telling us. The benchmark 10-year U.S. note has remained calm, barely moving in the last few weeks. Most other credible sources, including the Bank of Canada’s Mark Carney, also expect a resolution by the deadline.

That said, the outcomes at this point are completely uncertain for two reasons: 1) There’s no assurance that Republicans and Democrats will come to terms in time; and 2) a default is totally without precedent in the U.S.

TD’s chief economist Craig Alexander writes, "The impact on Canada could range from a hiccup in our base-case economic outlook, to one in which we are thrown back into a recession that could have a global reach."

If the U.S. can’t meet its obligations on time, TD senior economist James Marple says simply: “We have no idea how bad it could be.”

Neither do we. Nonetheless, we’ve taken our best guess at two of several possibilities and their potential implications:

Possibility #1: The debt ceiling is raised on time

The good news: A crisis would likely be averted (for now). A Democrat/Republican compromise buys time for the U.S. to figure out how to stem its red ink. This predicament might even provide enough incentive to make headway towards balancing the U.S. budget (which would have a downward influence on North American interest rates long-term).

The bad news: The world has been lastingly reminded that U.S. government debt is not as “risk-free” as once thought. The rating agencies may give the U.S. a limited amount of time to put forward a credible deficit reduction plan. If it doesn’t, America’s haloed “AAA” debt rating could eventually be cut. That could shock financial markets and put us back in crisis mode.

Potential Interest Rate Impact: A Democrat & Republican debt deal would likely entail a slashed U.S. budget. That could slow the economy and weigh down yields. Rates could be further influenced by:

1.A ratings cut:

◦If the debt ceiling plan is deemed too risky by the market, ratings agencies could cut America’s debt rating, driving up yields up in the short term. The rate spike could be severe in the short term but probably not extreme in the long term (given the liquidity of the American debt market and the U.S. dollar’s primary reserve currency status).

◦We seen TV analysts speculate that the short-term impact would be a 50+ basis point spike in long-term U.S. rates.

◦U.S. yields might then settle down to roughly a 25 basis point premium over today, suggests Blackrock Analyst Rick Reider.

◦Canadian and U.S. bond yields are 95% correlated. As a result, our treasuries would likely reflect a portion of that increase (at least in the short term). That would boost fixed mortgage costs here by some fraction of a percent.

2.Budgetary progress:

◦If the U.S. eventually tabled a balanced budget, yields could drop back down (somewhat similar to how they did in Japan after its 2002 ratings cut).

Possibility #2: The debt ceiling is not raised in time

The good news: In simple terms, there are two types of government default: default on debt obligations and default on non-debt obligations (wages for government employees, the military, social security, etc.). The most crucial priority in the short-term is making principal and interest payments to holders of U.S. treasuries. Fortunately, the U.S. can still pay bondholders for a period of time. That means an actual “debt default” would likely be averted, hopefully long enough to permit a resolution.

The bad news: As the U.S. Treasury states, an impasse after Aug. 2 would merely be “default by another name.” The U.S. would undergo a severe fiscal shock with most of the government shutting down. America’s debt rating might very well be cut, thus driving up yields (and hence fixed mortgage rates). Canada’s economic outlook could be downgraded as well since we’re such a huge trade partner with the Americans.

Potential Interest Rate Impact:
•Long-term U.S. rates would soar in the short-term.
•Canadian rates could follow in sympathy, but to what degree is unknown. (Longer-term bonds lead fixed mortgage rates)
•To battle the economic contagion, the Bank of Canada would leave our overnight rate lower than it otherwise would. That would likely keep variable mortgage rates low.
•In the short to medium term, default could spark a rocketing loonie (versus the U.S.) and put the brakes on the Canadian/global economy. That would exert downward pressure on rates over time.
•Canadian rates might also be helped by asset rotation out of U.S. treasuries and into Canadian bonds. As more people buy Canadian bonds it lifts bond prices and lowers yields (and fixed mortgage rates).

*******

If another economic crisis does ensue, the odds favour variable mortgage rates over longer-term fixed rates.

If you’re a homeowner or prospective mortgagor who is concerned by all this, the best bet is to wait until next week and see how things play out. Then speak with a mortgage professional.

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Bank of Canada hints rate hikes are coming sooner rather than later

2011-07-20T09:33:00.000-04:00

By Craig Wong, The Canadian Press

OTTAWA - The Bank of Canada signalled Tuesday that it will look for an opportunity to raise interest rates sooner rather than later to keep inflation in check as the Canadian economy continues to grow.

The central bank kept its overnight rate target at one per cent but noted that the U.S. economy has grown at a slower pace than expected and Europe faces a growing credit crisis — both potential drags on the domestic economy.
Despite those threats, the bank said it believes Canada's economy remains on track to grow this year, which observers said likely means a rate hike as early as October .
CIBC World Markets chief economist Avery Shenfeld said the bank's decision to drop the word "eventually" in reference to the timing of its next rate hike suggests it will move before the end of the year.
"The underlying message is that rate hikes will be coming sooner than eventually," Shenfeld said.
"The surprise is really for those who thought that the Bank of Canada would be waiting until 2012 to begin hiking rates, because I think here the message is directed at those dovish observers and indicating that we will probably be moving sooner than that."
The suggestion that rates in Canada will rise in the near term helped push the loonie up 0.88 of a cent to 105.17 cents U.S. — the highest close since the end of April.
Canadian economic growth slowed in the second quarter, but the central bank said it expects to see an acceleration in the second half of the year.
Overall, the Bank of Canada expects the economy will expand by 2.8 per cent in 2011, compared with its call in April for 2.9 per cent growth. The outlook for 2012 and 2013 was unchanged at 2.6 per cent and 2.1 per cent respectively.
Shenfeld said the central bank will likely wait to see if its economic outlook is on track before moving to raise rates.
"The key is the Bank of Canada has to see evidence that its projection for a re-accelleration in economic growth is actually taking place," said Shenfeld, who currently expects the central bank to hold rates in September and move in October.
BMO Capital Markets senior economist Michael Gregory said the case of a rate hike was building, noting that household spending in Canada remains solid.
"We are sticking to our call for October and December rate hikes this year," Gregory wrote in a note to clients.
However TD Bank economist Sonya Gulati said she continued to expect the Bank of Canada to keep rates on hold until its first meeting in 2012.
"We think that they are going to time it more to when the (U.S.) Fed is going to start to increase it, which we think is going to be March of next year," she said.
"In previous communications, the governor has indicated that the rate spreads between the two countries is something he's keeping a close eye on and that there has to be a working gap between the two for the countries to go forward, given how high the Canadian dollar is."
Gulati said TD expects the Bank of Canada will increase its overnight rate target in one-quarter percentage point intervals starting in January to two per cent before pausing to assess the situation and then increasing the key rate again to three per cent by the end of 2012.
A full update on the central bank's outlook for the economy and inflation is expected when the Bank of Canada publishes its monetary policy report on Wednesday.
The central bank said in its statement Tuesday that the U.S. economy continues to be restrained by the consolidation of household balance sheets and slow growth in employment while fiscal austerity measures in Europe also restrain growth.
"Widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets," the central bank said in its statement.
Read More...

What is a Mortgage?

2011-06-10T13:45:00.000-04:00

Every homeowner knows what a mortgage is but do you?

Many people have heard that term on movies, television shows and commercials but don’t really know what it really means.

To put it simply, it’s a loan where you are using your house as collateral. The difference between this and a normal loan is that your house becomes your backup just in case something happens and you are unable to continue payments.

Mortgages come in many different forms depending on what you are looking for with regards to financing.

Some examples are the fixed rate and adjustable type. These differ in how the payments are set up and whether or not each payment will be influenced by current interest rates across the country.

There are also commercial loans if you are planning on buying an apartment complex or other type of real estate that has the potential to make you money.

Before you decide to buy a home, it’s very beneficial to do as much research as possible. You should try to learn about each different type of mortgage and what the payments actually consist of.

Do they change each month Should you put a lot of money down before setting up payments It can be very complicated and stressful for almost anyone due to the sheer ending cost of it all.

Owning a home is a dream for many people and you will want to make sure you are well educated on home ownership. Call me for all your home ownership advice.

Rate drops ignite client preference for fixed

2011-06-01T11:46:00.000-04:00

By Vernon Clement Jones

Brokers are finally seeing a change in consumer appetite for risk after the second chop to fixed rates in two weeks.

“Up until a couple of weeks ago, we were still seeing 50 per cent of our clients coming in looking for fixed and the other 50 per cent looking for variable-rate mortgages,” Dan Mass, owner of Verico Canada First Mortgage, told MortgageBrokerNews.ca. “But that’s now changed, we’re seeing 80 per cent now looking for fixed and only 20 per cent looking for variable since the fixed rates started dropping.”

RBC set off another chain of falling rates last Friday by shaving 0.1 percentage points off its posted five-year fixed, taking it to 5.49 per cent. Over the weekend, TD Bank, Scotiabank, BMO and Laurentian followed suit, with most broker channel lenders having now effecting the changed. Their collective move follows another 10-basis-point chop last week, although the most recent price cut also applies to the posted and special rates on one-, two-, three- and four-year loans.

Lenders are now pointing to falling yields on government bonds across a range of terms as impetus for the rate decrease. The decline actually runs counter to what most economists had predicted for the remainder of 2011. It also comes as consumers react to media speculation about a possible hike in the Central Bank’s key Overnight rate. That move won’t come this week, said Central Bank Governor Mark Carney Tuesday. Still, the narrowing gap between fixed and variable rates is expected to send many homeowners to their lenders looking to lock in and join the more-than-60-per cent of Canadian homeowners who have opted for the security of a fixed-rate mortgage.

Mass’s observations reflect that change only in part. The boom in business many brokers were looking for as the gap between variable and fixed narrowed hasn’t yet materialized, he said.

Still, another broker is predicting that increase in activity may come this fall as the banks near their year-ends and look to stir up more business.

“I think there’s still more room for lenders to drop their fixed rates before hitting the floor,” said Corey Romyn, an agent and COO for Taurus Mortgages in the Toronto area. “We’ve seen that in the last few years, especially when volumes are down for most lenders, as they are this year.”

But there is a limiting factor at play. The buyers may be attracted by the rates, Romyn told MortgageBrokerNews.ca, but may ultimately find themselves frustrated by the dearth of houses for sale

Bankruptcy: A Matter of Pride

2011-05-27T09:17:00.001-04:00

Bankruptcy is a financial technique in which you declare that you cannot repay your creditors now or see a way to repay them in the future. Depending on your income and the amount of money you owe, an individual may declare chapter 7 or chapter 13 bankruptcies. However, in either case, bankruptcy is a fairly public affair. Your name and address will be published in at least one of the local newspapers for all of your friends to read, and your neighbors will see movers coming to repossess some of your items. For many people, the worst part of bankruptcy isn’t losing the money; it’s losing pride and dignity.

The first way to deal with this is to realize that most of your friends and family have gone through money problems at one time or another in their lives. Although they may not have resorted to bankruptcy, there is certainly no question that only the very lucky do not feel drowned by debts at one point or another. Simply put, people will understand. Even though you may feel like everyone is snickering at you behind your back, the truth is that most people are actually empathizing with you.

Also realize that not everybody will realize you’ve declared bankruptcy. Most people do not take the time to read the newspaper that carefully, and even though word does travel fast, it is not a topic that most people will bring up because it simply is not that interesting. You might feel like you’re the headlining news, but in actuality, most people probably didn’t even know about it.

It is important to continue with the process, even if people do find out. If you are embarrassed, simply understand that so are all of the people in this country who are going through the same thing. You are not alone. In fact, you may be able to get counseling to help you go through the bankruptcy process. You may be surprised at how many people have declared bankruptcy and gone on to be very successful.

If bankruptcy is the best thing for your family and your financial situation, it is most important that you continue with the declaration. Take care of yourself first, then worry about what other people have to think. The most important thing is not what your neighbors have to say, but instead what you are doing to get yourself back on track financially so that your future will be brighter.

Mortgage borrowers show confidence, says CAAMP

2011-05-26T10:25:00.000-04:00

Many Canadians are aggressively reducing their mortgages by making lump sum payments, increasing monthly payments and reducing amortization periods, revealing confidence and financial flexibility in a stable mortgage environment, says the Canadian Association of Accredited Mortgage Professionals (CAAMP).

The association’s spring survey report is a bi-annual review of the Canadian mortgage market authored by CAAMP chief economist Will Dunning. The report is based on information gathered by Maritz Research Canada in a survey of 2,000 Canadian consumers in April 2011.
Some highlights from the report:
* Twenty-two per cent of mortgage borrowers increased their payments during the past year, 18 per cent made a lump sum payment, nine per cent did both and 27 per cent who renewed increased their payments;
* For mortgages repaid in the last 20 years, one-third were paid off early;
* For the first time, CAAMP has identified that home equity lines of credit (HELOC) represent 22 per cent of all mortgages, making these lines of credit a $215 billion industry;
* On average, Canadian homeowners have $222,000 in home equity, equal to 66 per cent of the value of their homes;
* During the past year, homeowners borrowed $26 billion in additional equity from their homes. Fifteen per cent of homeowners withdrew equity, averaging $30,000;
* Investments (28 per cent) replaced debt consolidation (19 per cent) as the number two use of home equity takeout. Home renovations remain number one (36 per cent).
“Prudent management of their mortgage debt has paid off for Canadians,” says Jim Murphy, president and CEO of CAAMP. “By taking advantage of low interest rates, we have been paying down our mortgages. As economic confidence returns in Canada, many survey respondents have told us they now feel comfortable using some of that equity to improve their homes and to invest,” says Murphy.
Of an approximate 9.45 million homeowners in Canada, an estimated 1.87 million hold a mortgage and a HELOC; approximately 770,000 have a HELOC only with no mortgage and approximately 3.83 million have a mortgage only. About three million Canadians have no debt on their homes.
Canadians hold $2.10 trillion in home equity and appear generally comfortable. Quebec and Atlantic Canada lead the way in equity comfort levels (81 and 82 per cent respectively). In contrast, homeowners in Manitoba and Alberta have lower levels of comfort with their current equity positions (31 and 29 per cent respectively).
While the CAAMP spring survey report reflects a positive outlook by mortgage borrowers, Dunning cautions that the pace of the economic recovery will remain modest in 2011 and 2012. “Mortgage credit will continue to expand by about $80 billion (7.8 per cent) in 2011, down from its peak of 13 per cent in 2008, but nevertheless a healthy increase,” Dunning says.
Article coutesy of REM

How to score the perfect mortgage

2011-05-25T09:29:00.002-04:00

Rachel Mendleson - The Globe and Mail

In this excerpt from the MoneySense Guide to Buying and Selling Your Home, a book in the "Best of MoneySense" series, writer Rachel Mendleson cuts through the jargon and explains how to find the mortgage that's right for you.

Lauren Chender likes to shop around. So when she and her husband were trying to figure out what kind of mortgage to get on their first home, she took to the Internet and began comparing the interest rates posted on various bank websites. But as the Toronto resident did more research, she discovered that it might be possible to get even lower rates through an independent mortgage broker, or by speaking with a financial institution’s mortgage department directly. Even when she found a good rate, she discovered that the tough decisions just kept coming. Should she go with a variable or fixed rate? What about the amortization period? “It’s overwhelming,” says Chender, who wound up using a broker to secure the mortgage on her semi-detached Victorian. “There was a lot to know.”

Chender is hardly alone. Despite the fact that how you finance your home will have a significant impact on everything from what you can afford to how long you’ll be in debt, the complexity of mortgages can make it difficult to arrive at an informed decision. But by understanding what’s at stake, you can cut through the jargon and weigh the options to find a mortgage that’s right for you.

Perhaps the most important thing to consider when thinking about how to finance your home is what taking out a mortgage really means. As Rob McLister, editor of Canadian Mortgage Trends, explains, “Mortgages are definitely among the cheapest money you can borrow, simply because they are secured by quality assets.” But they are also a tremendous responsibility, and something that can greatly increase what you end up paying for your home. While an interest rate of 4 per cent on a $200,000 loan may not seem like a lot today, that changes dramatically when you consider that repayment will likely be spread over decades.

With that in mind, the first step to choosing the right mortgage is identifying the lender whose terms work best for you. While prospective home buyers often begin with their financial institution, your search shouldn’t stop there. As Sarah Daniels, a Vancouver-area realtor, points out, “The lenders are in competition for you.” She advises using a mortgage broker, who will “shop you around” to all the lenders, free of charge. (Mortgage brokers are paid a finder’s fee by the lender. There’s no charge to the home buyer for a pre-approval and no obligation.) And whether you opt for a broker or not, a second opinion never hurts. “It always helps to get one or two other quotes to keep everyone honest,” says McLister.

It’s a good idea to get pre-approved for a mortgage before you start house hunting. That way, you can get a sense of your budget, and avoid falling in love with a property you can’t afford. To give you a pre-approval, lenders factor in your income, type of job and credit history. They also take into account how much you have to put toward a down payment, and any other debts you may have. The amount you are pre-approved for is the upper limit of what the lender will allow you to borrow. Add that to your down payment, and you’ve got the total amount you have to put toward a home. If you have bad credit, are self-employed or want to borrow more than what a bank or credit union will approve, you may want to consider using an alternative lender. But while second- or third-tier lenders (examples include Equitable Trust and Aaron Acceptance Corp.) have looser requirements, the mortgages they issue come with higher interest rates (sometimes much higher), so they are not generally recommended for first-time buyers.

The specifics of the mortgage you select will depend on what makes the most financial sense, as well as your personal preference. One important decision is whether to go with a fixed rate of interest, which is locked in for the entire term of the mortgage (usually five years), or a variable rate, which can change depending on market forces. In today’s low interest rate environment, “variable rates are initially cheaper upfront,” says McLister.

The risk is that they could rise far above the fixed rate later in the term, increasing your monthly payments. You’ll also have to set the amortization period, which is the theoretical length of time you have to pay off your mortgage in full, assuming you never move. Bear in mind that while a longer amortization (as of March 2011, the maximum for an insured mortgage in Canada is 30 years) may give you a bigger mortgage or lower monthly payments, it’ll also mean paying more interest in the long run. If you want the flexibility to make additional lump-sum payments outside of your scheduled monthly (or bimonthly) payments, this must be stipulated in your mortgage. And beware that if you break your mortgage before the term is up, you’ll have to pay a penalty–usually three months’ interest for variable-rate mortgages, more for fixed-rate mortgages. (This doesn’t apply for open mortgages, which are mainly for homeowners who plan to sell within a few months.) Mortgage insurance is one of the extra costs to buying a home that can be easy to overlook. But if you are putting less than 20 per cent down, your lender will require that you purchase an insurance policy to protect them in case you don’t hold up your end of the deal. Calculated on a percentage of the total mortgage, your insurance premium will depend on how well qualified a borrower you are, and can amount to thousands of dollars.
As Daniels observes in her book, for a $450,000 mortgage, even the most qualified borrower who gets the lowest rate (which she sets at 1.5 per cent) would be on the hook for an additional $6,750 in insurance.

If you’re lucky, your family may offer to help with financing. But it’s important to understand how the contribution factors in. A family gift is considered a traditional source of down payment, which is ideal. It will increase the size of the mortgage you can get or allow you to pay for a greater proportion of your home up front. But if the family help is a loan, your down payment is considered to be non-traditional, which, if you’re putting down less than 20 per cent, will result in slightly higher insurance premiums.

When your mortgage is up for renewal, it may be tempting to simply sign on the dotted line, and accept whatever package your lender offers you. However, not shopping around can cost you. “The bank relies on people just to sign the renewal agreement at posted rates. As soon as you do that, you’ve lost thousands of dollars by not negotiating,” advises Vancouver mortgage broker Alma Pasic. Don’t be surprised if you need a refresher course. “It’s like you’re doing it for the first time, because everything has changed,” she says. “It’s hard to keep up–even for us.” RACHEL MENDLESON Sidebar: Cost Cutter If you can live with the uncertainty, a variable-rate mortgage has historically saved home buyers money over a term of five years or more. A 2008 study led by Moshe Milevsky, a professor at York University’s Schulich School of Business, found that variable rates would have saved Canadian borrowers money on a five-year term more than 77 per cent of the time between 1950 and 2007, and chopped a year off the amortization period. By taking on a more predictable, fixed-rate mortgage, you are offloading risk to the lender, and that comes at a price. You might sleep easier, though.

Excerpted from MoneySense Guide to Buying and Selling Your Home (Rogers Publishing Limited, $9.95). The book is available at bookstores and newsstands or online at http://moneysense.ca/myhouse

Low interest rates seen sticking around

2011-05-24T09:32:00.000-04:00

MARTIN MITTELSTAEDT - Tuesday's Globe and Mail
Interest rates have recently being going somewhere unexpected: down.

At their trough last week, the yields on 10-year U.S. Treasuries, the benchmark North American rate, touched 3.11 per cent, the lowest level in six months and more than half a percentage point below their February peak.

Yields on 10-year Government of Canada bonds have fallen, too, and are now virtually identical to their U.S. counterparts.

The sliding rates have surprised many market watchers. With the United States government bumping up against its debt ceiling, inflation ticking upward, and a growing debt crisis in Europe, most expected interest rates to be increasing.

While predicting the future for rates is notoriously difficult, some observers believe that the current low-rate environment may continue for a while. If so, it will mean pain for savers, but good news for borrowers.

A drop in interest rates is equivalent to a sale on the price of money, and corporations are already rushing to take advantage of the easy lending conditions, even if they’re in no immediate need of funds. A case in point is Google Inc., which has $37-billion (U.S.) in cash and marketable securities on its balance sheet, but raised $3-billion from a bond issue last week anyway. Mortgage rates have fallen, too – good news for homeowners looking to refinance.

But lower rates have not turned out so well for some of the market’s savviest players, including Bill Gross, the founder of Pimco, the world’s biggest bond fund. Earlier this year, he sold his U.S. Treasuries, because he thought interest rates were poised to rocket higher, which would drive down prices of bonds.

It’s difficult to fault his logic: only a few months ago, the case for higher interest rates seemed so compelling.

Governments around the world are carrying bloated deficits and massive borrowing needs. In the United States, politicians have yet to agree on any clear path to deficit reduction, despite more than $1-trillion in annual red ink. Meanwhile, oil has been trading consistently around the $100-a-barrel level, thereby lifting inflation, another bond-market negative.

And the U.S. Federal Reserve is no longer putting its thumb on the scale. In less than six weeks, it is going to end its program of quantitative easing, under which it is buying $600-billion in Treasuries to goose the economy. Many bond-market followers believe the Fed’s massive buying binge has been propping up Treasury prices and keeping yields artificially low.

So what has been pushing rates lower in recent months?

A weaker-than-expected recovery is the major culprit. “The global economy, and the U.S. economy in particular, is not on quite as solid a recovery track as people were imagining in the very optimistic days of six months or so ago,” observes Peter Buchanan, senior economist at CIBC World Markets.

A slew of recent statistics underlines that weakness, ranging from the poor state of U.S. home sales to the slowing pace of U.S. manufacturing growth. Meanwhile, the Japanese economy, the world’s third-largest, is shrinking and creating a further drag on global commerce, although few foresee a double-dip recession.

“We’re looking ahead toward a bit of a cooling in economic growth,” said Paul Dales, senior U.S. economist at Capital Economics, who foresees output in the U.S. rising about 2 per cent this year.

That level of growth won’t be “anything to celebrate but it’s nothing like the recession we saw previously,” he said.

Another factor driving rates lower has been the early May rout in commodities, which dampened some of the worry on the inflation front. In addition, the recent sluggish performance of the stock market suggests that investors are getting nervous and growing more willing to buy super-safe government bonds.

Mr. Dales believes the current trends have room to run, and that rates will surprise to the downside.

He predicts U.S. 10-year Treasury yields could slip to 2.5 per cent in the low-growth, less inflation-spooked environment he foresees ahead.

If growth continues to be slow, lower rates might be staying around for a while.

Mr. Buchanan says the most likely scenario, given the poorer economic outlook, is for the Fed to hold off on raising rates until 2013. He believes the yield on Treasuries will rise gradually, instead of falling further, getting back to 3.4 per cent by the end of this year and to 4 per cent by the end of 2012. http://www.theglobeandmail.com/report-on-business/economy/interest-rates/low-interest-rates-seen-sticking-around/article2032075/

It’s not Bank of Canada’s job to guide markets on rates

2011-05-20T09:12:00.003-04:00

STEPHEN GORDON - The Globe and Mail

The Bank of Canada is scheduled to make its next interest rate announcement on May 31, and my understanding is that the consensus of opinion among private sector analysts is that interest rates will remain unchanged, because there was no explicit warning of an increase in its April 12 decision.
This consensus of opinion may turn out to be well-founded -- but not for that reason. Recent reports confirm what Bank officials have said several times: the Bank of Canada believes that it under no obligation to provide guidance about short-term interest rates. Governor Mark Carney has already noted that one of the contributing factors of the financial crisis was the private sector’s overconfidence in its ability to predict central banks’ behaviour.
Central banks do not seek to create surprises for their own sake, and they will do what they can to reduce uncertainty when doing so does not conflict with their policy goals. But providing direction for private sector short-term forecasts for interest rates is not a policy goal in itself.
Curious games can occur when central banks seek to avoid surprises -- monetary policy can become effectively outsourced to financial market analysts. For example, if the consensus opinion is for no rate change, then the central bank may feel obliged to fulfill that expectation rather than risk an interest rate ‘surprise’, even if the monetary authority’s analysis points to an interest rate hike.
To read more......

Debt Consolidation: An Alternative to Bankruptcy

2011-05-17T09:30:00.000-04:00

Bankruptcy is when a person or business officially declares the inability to pay back creditors the money that was previously borrowed. This should only be done as a last resort, because bankruptcy will affect every aspect of your life. It will also affect your ability to get loans, mortgages, and credit card in the future. However, for some people, declaring bankruptcy means finding freedom once again. It wipes your slate clean so to speak, and you can start over again with your credit.

However, there are a number of things you should try before you declare bankruptcy. One of these things is debt consolidation. Deb consolidation cannot help everybody concerned with money problems, but for some, it is just the boost needed to keep them from declaring bankruptcy.

Debt consolidation is basically taking all of your loans and paying them off using one large loan. You then have one monthly bill to pay instead of a number of smaller bills. This can save you money in the long run. Why? The one large loan will usually have a secured lower fixed interest rate. This is especially advisable if you are considering declaring bankruptcy because of high credit card debts.

Credit cards have very high interest rates—usually much higher than any other kind of loan. If you miss just one month of paying your card in full, you may never get back on track for paying off the balance. This can really start to add up if you find that you have more than one card. If you are far into debt, you can probably not get an unsecured loan from a financial institution, like a bank. However, you should be able to get a secured loan. A secured loan uses your house, car, or other possessions as collateral. With a lower interest rate, you can start making headway into your debt instead of simply making the minimum monthly payments. This will help you to avoid bankruptcy.

Consolidating your debts may not be the best choice for everyone. In fact, in some cases, bankruptcy is really the best way to get back on the financial fast track. However, it is important to realize that you have choices. If you don’t have to declare bankruptcy, avoid it and you will find that your life will be financially easier to handle in the future. It depends on your unique situation. Talk to a financial professional if you want more help learning about debt consolidation.

Roseman: Why we're so uneasy about our money skills

2011-05-12T09:25:00.000-04:00

By Ellen Roseman

A federal task force made 30 recommendations on how to boost Canadians’ money management skills. But in the three months since the report’s release, not much has been done.

I’m happy to see a non-profit group take up the cause.
ABC Life Literacy Canada has announced a national awareness campaign, called Financial Literacy Week, to run from Oct. 30 to Nov. 5 this year.
“We want to shine a spotlight on math skills,” says Margaret Eaton, president of the group, which has 10 employees and a $1.6 million budget, with funding from the TD Bank Group for its financial literacy work.
“Numeracy is really important, but most Canadians don’t feel comfortable with it.”
To prove its point, ABC Life Literacy has released an Ipsos Reid online poll that shows little confidence in many areas of personal finances.
Just three in 10 Canadians (28 per cent) strongly agree that their math and money management skills help them plan for a secure financial future.
Six in 10 (62 per cent) say they can use help with money management skills. That goes up to almost three-quarters (73 per cent) of 18-to-34-year-olds.
Four in 10 (38 per cent) say they aren’t putting any money away each month for long-term savings.
Just over a third (36 per cent) are saving $200 a month or less. The average amount devoted to long-term saving is $211 a month.
Four in 10 (38 per cent) say their household doesn’t follow a budget.
Of those who follow a budget, only 12 per cent say they never exceed it. Three-quarters (77 per cent) usually stay within budget, 10 per cent rarely do and 1 per cent never do.
“Budget” was a term very familiar to 67 per cent of respondents and somewhat familiar to 27 per cent. “Interest” and “minimum payment” had similar profiles.
Less well known were the different types of registered plans designed to save or defer tax.
RRSP (registered retirement savings plan) was very familiar to 53 per cent and somewhat familiar to 30 per cent.
RESP (registered education savings plan) was very familiar to 28 per cent and somewhat familiar to 29 per cent.
Only 21 per cent of the 1,022 adults surveyed feel strongly confident about teaching money, savings and budgeting to other people.
Another 49 per cent feel somewhat confident teaching others about money, while 30 per cent aren’t confident at all.
The widespread feeling of unease with money management skills shouldn’t come as a surprise.
Product choices are more varied and complex, thanks to competition and financial engineering. This leads some people to put trust in advisers who don’t deserve their trust.
Governments keep changing the tax rules, depriving some people of benefits they should get. The tax-free savings account, for example, is confusing and subject to errors.
There’s little information about personal financial management taught in Canada’s schools. This leaves young people defenseless against non-stop sales pitches for spending and credit.
Households feel besieged by the rising cost of living. The recent spike in gasoline prices leaves them frightened and unsure. It’s no wonder they’re not saving for their long-term future.
And as the survey shows, people who feel shaky about managing money aren’t comfortable trying to teach others how to do it.
ABC Life Literacy has been around for 20 years, focusing on reading skills. It now realizes that an understanding of mathematical concepts is crucial in today’s society.
It runs courses and publishes books designed for people with low levels of financial literacy and numeracy (Grade 3 to Grade 6).
A promising initiative is its Good Reads book series for those who struggle with longer volumes. Easy Money, a 96-page book by TV debt diva Gail Vaz-Oxlade, has sold 22,000 copies at $6.99 online. See www.grassrootsbooks.net.
“People are thirsty for information,” Eaton says. “We want to be the catalyst for other groups.”
Boosting money skills is a mammoth task. For one week this fall, let’s hope to see many organizations show their commitment to get the job done.
Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca.

Canada's economy creating more full-time, and better paying jobs

2011-05-10T09:03:00.000-04:00

By Julian Beltrame, The Canadian Press

OTTAWA - The Canadian economy is not only creating more jobs, it's creating better jobs according to one of the country's major banks.

CIBC's latest employment quality index shows that 60 per cent of new jobs created over the past year would qualify as high-paying, quality jobs.

The bank says there's been an increase in full-time and paid employment, as opposed to self-employment, over the past 12 months — helping push the employment quality index up 2.7 per cent.

The sharp improvement has come about because many of the 283,000 jobs created in the past year have been in relatively high-paying sectors, including manufacturing, finance, construction and the public service.

Previously, the new jobs created since the end of the recession in the summer of 2009 have tended to be part-time and in lower-paying service industries.

"This (quality) measure is roughly back to the pre-recession levels," said economist Benjamin Tal. "This is a much better performance than a similar measure in the U.S., where the quality of employment index continues to soften despite some improvement in the pace of job creation."

Canada's employment record since the end of the recession has been among the strongest in the industrialized world with over 500,000 new jobs added since July 2009. That's about 80,000 more than was lost during the 2008-2009 recession.

By contrast, the United States remains about six million jobs shy of its pre-crisis levels.

But despite the full rebound in the jobs market, the complaint had been that many of those new jobs were not of the same quality as the jobs that vanished. Some economists derided them as service industry McJobs, or part-time, or "forced self-employment" by those who create their own form of employment — usually lower paying — because they can't find regular work.

Over the past 12 months, that trend has started to reverse. Almost all the new jobs have been in paid employment, not self-employment.

As well, growth in full-time jobs has outnumbered part-time by more than two-to-one, and well-paying jobs in manufacturing, construction, the financial sector and government have outnumbered low-paying jobs three-to-one.

The question is whether the new and better composition of job creation will continue. There is some evidence it might not, says Tal, noting of the 58,000 new jobs added last month, two-thirds were part-time.

"It's clear that governments will not be hiring in the future and the housing market will not be as strong," undercutting two of the sectors that have been producing high quality jobs, Tal explained.

However, the export sector, which tends to generate higher-paying jobs, is expected to be a leading engine of growth going forward and may be sufficiently robust to take up the slack.

The improvement in the quality of jobs has been good for the economy, the report states, since higher pay puts more money in the pockets of homeowners to spend on consumer goods.

"The impact of job creation on income growth and thus spending is currently more notable than it was in early 2010," Tal said, which will put pressure on the Bank of Canada to hike interest rates in the second half of the year.

Canada's economy also got a thumbs up Monday from the Organization for Economic Co-operation and Development, which forecast Canada would continue to be at the forefront of the global economic recovery.

In its May report on composite leading indicators, the OECD put Canada alongside China as countries with a "regained momentum in economic activity."

Economies in the U.S., Germany and Russia are improving. Overall, the international think-tank says most European countries will experience a slower or stable expansion. Some, like Italy, Brazil and India are pointing to slower growth relative to their trends.

Rent or buy? Do the math

2011-05-03T09:37:00.000-04:00

William Hanley, Financial Post

A young couple who have been renting in our modest Toronto condo building recently bought a home a couple of miles away in a nice old neighbourhood with the aim of starting a family. The house is a big, detached fixer-upper and the renovation costs will be extensive.

In moving up to the rungs on the property ownership ladder, our young friends are committing themselves to a quantum leap in monthly expenses: They came up with a substantial down payment; they are taking on a mortgage payment, property tax bill and other expenses almost twice as large as their $1,600 rent; and they are spending a large amount on the renovation and other costs associated with buying a house.

It is a story that has unfolded millions of times in Canadian history and one that will continue to unfold because home ownership is deeply ingrained in our culture, a cornerstone of getting established and getting on our way in life. People will make great sacrifices and otherwise twist themselves out of financial and emotional shape to buy into the dream.

They willingly become what we used to call “house-poor,” paying well over the one-third of household income that many professionals believe should be the threshold.

Over the past decade, owning has been a financial success for most people, with prices rising almost in a straight line, with low, low interest rates feeding into the equation and with homeowners’ equity subsequently bounding higher.

And yet, if it has been just about as good as it gets for so long, perhaps conditions are going to deteriorate at least somewhat, with prices likely to stabilize or retreat a little and with interest rates set to rise modestly at least.

Our friends and other buyers this spring will know that Canadian house price gains have been flattening out. The Teranet-National Bank House Price Index for February published this week showed house prices gained just 0.1% from January for a 12-month gain of 3.8%. It was the eighth consecutive month of deteriorating gains.

While the forecast of a 25% drop in house prices over the next few years by one widely quoted economist seems far-fetched under present circumstances, a pattern of smaller gains likely signals a flat to slightly lower market.

So, is it time to revisit buying versus renting? For most of the 30% of Canadians who rent their accommodation it’s simply not an option. Getting their hands on a significant down payment and having the flexibility to meet higher payments if rates rise is difficult at best.

But some people with the wherewithal to buy a property might want to keep renting, keep saving and investing, and keep their options open. Other long-time owners might even want to consider selling and renting, thereby locking in their tax-free gains.

If you wish to see how the math works, visit United Mortgage Group’s Rent vs. Buy Calculator website. Even your technodunce reporter could plug in some numbers and come away with worthwhile conclusions.

A two-bedroom condo in our building might sell for $400,000. Let’s say you have a $100,000 down payment, a mortgage rate of 4.5% over five years, a $672 monthly condo fee, $200 a month in property taxes and other expenses of, say, $100 month.

Let’s also say that a two-bedroom might rent for $1,600 a month in the building, other costs might total $100 a month and the rent might rise 2% a year over five years.

All other things considered, the purchased condo would have to appreciate 2.33% a year, selling at $441,571 to match the gain made by renting a similar property in the building and investing the difference in outgoings at a conservative 2.5% a year.

The other way around, an owner could sell for $400,000 — with net proceeds of about $375,000 — and rent for $1,600 a month. The $375,000 could pay a conservative net return of, say, $10,000 a year. That $1,600 a month plus $100 in expenses would add up to $20,400 a year.

But deduct the net investment return of $10,000 a year and the condo fees of $672 a month, property tax of $200 and other expenses of $100 (for $11,664 a year), and the monthly rent for the former owner is basically paid. Or the former owner could invest the $10,000 a year and still end up paying only about $728 a month more than he was when he was owning.

Of course, this is just the rough math, which doesn’t take into account other factors, such as pride of ownership, the sense of place and the strong probability of building equity.

But geez. If I could live in the building basically for what I’m paying now in fees, taxes and insurance (by deploying my $10,000 a year investing return), and have my $375,000 to “invest” in winters in Waikiki and nice overnighters in Niagara-on-the-Lake, well then ….

It’s a thought, but only that. They’ll probably carry me out of here feet first from our condo, the equity in which may one day be needed to help us out in one of the emergency situations that can arise in older age.

Meantime, it wouldn’t hurt for everyone to do some math and determine what’s best financially for them — renting versus buying. And then, of course, throw the math out the window and succumb to the emotional tug of home and hearth.

Canadian consumers expected to remain cautious as interest rates set to rise

2011-04-26T10:11:00.000-04:00

By LuAnn LaSalle, The Canadian Press

Higher food and gasoline prices and hefty debt loads likely to be made worse by interest rate hikes will impact consumers' buying habits going forward, say those who track retail spending.
It's going to be tough for consumers who have depended on a low interest rate environment, said TD Bank economist Francis Fong, adding that rates are expected to go up this summer.
"The rising interest rate environment, this high household indebtedness situation — that's all going to impede the ability of consumers to spend going forward," Fong said Thursday from Toronto.
Statistics Canada said retail sales increased 0.4 per cent in February to $37.3 billion, giving retailers some relief after declining sales at the start of the year.
Consumers filling their tanks with higher-priced gas, along with those buying furniture and clothing, pushed sales higher in February.
But Fong said consumer spending will no longer be the same driving force going forward as it has been throughout the economic recovery.
The Retail Council of Canada said consumers are "still hanging back a little bit," especially now that they have to spend more of their incomes on food and gas.
"Clearly, if they're going to have spend a little bit more on basic necessities, they may pull back a little bit on the nice-to-haves, but not on the need-to-haves," said spokeswoman Anne Kothawala.
Consumer confidence is soft and that mirrors spending, she added.
"Gas and food prices are actually very closely related. It costs more to transport goods," Kothawala said.
Statistics Canada said the largest contributor to February's increase in retail purchases in dollar terms was gasoline sales, which increased 1.3 per cent.
Gasoline prices have been surging along with crude oil, which began rising sharply in February with the outbreak of unrest in Libya, an OPEC member that accounted for about two per cent of the world's crude output before civil war there.
As of Thursday, the Canadian average price compiled by GasBuddy.com was 129.6 cents per litre, up from about 118 cents per litre at the end of February.
But lower retail sales in Quebec — a 0.8 per cent decline — contributed the most towards the dampening of national retail sales, Statistics Canada said.
"The decline reflected, in part, lower sales of new motor vehicles in the province," the federal agency said. "This was the second decline in retail sales in Quebec following six consecutive monthly gains."
Quebec also increased its provincial sales tax to 8.5 per cent in January, up a percentage point.
Sales at clothing and clothing accessories stores were up 2.5 per cent, offsetting a decline in January. Sales at furniture and home furnishings stores grew 2.1 per cent in February, helped by gains in real estate sales.
Prof. Ken Wong of Queen's University business school said once consumers pay down debt and spend more money on food and gas, there isn't much left for anything else.
"You have to ask yourself what can be delayed and what can't be delayed," Wong said of consumer purchases.
"We cannot rely on interest rates remaining as low as they are as long as they have been going forward," said Wong, who teaches business and marketing strategy.
Geographically, retail sales in February gained in six of 10 provinces, powered by Ontario where sales increased 0.7 per cent after two consecutive monthly declines.

Interest rate hikes are coming - and soon

2011-04-18T09:24:00.001-04:00

STEPHEN GORDON - The Globe and Mail

This is the passage in the Bank of Canada’s Monetary Policy Report that attracted most of my attention yesterday:
“On an average annual basis, real GDP is projected to grow by 2.9 per cent in 2011 and 2.6 per cent in 2012, while growth in 2013 is expected to equal that of potential output (2.1 per cent), with the economy operating at full capacity. This growth profile implies a slightly higher level of activity across the medium-term projection horizon, with the Bank now expecting the economy to return to full capacity around the middle of 2012, two quarters earlier than had been projected in the January Report.”
My post on the March 1 interest rate decision noted that the ‘output gap’ -- the difference between actual output and potential output -- plays a key role in how the Bank conducts policy. When output is below potential, interest rates are kept low to make sure that inflation does not fall below its 2 per cent target. When output is at potential -- that is, at the level where there are no pressures on inflation in either direction -- the Bank sets interest rates at a ‘neutral’ rate, which is widely believed to be between 3 and 4 per cent. In March, it was estimated that the closing of the gap was roughly 22 months away, at the end of 2012.
Six weeks later, the news that the gap is now expected to close in mid-2012 shortens the horizon to 14 months or so. If the Bank continues its custom of increasing rates in increments of 25 basis points, then going from the current level of 1 per cent to 3 per cent would require 8 increases in the next 10 interest rate decisions.
There are many reports that financial markets are expecting the Bank of Canada to wait until July 19 before increasing interest rates. It’s not clear to me why it would or should wait until then. In the opinion of the economists on the CD Howe Institute’s Monetary Policy Council -- which called for in interest rate increase in January, March and again in April -- the Bank has already waited long enough.
It is likely that the Bank’s reluctance to increase rates this time was in large part based on a desire to keep a low profile during the election. But after the election, financial markets should be preparing for a sustained round of interest hikes, and for it to start before July.
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Don't be fooled by pause in rate hikes

2011-04-15T09:21:00.000-04:00

BRIAN MILNER - The Globe and Mail

Central bankers everywhere are busy weighing the potential impact of various shocks, currency swings and inflation spikes on their economies. And most have decided it would be prudent to wait a bit longer before ratcheting up interest rates and potentially undermining fragile recoveries.
None of the decisions comes as a surprise. Nor does the tone of the central bankers' comments, which signal that further monetary tightening lies ahead. That’s true whether we’re talking about high-growth markets in Asia, modestly expanding ones in North America or contracting economies in Britain and the battered peripheral countries of the euro zone. Austerity and a “return to normal,” whatever that means, have become the policy makers’ watchwords everywhere.
Three Asian central banks joined Britain, Canada, Australia and others on the wait-and-see list Tuesday. South Korea, which has already boosted rates twice since the beginning of the year to rein in rising consumer prices, kept its benchmark base rate at 3 per cent. Indonesia, which hiked rates by a modest 25 basis points in February, also held the line at 6.75 per cent. And the Central Bank of Sri Lanka left its key rate unchanged at 7 per cent. But it tightened policy for the first time since the Great Financial Crisis by boosting banks’ reserve requirement ratio.
Bank Indonesia governor Nasution made the policy direction crystal clear, noting that the rate decision “doesn't change Bank Indonesia’s tightening bias.”
The upshot will be a string of rate hikes later this year, especially once the fallout from the Japanese supply-chain disruptions dissipates.

Tougher downpayment rules best way to cut mortgage risks

2011-04-08T09:11:00.000-04:00

TED RECHTSHAFFEN - The Globe and Mail

Over the past couple of years, there has been a great deal of discussion and policy change aimed at protecting us from ourselves when it comes to debt.
There is one obvious idea that would meaningfully do the trick, but we seem afraid to implement it.
That would be to raise down payment minimums on a home from 5 per cent to 10 per cent.
From a taxpayer’s perspective, the big risk is the government-backed Canada Mortgage and Housing Corporation (CMHC). Many people think that banks would be at risk, but the first line of defence would be CMHC.
Today, if you are buying a home and you put in a down payment of less than 20 per cent, you will have to pay CMHC insurance. This insurance helps to pay for CMHC, and takes the risk off the lender (bank or mortgage company) in case of default. The default risk on this mortgage is held by CMHC.
In fact, this is one of the risk problems. Most banks would rather offer a mortgage with only 5 per cent down payment than 25 per cent down payment. The reason is that the bank in insured for the 5-per-cent down payment mortgage, but not for the 25 per cent down payment mortgage. This is just one of the ways that we encourage those who can least afford it to take on home ownership.
As a result, the key risk for taxpayers is that those with only 5 per cent to 20 per cent down payment might default on their mortgages. If this group bought houses, and the average price went down 10 per cent, then this group will now have negative equity in their homes. As we have seen frequently in the United States, when there is negative equity in homes, the losses pile up for the homeowner and the lender alike.
Rather than worrying about moving amortization rates from 35 years to 30 years, or only allowing refinancing to 85-per-cent debt levels, let’s get to the heart of the matter.
If the minimum down payment backed by CMHC is raised to 10 per cent, then home prices would have to drop more than 10 per cent before people faced negative equity. The total number of these high-debt mortgages would decline, and the entire market would have a much greater cushion.
When you think about it, why should someone who can only afford 5 per cent of a house be supported by the taxpayer in their home purchase? A large percentage of these home buyers are not yet in a financial position to become a home owner. Why should we encourage and support people taking on debt levels many times greater than their annual income?
There are only three answers I can think of for not making this change:
1) The notion of encouraging first-time home buyers is seen as noble, positive and patriotic. It encourages the Canadian Dream.
2) The economic fallout from losing a portion of first-time home buyers would be significant. Mortgage brokers, real estate agents, real estate lawyers, contractors, banks, home reno stores and builders would all suffer financially.
3) If some of the housing demand disappears from the first-time home buyer, all real estate prices could face some downside – at least temporarily.
My view is we should take our medicine now so we don’t all get sick.
There is no question that there will be some short-term pain if the 5-per-cent equity limit is moved up to 10 per cent, but think about what it would do to shore up the real risks that we all face in Canada.
A significant number of home buyers who are on the borderline of being able to afford a house might be saved from a financial disaster.
The CMHC would be put in a significantly lower risk position than it is in today. All we have to do is look at Fannie Mae and Freddie Mac in the United States to see what could happen if CMHC is left holding thousands of properties valued below their debt level.
We would significantly lower the risk of having many homeowners desperate to sell homes, and creating a plummeting housing market. This change would provide greater long-term stability for all home owners.
It is about time that Jim Flaherty makes the one tough decision on mortgages that will put Canada on a much stronger financial footing to withstand higher interest rates and declining housing prices.

No simple answers for new buyers

2011-04-07T11:52:00.000-04:00

Paul Barker, Postmedia News

Do you lock in or go variable? With mortgage rates tantalizingly low it is easy to see why so many people prefer the latter, but that could change if the rates start to rise.
Maria Dominelli, a mortgage specialist with independent mortgage brokerage firm Invis in Victoria, B.C., says deciding which route to choose depends on an individual or couple's short-and long-term goals, the amount of debt being carried and their overall tolerance to risk.
"I always ask clients whether they can afford to ride the wave, because there will be waves," she says. "If you cannot afford an extra couple of hundred dollars a month if rates rise, it is not for you."
Contrary to what many might think, there is not a downside to locking in, says Laura Parsons, a mortgage expert with BMO Financial Group in Calgary.
"Do your homework and if you do lock in, do not look back," she says. "It depends on the person and what they can tolerate. Some people can't sleep at night because they're worried about what the rates are going to do. In that case, of course, a variable rate would not be suitable. You may want to just know what your mortgage rate is going to be for the next five years."
Karen Blomquist, a mortgage associate with Invis affiliate Mortgage Intelligence based in Calgary, conducts a needs analysis with her clients to "find out a little more about who they are.
"If they can't sleep at night, what's the point?" she asks. "[But] if someone has enough money and enough savings and risk, why wouldn't you go variable? But if you are a little tight, you have a fear of fixed changing and you like to look at the long term, then I would say absolutely, lock in."
For anyone who is undecided, BMO offers a service called Online MortgageMate, which involves answering six questions in order to "pick the mortgage that fits."
"This slows someone down and helps them work through the thought process and making that decision," Ms. Parsons says.
"After they answer the questions online it will automatically tell them that they should be in a fixed or a variable, based on the information they provide. You should be setting your payments higher in order to avoid payment shock. It is the payment shock that most people have a problem with. At least have an emergency fund that you can draw on and lump sum your mortgage in order to reduce your payments as well."
Ms. Dominelli says that mortgage professionals have a responsibility to make sure that consumers really understand what they are getting into.
"Not all fixed rates are equal in terms of the product and not all variables are equal," she says.
"As an example, bi-weekly does nothing for you. It gives the lender your money more often. Accelerated is when you have 26 payments. You may think you have an accelerated payment, but in reality you don't. You have to really make sure you are signing the right document."
For the purpose of this story, she calculated the difference between a $250,000 mortgage, amortized over 25 years at a five-year fixed rate of 3.69%, and a variable mortgage at prime minus 0.80%. In each case, the monthly payments were $1,273.38.
"Assuming the current prime rate of three per cent steadily increases to five per cent by the end of the term at the end the five-year period, the principal balance in the fixed term (assuming no extra payments) would be $216,444 versus $208,027 in the variable rate mortgage," Ms. Dominelli says.
"That's what makes a variable mortgage attractive, when you work out the numbers and show people the potential. However, I say that with caution because I would never show that to a highratio borrower. The reality is that this is what has happened as of late: you have had the lowest interest rate on the variable and the fixed, but going forward I don't know if we can count on history repeating itself."
Ms. Parsons says people are really paying attention to interest costs, and so they should. "As an example, taking five years off the amortization of a $300,000 mortgage can save you $53,000," she says. "It's huge.
"There is nothing wrong with requesting an amortization schedule when you get your mortgage so you know where you're at in the first five years, 10, 15 and so on. Paying weekly, rather than monthly is a great way to battle that interest cost and also, get used to having a higher payment."

Canada's big banks raising residential mortgage rates ahead of busy period

2011-04-05T09:36:00.000-04:00

By The Canadian Press

TORONTO - Several of Canada's big banks are raising most of their fixed-term mortgage rates ahead of the busy spring real estate market.
TD Canada Trust (TSX:TD) TD said the biggest increases will be for mortgages with terms of five to 10 years, which will all go up by 0.35 percentage points starting Tuesday.
The move was matched by CIBC (TSX:CM).
The Royal Bank (TSX:RY) raised its rates on mortgages for five and 10-year terms by 0.35 percentage points and its seven-year rate by 0.15 percentage points. The posted rate for five-year closed mortgages — one of the most popular types of loans for Canadian home owners — will rise to 5.69 per cent.
Scotiabank (TSX:BNS) raised its posted rate for a five-year closed mortgage by 0.4 percentage points to bring it to 5.69 per cent.
Fixed mortgage rates, which are closely tied to the bond market, tend to climb when traders shift investment activity to riskier equity assets from bonds, which are considered safer.

Mortgage literacy crucial for first-time buyers

2011-04-01T11:10:00.000-04:00

Vito Cupoli, Postmedia News

Two years ago, when Michelle Gompf and Jesse Bagelman started thinking about buying a house, they assumed it would be impossible to qualify for a mortgage because of some heavy debt and Mr. Bagelman's status as a self-employed stone mason.
Rather than give up, Ms. Gompf -now Gompf Bagelman -launched a campaign. "I made up some little posters with a target date called Operation Jesse & Michelle Buy a House. I put them up where we couldn't miss them -on our fridge, on the bedroom dresser, our laundry, office. I had them everywhere. I just wanted a house to be top of mind. We're going to figure it out."
A friend in real estate suggested she speak with a mortgage broker to see how close she was to qualifying for a first-time mortgage. "The broker really worked his magic, and next thing you know we were approved with a monthly payment that was less than the rent we were paying for our basement apartment," she says.
She knew very little about the mortgage process initially, which is typical for first-time buyers, says mortgage broker Sandra Grywul.
"For the most part, the first-time homebuyer doesn't know anything about financing a home," says Ms. Grywul, owner of Always A Mortgage in Toronto.
"It's funny, because buyers are thinking so much about what neighbourhood they want to live in, how many bedrooms, bathrooms, square footage. But they're not thinking about what kind of mortgage they want to enter into."
And buyers shopping for a mortgage have a lot of choices to sift through. Fixed term or open? Variable or fixed rate? Should they use their RRSPs for a down payment?
But Ms. Grywul says those decisions should be made after the buyers have tackled the most important element, which is to understand how much mortgage they can actually afford.
"The bank will look at your credit report but it won't know if you like to spend $300 for a haircut or eat in an expensive restaurant each night.
"New homeowners go in, they get the mortgage that the bank says they can qualify for, and after two or three months into the house they're calling around to see if they can do a consolidation or a refinance.
"The joy of their home has completely dissipated because they didn't take into account all their monthly expenses when figuring out how much they could afford per month on their mortgage.
"I see this all the time. So as part of getting pre-approved for a mortgage, buyers need to be very honest with themselves about how much money they need to live happily," Ms. Grywul says.
Toronto real estate agent Cameron Weir of Royal LePage, Johnston and Daniel has worked with a number of first-time home buyers.
He says it's exciting to watch people go from being renters to owners. He says mortgage pre-approval is vital because it allows the buyer to be nimble in an active market.
"A lot of times today we find that there's more than one offer in on a property. And if you don't have everything set with a pre-approval, when your perfect property comes up you can't close the deal without arranging financing first," Mr. Weir says.
"While you're working that out, a competitor who has already done his homework might make a firm offer at the same price and unfortunately you'll probably lose that property."
Mr. Weir describes the first-time buyer as "very excited, very nervous, lots of questions. It's the biggest purchase they're going to make, after all. But along with that, they're also pretty cautious."
Ms. Gompf Bagelman's fear of high lawyer fees made her cautious. She was also concerned about having a stable and predictable monthly mortgage payment, so she chose a five-year mortgage and a fixed interest rate on the house she and her husband took possession of in February.
"With a variable rate I worried that I don't have a lot of experience with these interest rates and anything could happen," Ms. Gompf Bagelman says. "But the five-year term gives me security right now. So I have the current safety net and hope for something better when the five years are up."
She also wondered if the recent mortgage crisis in the United States would complicate her home financing. And while that financial mess did foster changes in some Canadian mortgage regulations that take effect in April, Ms. Grywul says they don't have any impact on the first-time buyer.
Instead, they focus on the refinancing business and on those who purchase second homes or investment property.
In considering all the details and requirements of financing a home, Mr. Weir says, "the most important thing is to find the right place, at the right price at the right time."

Experts best at brokering mortgage

2011-03-31T10:24:00.000-04:00

Denise Deveau, Postmedia News · Mar. 30, 2011

Cheryl Hutton and Aaron Coates always thought getting a mortgage would be a challenge. But within 18 days of visiting a mortgage broker, they were able to close a deal on a new townhouse in Calgary without a hitch.
Now in their early thirties, both have careers in the theatre, something Ms. Hutton says has been a bit of a sticking point with banks. "In our industry we never fit the paperwork guidelines 'for the banks.' For some reason, people don't think we pay our bills."
Although it was their first home purchase, Ms. Hutton says it was surprising how easy the whole process was once they had someone who could walk them through it. "He sat us down, told us what our options were, showed us that it was possible and explained all the steps we needed to take. If it wasn't for him, we may not have made the leap."
Sorting through a mortgage process and negotiating rates can be overwhelming for first-time and seasoned home buyers alike. That's why people such as Ms. Hutton and Mr. Coates turn to brokers to do the legwork for them.
Yet mortgage brokers will tell you that a good portion of home buyers out there don't really understand what they do. "Part of the challenge we have in our world is that people aren't really sure what a mortgage broker is," says Gary Siegle, regional manager for Invis Inc., a mortgage brokerage firm in Calgary.
Brokers should not be confused with "rovers," mortgage specialists attached to a specific financial institution who visit customers outside of banking hours, Mr. Siegle explains.
"They only deal with that bank's product. A broker, however, is an intermediary whose job is to make a match between a lender and a borrower. We represent the individual, not the bank."
About 30% of mortgages in Canada are done through a broker, according to Perry Quinton, vice-president, marketing, for Investor Education Fund, a Toronto-based non-profit financial information service.
"The reason more people don't know about them is because the banks are so visible. It's easy to gravitate to them when you have your savings accounts, credit cards and investments there already," Ms. Quinton says.
Going for the comfort factor could cost you however, she adds. "A broker has access to different lenders including banks, and can shop rates and features. A half per-cent may not sound like much but that could make a difference of about $20,000 for a $250,000 mortgage amortized over 25 years. Any little bit helps."
Mr. Siegle confirms that shopping around can deliver significant savings.
"Let's take today's average posted rate of 5.44%, and you get a point off that at your bank. So you think you just got a really great deal. But the vast majority of rates we deal with as brokers would be another 30 basis points lower -around 4.14%. And if you look at preferred deals that don't offer features such as prepayment privileges, it can get as low as 3.89%. That's another 25 basis points below what's generally available."
The reason for that is simple, he says. "We offer wholesale rates, banks offer retail."
For anyone considering a broker, Ms. Quinton advises people to do a bit of groundwork first if they have the time.
"It helps to educate yourself about options and what you can afford. Look at all your living expenses, including student loans and credit card debt. Chances are you are understating those."
Another thing to look into is the different types of available mortgages and features, including interest rates, payment frequency, amortization, cash-back programs and the ability to make lump sum payments.
"Knowing these things before you go in can save you a lot of money," she adds.
Any mortgage broker you choose should always meet the right licensing and education requirements, so be sure to check their registration.
If you're not completely prepared, however, that shouldn't be a concern when working with a good mortgage broker, Mr. Siegle says.
"After all, mortgages are pretty much all we do. So even if you come in cold, good brokers will walk you through the process and ask all sorts of questions," Mr. Siegle notes.
"You just need to be prepared to answer them openly and honestly so they can get you the best deal possible."

Post-crisis, bank risk on rise again

2011-03-29T09:02:00.000-04:00

Barbara Shecter, Financial Post

A term as emblematic of the heady pre-financial crisis days as “covenant-light” is not something one expects to hear these days from a high-ranking official at Canada’s top financial watchdog.
But that’s exactly the term used on Sunday by Ted Price, assistant superintendent at the Office of the Superintendent of Financial Institutions, to justify a push for more action by regulators even as a recovery appears in flight.
Covenant-light, which refers to lending with few strings attached and therefore more risk, is one that has been mumbled darkly in recent private gatherings of business heavyweights. In these circumstances, executives will acknowledge that less than three years after the worst financial meltdown since the Great Depression, risk has been repriced yet again — and back to the levels before the crisis set in.
In some cases, they say, the strategy is being employed to push off the inevitable — a non-payment of debt — while ensuring that minimum monthly payments continue to trickle in for as long as possible.
Peter Nerby, a senior vice-president at Moody’s who is responsible for the ratings of Canadian financial institutions, said he is worried about the apparent relaxation of loan agreements and the appearance of increased risk-taking at some North American financial institutions.
“It absolutely is making a comeback,” said Mr. Nerby, who is based in New York, adding it is “appropriate” for the regulator to draw attention to such behaviour.
While Mr. Nerby said it would be an “extreme case” where covenants are so light that a default is virtually impossible to be triggered, even anecdotes of such cases are a chilling reminder of an infamous pre-crisis statement by Citigroup chief executive Chuck Prince. In 2007, just before the liquidity dried up and forced markets around the world into turmoil, Mr. Price said his job as head of one of the world’s biggest financial institutions was to continue to dance as long as the music continued to play.
In a speech delivered Sunday at the Latin America Economic Forum in Calgary, OSFI’s Mr. Price likened the phenomenon of increasing competition, diminishing returns and increased risk appetite to a replay of a bad movie. And he urged more regulatory intervention because, he said, the unhappy ending will not miraculously change without some purposeful editing.
The repeating cycle has brought back other pre-crisis instruments such as structured derivatives, this time based on volatile commodities, he said.
“If we want a better outcome, supervisors and business leaders had better do something different this time around,” Mr. Price warned.
He did not restrict his warnings to the behaviour of bankers and their regulatory supervisors. Indeed, his comments extended into the boardrooms of financial institutions.
“Boards need to ensure that effective risk management is truly part of their business culture,” Mr. Price said. “Businesses that take the lead in improving their risk management systems will be better prepared for the next phase in the cycle, when those around them are acting out of fear.”
OSFI officials on Monday declined to elaborate on Mr. Price’s comments.
Banking analysts said it is difficult to envision what specific regulatory interventions could be put in place to control the behaviour Mr. Price highlights.
“As Mr. Price suggests, the vicissitudes of risk appetite are very difficult to contain - being tied, as they are, to human nature,” said Peter Routledge, who tracks Canada’s banks at National Bank Financial. Among the challenges for regulators, he said, will be to pinpoint the primary sources of the increased risk appetite.
“Given the much intensified scrutiny of, and restrictions on, regulated financial institutions, one might be more likely to find excessive risk appetites outside of regulated financial institutions,” Mr. Routledge said. “That is not to say regulators should decrease their scrutiny of the regulated sector, but that they may have to increase their scrutiny of sectors or players not presently under the regulatory umbrella.”

Higher prices, interest rates just around the corner

2011-03-28T10:31:00.000-04:00

PATRICIA CROFT

Patti Croft is recently retired as chief economist, RBC Global Asset Management, with 30 years of experience on Bay Street working as an economist and global asset allocation strategist.
I suspect many Canadians reacted with disbelief to last week’s inflation report for the month of February, which showed that our core or underlying rate of inflation fell to a record low of just 0.9 per cent, the lowest since record keeping began in 1985. In addition, the overall rate of inflation dipped slightly to 2.2 per cent.
When filling up the car or going to the grocery store, it’s hard to believe inflation in Canada is that benign.
Indeed, Canada is totally out of step with emerging market economies such as China, India and Brazil, all struggling to rein in soaring inflation largely related to food prices. China has stated that curbing inflation is its top priority in 2011.
Globally, food prices have come under significant pressure over the past year. The United Nation’s food price index is up 40 per cent since June, 2010 ,and stands at a record high (the index started in 1990). Food price inflation is a major issue for emerging market economies where a significant proportion of the cost of living is attributable to the cost of food – in China and India, the weight of food in the basket of consumer goods and services that is used to calculate the level of inflation is 35 per cent or higher.
In contrast in Canada, the weight of food in the CPI is 17 per cent - no small potatoes. In February, food prices in Canada climbed just 2.1 per cent from year-ago levels, despite droughts in China and floods in Australia and instances of global hoarding.
So far Canada has been insulated from rising food prices by strong competition and the strength of the Canadian dollar. But with a lag, food price inflation is coming to Canada as well. Recently, George Weston announced a 5 per cent hike in prices, effective April 1, and Starbucks instituted a 12 per cent increase in packaged coffee. Retailers are beginning to feel the pressure of higher prices and are passing this along to consumers.
The lag between soaring oil prices and the impact at the gas pump or the airport appears to be shorter. Canadians are already feeling the pinch of soaring gas prices and transportation costs are rising as higher energy costs are passed along. Indeed, in February, Canadian energy prices rose almost 11 per cent year over year with gas prices up almost 16 per cent.
The outlook for inflation is critically linked to the outlook for interest rates. Two-year bond yields give an idea of where the market thinks interest rates are headed. Two year government of Canada bond yields have tumbled from 1.9 per cent in February to just 1.6 per cent last week. The market is currently pricing in just 35 basis points of tightening from the Bank of Canada by the end of this year, with no change in rates until October.
The drop in the core rate of inflation in February was more a reflection of the drop from the index of the spike in Olympic related hotel costs from a year ago (to be reversed in March) rather than the lack of inflationary pressures in Canada. While we will remain out of step with emerging markets regarding the immediacy of the need to strongly deal with inflation, Canadians should brace themselves for both a rise in inflation and an increase in interest rates well before October – a summer rate hike seems far more likely.

Lower inflation in February likely to keep interest rates low

2011-03-24T10:34:00.000-04:00

Canada’s annual inflation rate fell slightly in February, giving the Bank of Canada room to keep interest rates low over the next few months, economists say.

Statistics Canada said Friday its consumer price index edged down one-tenth of a point to 2.2 per cent in February, with rising energy and gas prices keeping inflation just above the Bank of Canada’s ideal two per cent target.
The core inflation rate, which excludes volatile items such as gas and food, fell to 0.9 per cent — its lowest level since the government started keeping records in 1984. Economists had predicted an annual core rate of 1.1 per cent and annual inflation to remain at the January level of 2.3 per cent.
It all means the country’s central bank might take its time when it comes to raising interest rates, said CIBC World Markets economist Emanuella Enenajor.
“These (inflation) numbers certainly make it less likely that a May rate hike could happen, we do have to admit,” she said.
“Such a soft core number suggests there’s less pressure for the Bank of Canada to really start hiking rates aggressively so it gives it a little more leeway.”
She said CIBC is for now sticking with its prediction that Canadians will see rates go above the current one per cent in May and that they will end up at two per cent by the end of the year.
Canada’s economic growth surpassed expectations in the last half of 2010 and the Bank of Canada may want to get ahead of any resulting spike in prices by raising interest rates and cooling lending conditions, she said.
Doug Porter, deputy chief economist at BMO Capital Markets said he believes the central bank is likely to stick with lower rates for the short term.
“Both headline and core inflation have eased since the start of the year, at least partly thanks to the lofty loonie,” he wrote in a note to investors, pointing out that Canada’s core inflation rate is lower than that of the U.S. and rest of the world.
“This is set to reverse next month, as Canada gets with the global program, but the low starting point is very favourable. Suffice it to say that this keeps the pressure well off the Bank of Canada to get back in tightening mode any time soon.”
Enenajor said the March inflation rate will likely depend on oil price movement during the rest of the month.
“However, expect both the annual headline and core rate to move higher in March on a year-on-year basis,” she said.
Prices were higher in February in six of the eight major categories tracked by the agency, but items like women’s clothing, footwear and travel tours cost less than a year earlier.
On a month-to-month basis, consumer goods were 0.3 per cent more expensive last month than in January, mostly due to higher energy and gasoline prices. Canadians paid 10.6 per cent more for energy during the year leading up to February, after posting a nine per cent increase in January.
Gas prices soared 15.7 per cent last month, on top of the already recorded 13 per cent increase in the 12 months leading up to January.
On a regional basis, Nova Scotia remained the province with the highest inflation rate at 3.4 per cent. Many people in that province use oil and other fuel to heat their homes.
Alberta continued to enjoy the most stable prices, with an inflation rate of 1.2 per cent.
Drivers in every province except Manitoba faced double-digit price increases for gasoline on a year-over-year basis. The price at the pumps was up 15.7 per cent from a year earlier.

More banks lower fixed mortgage rates

2011-03-22T13:54:00.000-04:00

Two more of Canada’s big bank say they will lower some of their fixed rate mortgages as nervous investors move to bonds, causing a drop in long-term interest rates.

TD Bank (TSX: TD) and National Bank (TSX: NA) say their fixed five-year closed rates will drop 0.1 of a point to 5.34 per cent, effective Thursday.
The move follows similar announcements from Royal Bank of Canada (TSX: RY) and Bank of Montreal (TSX: BMO) Tuesday.
Four-year rates will fall 0.15 percentage points to 4.99 per cent at all four.
Seven-year rates will move 0.2 percentage points lower to 6.14 at TD, but will be unchanged at National, whose 10-year closed rate will fall 25 basis points to 6.4 per cent.
Fixed mortgage rates, which are closely tied to bond markets, tend to fall when traders shift investment activity from riskier equity assets toward bonds, which are considered safer.
Investors have been jittery over fears that a potential nuclear disaster in Japan could severely derail the global economic recovery.
In February, many of Canada’s big banks moved to raise their fixed mortgage rates as investors grew more confident about investing in equity markets and the global economy appeared stronger.
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Spending decisions: If only there was an app for that!

2011-03-21T09:24:00.000-04:00

ANGELA SELF

Dan Ariely is trying to develop an iPhone App to make spending decisions easier. The behavioural economics professor and author of Predictably Irrational says it’s hard to think about what we are giving up, or gaining, when making spending decisions, because money is so abstract. An App that simplifies the trade-offs would help us make decisions more in line with our likes and our goals.
Let’s say your goal is to go to Hawaii, get a new digital camera, and take scuba diving lessons. When tempted to spend on something else, the App informs you that the purchase you’re about to make is equal to one day on the beach and two scuba lessons. Would you think more about your purchase? I would.
Until the App arrives, however, we’ll need to adopt other strategies to help us determine our trade-offs when spending. My less-technical approach is using the “rather factor.” It’s an idea born from a girlfriend’s story of how she spent $100 on a birthday dinner for a friend of a friend. She sighed and said she’d rather have put that money toward a trip to Paris. We then jotted down the list of material and non-material items we’d rather spend our money on - our priorities - and have been referencing the list (for the most part) when making purchases.
The common story I hear when it comes to the rather factor is couples who say they don’t want a large wedding because they would rather put the money toward a down payment. Thinking about how the money we spend (or hold off on spending) affects the bigger picture helps us make concrete decisions. In a recent interview with BigThink.com, Mr. Ariely explains that we shouldn’t be focusing on seeing the money we spend in the context of similar purchases, but instead think about what the money means to us in the bigger picture.
For example, let’s say you’re redecorating and looking for a new couch, and you’re not sure how much you should be spending. Instead of setting a budget based on what’s out there, comparing couches and thinking that spending more means a better piece of furniture, think about the purchase in terms of all of the other things you could do with that money. That’s how you should determine your price point and whether the purchase is worth the money.
If we haven’t met all of our savings goals, we have to make choices and trade-offs, so thinking about what you could do with the money you’re spending extends to the smaller price points as well. If you were having lunch after furniture shopping and there was a difference between two entrees, $8 and $13, you likely wouldn’t consider all of the things you could do with the extra $5. But, if you’re being rational, according to Mr. Ariely, that’s exactly what we should do.
You should consider what you could buy with that $5, today and weeks from now, and decide to buy the more expensive entree only if the difference between the two entrees is more valuable than the other possibilities, which in this case would be your afternoon latte.
Of course, if we did this at every meal, we’d be annoying our dinner dates and ourselves. It’s time consuming and complicated to run all of the possible scenarios. Of course, if we had Mr. Ariely’s App we wouldn’t have to wonder.
Angela Self is one of the founders of the Smart Cookies money group.

Household debt continues to rise

2011-03-16T13:37:00.000-04:00

Canadian household debt continued to grow at a faster rate than assets in the fourth quarter of 2010, Statistics Canada reported Monday.

The average debt-to-personal disposable income ratio edged down to 146.8 per cent in quarter, but only because a 1.8 per cent gain in average personal disposable income outpaced a gain in credit market debt.
The ratio of household debt to assets remained high, by historical standards, and homeowner's equity, or market value minus debt, continued a three year slide, reaching the slowest level since 2001.
But the rate at which Canadians piled on debt slowed, with nonmortgage credit, such as credit cards, slowing the most, at 5.8 per cent from a year ago. That was its slowest growth rate since the mid-1990s.
Overall household liabilities grew by 6.5 per cent from the same period a year ago levels. That was its slowest annual growth rate since the fourth quarter of 2002.
The value of financial assets, including investments in stocks and bonds, grew by six per cent from the same period a year earlier. Real estate assets rose 6.2 per cent from a year ago levels.
Household net worth, or assets minus debt, grew by 2.2 per cent in the last three months of the year, following a three per cent rise in the previous quarter. Household net worth per capita increased from $178,200 in the third quarter to $181,700 in the fourth quarter.
A key measure of families' abilities to cope with their debt, the ratio of how much disposable income went towards paying just the interest on debt, was unchanged at 7.3 per cent in the quarter.
The rate of growth in net worth, after rebounding from the recession, has stayed in a range of between five and six per cent. That compares with a pace of between nine to 10 per cent in the five years leading up to the recession.
"The debt-service ratio remains muted only because interest rates are still ultra low," TD economist Diana Petramala warned in a commentary.
"Once interest rates start to rise over the latter half of 2011, the debt-service ratio is expected to climb substantially."
"As households are expected to continue to accumulate debt at a faster pace than asset and income growth, the key measure of indebtedness will continue to deteriorate," Petramala said.
"As such, the level of household debt is expected to act as a headwind on economic growth through the second half of 2011, and 2012, as rising interest rates encourage households to rein in their borrowing and increase savings."
The StatsCan report also showed the net debt of the federal, provincial and territorial governments increased by $19 billion in the fourth quarter and the ratio of net debt to gross domestic product stood at 45.1 per cent.
That continued an upward trend since the third quarter of 2008 when it stood at 35.4 per cent.
Measuring all debt — government, business and family — national net worth edged up 0.3 per cent to $6.3 trillion in the fourth quarter, the slowest quarterly growth of the year.
On a per capita basis, national net worth grew to $184,200 in the fourth quarter, up from $183,900 in the previous quarter.

Central bank may still hike rates before summer

2011-03-15T13:59:00.000-04:00

Andrew Pyle, Ontario,

The Bank of Canada has now kept its official interest unchanged at 1 per cent for the fourth meeting.
Those with floating-rate debts will no doubt be relieved; however, economists were looking for a signal from Mr. Carney and crew that improving economic conditions were paving the way for a return to rate hikes sometime soon.
Had this week's policy meeting taken place a few weeks ago, it's likely we would have received that signal. Indeed, most indicators have pointed to stronger-than-expected activity in Canada and the U.S., while emerging economies have maintained a torrid pace of growth.
That would have been before the recent developments in Egypt, Tunisia, Yemen and now Libya. The grassroots uprising against incumbent regimes might be welcome from a democratic ideal perspective, but it has created a rift in energy markets.
Crude awakening
After dipping briefly below $85/barrel in February, the price of crude oil has now broken above $100 for the first time since October 2008, testing $103.40 last week — the 61.8 per cent retracement mark from the July-December 2008 collapse.
A close above this level will increase the odds of a move to $120 (recall that $147.27 was the intraday high from July 2008). And if you thought the recent spike in pump prices was unnerving, gasoline futures have already crossed above the 61.8 per cent retracement level and are trading above three bucks (US) a gallon.
In July 2008, futures broke above $3.70/gallon. Even if prices simply hold near current levels, average pump prices in Canada could easily gravitate towards $1.30/litre. That's not good news for those planning to drive to their March break vacation spots, or for those returning snowbirds.
One might suspect the Bank of Canada would see the boost to inflation, that will come from commodities like oil and gasoline, as something that needs to be worked against through tighter monetary policy, but that's old school.
These commodities, like food (which is also seeing some inflation strain), are essentials and represent a significant share of our non-discretionary spending. Unless incomes rise by the same amount as the cost of these essentials, everything else being different, there will be less to spend on discretionary goods and services. In other words, real consumption growth in Canada could slow.
Not so fast
How much of a slowdown we experience in consumer spending (and let's throw in housing expenditures too), depends greatly on that above-mentioned phrase "all other things being equal."
If employment grows at a decent clip and wages go with it, then the affect on spending will be less pronounced. As of the end of 2010, average weekly earnings in Canada were up 4.5 per cent over the same period a year ago, which was the fourth-best growth rate in earnings since records started in the early 1990s.
To put this in perspective, when crude oil was climbing towards $150 back in the summer of 2008, weekly earnings growth was heading in the opposite direction.
There were other headwinds facing Canada back in 2008, including the cost of borrowing. When oil reached its peak, the 5-year conventional mortgage rate in Canada was above 7 per cent. Today, it sits near 5.5 per cent. The 1-year rate was also close to 7 per cent (yes, we had a very flat yield curve before the walls came tumbling in), compared to 3.5 per cent today.
Now, I'm not suggesting that we're going to stay in interest rate limbo forever, but the Canadian consumer is in better shape to handle higher pump prices today than back two years ago.
How long can they sit on the fence?
What the Bank of Canada has to be careful of here is the oil price shocks emanating from across the pond turn out to be temporary and there is no slowdown in consumption growth. Bank economists are already looking towards 2012 as the likely period where excess capacity in Canada's economy disappears and inflation returns to target (using the core inflation measure).
It is easy, however, to accelerate that trip back to zero excess and just as easy to push the economy into a situation of excess demand.
Coming back to the Bank's decision this week, it may have been surprising to see it lean against speculation of near-term tightening. But, it would be a mistake to assume the Bank can't and won't pull the trigger on rates before the summer.
There are two policy meetings left this half (April and May), so if Mr. Carney and crew wake up and realize there is too much potential inflation risk in leaving rates unchanged, they will need the April meeting to deliver the guidance towards a May rate hike — something economists thought was going to happen this week.
And if energy price shocks don't intensify and the Bank fails to deliver such guidance, don't be surprised if the bond market creates the guidance for them.

Tougher mortgage rules take effect Friday

2011-03-14T09:36:00.001-04:00

By Sunny Freeman, moneyville.ca, Sun Mar 13 2011

Stephanie Bilbija, a university student and single mom, will have to save for a few more years before she's a home owner, thanks to new mortgage rules that may force some Canadians to think twice about whether they're ready to jump into the market.

The new rules as of Friday will make the maximum payback period 30 years — resulting in somewhat higher regular payments than with the 35-year amortization that has been the choice of about 30 per cent of home buyers.
Bilbija, 25, says she wants to own a home with enough space for her daughter to play, but she also needs to have money for other expenses.
“I would rather have the option of having a longer time to pay, if it meant I could get a house and still have cash flow as a single parent,” says the York University student, who has a part-time job and part of a down payment saved.
Some first-time buyers like Bilbija will have to make sacrifices to achieve their dream of home ownership now that the option of a 35-year repayment period is being eliminated.
Bilbija says she'll save up more for a down payment and wait a few years to buy in an area just outside the pricey Greater Toronto Area.
The rule changes will increase the monthly payment on a $300,000 mortgage at four per cent interest by $105 — but will also reduce total interest paid by $42,288 over the life of a mortgage because it's repaid five years sooner.
Dropping the amortization to 30 years will cut buyers' maximum possible purchase price by six to seven per cent. That means someone who qualifies for a $300,000 mortgage could afford a home that's about $18,000 $21,000 less expensive.
“When you reduce amortization, it increases your mortgage payment for the same purchase price, so if you have people near the edge of affordability, forcing them into a shorter amortization means they won't qualify for as much house,” says Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.
“It means that you'll have to find a cheaper house or you'll have to move a little further out of the city.”
McLister says first-time owners should re-examine their monthly cash flow before deciding whether now is the time to enter the market.
“You don't want to get in a situation where you have no breathing room.”
Mortgage holders' total debt service ratio should be under 40 per cent of income and if they can't comfortably buy a house and keep their debt ratios under that number, it's probably wise to wait and save up more, he says.
McLister warns that the new rules won't necessarily keep everyone out of trouble, so first-time buyers should avoid the tendency to buy the most expensive house their mortgage allows.
He adds that renting could be a better option for potential first-time buyers in some of the most expensive markets because much of the initial mortgage payments end up paying for interest rather than debt reduction.
But if buyers are absolutely set on securing a 35-year amortization period, McLister advises them to see a mortgage planner immediately so a mortgage approval goes through before March 17.
Pre-approval won't do either; you have to have a firm purchase agreement, or the new rules will apply.
On a positive note, he adds that the new rules could save first-time buyers even more money because they put limits on some on those willing to max their mortgages out to secure a home and drive prices up in the process.
“If you start putting limits on those people now, those people at the edge, it's going to put pressure on prices,” he says.
“Home prices are driven by affordability, they're driven a lot by first time buyers and these limits will rein in some of those people.”
Vancouver-area real estate agent Richard Morrison, says “irrational exuberance” in advance of the changes has driven an increase in sales, but adds that usually clients asking for a 35-year plan are in the minority.
He welcomes the long-term effects of the changes, despite a potential short-term lull in business, but says they could help to further stabilize the market.
“If we had kept it with five per cent down and 35-year amortization, you're taking buyers from the future into the present and could have disastrous effects,” Morrison says.

Central bank may still hike rates before summer

2011-03-11T09:15:00.000-05:00

The Bank of Canada has now kept its official interest unchanged at 1 per cent for the fourth meeting.

Those with floating-rate debts will no doubt be relieved; however, economists were looking for a signal from Mr. Carney and crew that improving economic conditions were paving the way for a return to rate hikes sometime soon.
Had this week's policy meeting taken place a few weeks ago, it's likely we would have received that signal. Indeed, most indicators have pointed to stronger-than-expected activity in Canada and the U.S., while emerging economies have maintained a torrid pace of growth.
That would have been before the recent developments in Egypt, Tunisia, Yemen and now Libya. The grassroots uprising against incumbent regimes might be welcome from a democratic ideal perspective, but it has created a rift in energy markets.
Crude awakening
After dipping briefly below $85/barrel in February, the price of crude oil has now broken above $100 for the first time since October 2008, testing $103.40 last week — the 61.8 per cent retracement mark from the July-December 2008 collapse.
A close above this level will increase the odds of a move to $120 (recall that $147.27 was the intraday high from July 2008). And if you thought the recent spike in pump prices was unnerving, gasoline futures have already crossed above the 61.8 per cent retracement level and are trading above three bucks (US) a gallon.
In July 2008, futures broke above $3.70/gallon. Even if prices simply hold near current levels, average pump prices in Canada could easily gravitate towards $1.30/litre. That's not good news for those planning to drive to their March break vacation spots, or for those returning snowbirds.
One might suspect the Bank of Canada would see the boost to inflation, that will come from commodities like oil and gasoline, as something that needs to be worked against through tighter monetary policy, but that's old school.
These commodities, like food (which is also seeing some inflation strain), are essentials and represent a significant share of our non-discretionary spending. Unless incomes rise by the same amount as the cost of these essentials, everything else being different, there will be less to spend on discretionary goods and services. In other words, real consumption growth in Canada could slow.
Not so fast
How much of a slowdown we experience in consumer spending (and let's throw in housing expenditures too), depends greatly on that above-mentioned phrase "all other things being equal."
If employment grows at a decent clip and wages go with it, then the affect on spending will be less pronounced. As of the end of 2010, average weekly earnings in Canada were up 4.5 per cent over the same period a year ago, which was the fourth-best growth rate in earnings since records started in the early 1990s.
To put this in perspective, when crude oil was climbing towards $150 back in the summer of 2008, weekly earnings growth was heading in the opposite direction.
There were other headwinds facing Canada back in 2008, including the cost of borrowing. When oil reached its peak, the 5-year conventional mortgage rate in Canada was above 7 per cent. Today, it sits near 5.5 per cent. The 1-year rate was also close to 7 per cent (yes, we had a very flat yield curve before the walls came tumbling in), compared to 3.5 per cent today.
Now, I'm not suggesting that we're going to stay in interest rate limbo forever, but the Canadian consumer is in better shape to handle higher pump prices today than back two years ago.
How long can they sit on the fence?
What the Bank of Canada has to be careful of here is the oil price shocks emanating from across the pond turn out to be temporary and there is no slowdown in consumption growth. Bank economists are already looking towards 2012 as the likely period where excess capacity in Canada's economy disappears and inflation returns to target (using the core inflation measure).
It is easy, however, to accelerate that trip back to zero excess and just as easy to push the economy into a situation of excess demand.
Coming back to the Bank's decision this week, it may have been surprising to see it lean against speculation of near-term tightening. But, it would be a mistake to assume the Bank can't and won't pull the trigger on rates before the summer.
There are two policy meetings left this half (April and May), so if Mr. Carney and crew wake up and realize there is too much potential inflation risk in leaving rates unchanged, they will need the April meeting to deliver the guidance towards a May rate hike — something economists thought was going to happen this week.
And if energy price shocks don't intensify and the Bank fails to deliver such guidance, don't be surprised if the bond market creates the guidance for them.

Homeowners confident about ability to pay mortgages despite record debt levels

2011-03-10T10:50:00.000-05:00

Sunny Freeman, The Canadian Press

TORONTO - Canadian homeowners are much more confident than government officials and economists about their ability to pay off mortgages, even if the market takes a turn for the worse, according to a survey released Wednesday.
The Royal Bank's annual outlook suggests 85 per cent of respondents think they are doing a good job paying off their loan obligations, and 73 per cent think they are well positioned even if the housing market were to drop.
"The reason that stood out to me is because of all the commentary we've all been hearing about Canadians being overextended, all of those various concerns bubbling around," said Marcia Moffat, RBC head of home equity financing.
The findings contrast with a slew of statistics and warnings from top economists — including Bank of Canada governor Mark Carney — that Canadians are getting in over their heads and may find themselves in difficulty when interest rates rise.
Statistics Canada's most recent report showed that the debt-to-disposable income ratio of Canadians hit a record 148 per cent in the third quarter, even beating out Americans for indebtedness. Put another way, the figure means Canadians owe $1.48 for every dollar they earn.
But the Royal Bank survey, conducted in January, could also be a sign that Canadians are taking heed after more than a year of warnings issued by the Bank of Canada and the federal government about debt exposure.
"There has been a lot in the media around ... (those) concerns for at least the last year and maybe Canadians have been listening, seeking out advice, and ensuring that they're in a strong financial position," Moffat said.
"If you've got a concern about something transpiring, you may try to get ahead of it to put yourself in a better financial position."
Canadians' growing optimism about their debt situations could stem largely from increased job stability and rising incomes, which are providing a better backdrop to pay down debt, Moffat added.
But the government is less assured.
Its third round of tightening mortgage rules in as many years is set to take effect later this month.
New measures introduced by Finance Minister Jim Flaherty to rein in borrowing will take effect March 18. The changes include reducing the amortization period on government-insured mortgages from 35 to 30 years, limiting the size of home-equity loans and removing government insurance on lines of credit secured on homes.
Interest rates are widely expected to rise in the second half of this year, driving up the borrowing costs for variable mortgages and other loans linked to bank's prime borrowing rates.
Still, 90 per cent of respondents in the Royal Bank survey said they were confident about real estate as an investment and a large majority still thought it was a good time to buy.
Interest in purchasing a new home over the next two years has fallen, but only slightly. At 29 per cent, the number is considered strong and is still better higher than it was 2006.
However, fewer respondents than in last year's survey said it was better to buy now rather than wait, suggesting that buyers aren't feeling the same sense of urgency to get into the market.
Buyers rushed into the market in the opening months of last year to beat a combination of rising interest rates, new mortgage rules and the HST in two provinces.
"Last year's survey showed that people were looking to buy ahead of rising costs," said Moffat.
"This year marks a return to more normal levels of purchase intentions and recent housing data reflects this move to a more balanced market."
Nearly 70 per cent of homeowners said the value of their homes has increased in the last two years.
Meanwhile, a Statistics Canada report also released Wednesday suggested that prices for new houses continued to rise at the beginning of this year along with resale home prices.
The federal agency's new home price index rose 0.2 per cent in January from the level in December.

Economy up, but Canadians not saving enough

2011-03-01T08:56:00.001-05:00

CTV.ca News StaffThe Canadian economy posted stronger growth than expected in the last quarter of 2010, Statistics Canada reported Monday. But the news, which bodes well for Canada's job market as it recovers from the recession, was tempered by a CIBC report warning that Canadians' bank accounts are not growing fast enough.
The economy beat Bank of Canada predictions by a full point, growing 3.3 per cent at the end of last year, StatsCan said. Three factors fuelled the growth, according to the agency: a four per cent spike in exports, stronger manufacturing sectors in Ontario and Quebec and a 4.9 per cent uptick in consumer spending.
The agency also revised its results for third quarter growth to 1.8 per cent from one per cent, meaning Canada's overall GDP advanced 3.1 per cent last year. That is in comparison to a 2.5 per cent decline in 2009.
The rosy numbers have economists predicting growth above three per cent for the first quarter of this year, well above the Bank of Canada's projected 2.4 per cent. Bank of Montreal economist Douglas Porter predicts growth to come in at 3.5 per cent, while the Royal Bank and Merrill Lynch predict growth above three per cent.
BNN's Michael Hainsworth said the numbers have left economists divided over when Bank of Canada governor Mark Carney will begin hiking interest rates from their current historic lows. The overnight lending rate has been at one per cent since last year.
No one expects Carney to boost rates when he issues a short economic analysis on Tuesday. But when it happens is anyone's guess, Hainsworth said.
"We really don't expect to see the cost to borrow money in this country to start rising until the kids are let out school for summer vacation," Hainsworth told CTV News Channel.
"Others are saying maybe not until they go back to school at the end of the summer vacation. And then there are others at TD saying forget it, spring 2012 before the Bank of Canada sees the need to start raising the cost of borrowing money.'"
That may be good news to Canadians who have gotten used to cheap credit. But a new CIBC report is warning Canadians need to reconsider their spending habits and start padding their bank accounts now that the savings rate north of the border has hit an all-time low against savings in the United States.
The report says Canadians have spent the past 15 years relying on rising home prices to boost their wealth, and therefore have paid less attention to saving cash.
Canadians are now saving at a rate of 4.2 per cent, 1.6 per cent below the 5.8 per cent savings rate south of the border.
The report, entitled "Back to Old-Fashioned Saving," said Americans are saving more in the wake of the collapse of the U.S. housing market. However, because the Canadian real estate market has remained stable despite the economic downturn, Canadians haven't been scared into holding on to their money.
But with many experts predicting either a flat housing market, or a mild correction, over the short term, Canadians will have to save more, the report says.
"While we do not foresee a major correction, the real estate boom is clearly over and even a flat housing market will strip households of their primary means of passive savings," the report says.
The report comes on the heels of a number of others warning of rising household debt levels in Canada.
Earlier this month, the Vanier Institute of the Family said the average Canadian family is about $100,000 in debt and suggested the debt-to-income ratio is now a record 150 per cent. According to the report, the average Canadian family saved $8,000 in 1990, or 13 per cent, much lower than the current rate of 4.2 per cent, or $2,500.
Experts have predicted trouble for Canadians when Carney does decide to raise interest rates, which will make all manner of debt more difficult to pay off.

CANADIAN HOMEOWNERSHIP COSTS EASE FOR SECOND CONSECUTIVE QUARTER: RBC ECONOMICS

2011-02-24T09:13:00.000-05:00

TORONTO, Feb. 24
Canada's housing affordability continued to improve in the fourth quarter of 2010, thanks in part to slight decreases in five-year fixed mortgage rates and minimal home price appreciation across the country, according to the latest Housing Trends and Affordability report released today by RBC Economics Research.

"Some of the stress that had been building in the housing market between 2009 and the first half of 2010 has been relieved, but tensions persist overall and the recent improvement in affordability is likely to be short-lived," said Robert Hogue, senior economist, RBC. "We expect that the Bank of Canada will resume its rate hike campaign this spring and with borrowing costs set to climb further in the next two years, housing affordability will erode across the country. That said, we don't expect this to derail the housing market because of rising household income and job creation from the sustained economic recovery."
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the fourth quarter of 2010, measures at the national level fell between 0.4 and 0.8 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).
The detached bungalow benchmark measure eased by 0.8 of a percentage point to 39.9 per cent, the standard condominium measure declined by 0.4 of a percentage point to 27.6 per cent and the standard two-storey home decreased 0.4 percentage points to 46.0 per cent.
"We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels," added Hogue. "This pattern would be consistent with moderate yet sustained stress on Canada's housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases."
A majority of provinces saw improvements in affordability in the fourth quarter, most notably in Alberta where falling home prices once again contributed to lower the bar for affording a home. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.
RBC's Housing Affordability Measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.
Highlights from across Canada:
· British Columbia: Buying a home in B.C. became slightly more affordable in the fourth quarter of 2010, due primarily to a small drop in mortgage rates. After experiencing some declines in the previous quarter, home prices rose modestly for most housing categories; condominium apartments bucked the trend, however, and depreciated slightly. Prices were supported by a tightening in market conditions with home resales picking up smartly following substantial cooling in the spring and summer that saw sellers lose their edge in setting property values. Demand and supply in the province are judged to be quite balanced at this point. RBC's Affordability Measures fell between 0.8 and 1.0 percentage points in the fourth quarter which came on the heels of much more substantial drops (1.7 to 4.8 percentage points) in the third quarter. Notwithstanding these declines, affordability remains poor and will weigh on housing demand going forward.
· Alberta: Alberta officially became the most affordable provincial market in the country in the fourth quarter, according to the RBC Measures which fell once again by 1.0 to 2.4 percentage points, extending their declines since late-2007. In addition to the lower mortgage rates, the further depreciation of home prices contributed to lowering homeownership costs. Property values were negatively affected by a substantial downswing in demand in the spring and early summer, which put buyers in the drivers' seat. The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months - alongside a provincial economy that is gaining more traction - and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.
· Saskatchewan: The provincial housing market finished 2010 on an enviable note as affordability improved even though home prices, for the most part, rose slightly in the fourth quarter. Generally, the price increases more than reversed declines in the previous period but were too small to negate the beneficial effect of lower mortgage rates. The home resale market gained back solid forward momentum in the second half of 2010, notwithstanding some softening in the final months, which re-established a stronger balance between demand and supply. The RBC Measures fell between 0.6 and 1.1 percentage points in the quarter, although the levels continue to be modestly above historical averages in the province. RBC projects the Saskatchewan market will take its current affordability position in stride as a rebound in provincial economic growth and continued strong migration inflows will support housing demand this year.
· Manitoba: Manitoba's market enjoyed the best of both worlds in the fourth quarter of 2010 as home price were higher but ownership costs were lower. Thanks to lower mortgage rates in the quarter and continued growth in household income, the negative effect of small gains in property values on affordability was more than offset. The RBC Measures eased between 0.1 and 0.6 percentage points in the fourth quarter, keeping Manitoba among the only two provincial markets in Canada (with Alberta) in which Affordability Measures stand below long-term averages for all housing categories. Sales of existing homes ramped up considerably in the fall, reaching near historical peaks by December. Housing demand is being boosted by the strongest net international immigration in the province since the mid-1950s and by improved job prospects - Manitoba boasts the lowest unemployment rate in Canada (as of the fourth quarter of 2010) and RBC expects this to continue in 2011.
· Ontario: Concerns last year that the housing market would falter have now largely dissipated as home resale activity picked up smartly in the fall and property values resumed their appreciation trend in the closing months of 2010. The slowdown in market activity in the spring and summer last year largely reflected various transitory factors - including the introduction of the HST and changes in mortgage lending rules - that brought demand forward to the start of the year. The silver lining of this slowdown, however, has been an improvement in affordability. The RBC Measures edged lower for the second consecutive time for most housing categories in the fourth quarter, down by 0.2 to 0.3 percentage points. The only exception was two-storey homes, which became marginally less affordable amid notable price gains. RBC expects affordability will play a neutral role for demand in Ontario with RBC Measures close to their long-run average.
· Quebec: Higher home prices in the fourth quarter of 2010 caused some deterioration in affordability following meaningful improvement in the previous period. Home resales strengthened in the latter part of 2010, contributing to tightened market conditions that gave sellers a stronger hand in negotiating prices, particularly for two-storey homes. Price gains and rising household income dominated the positive effects of lower mortgage rates on affordability in the fourth quarter for all housing types except detached bungalows (where a small improvement was registered). RBC Measures rose marginally by 0.1 to 0.2 percentage points for two-storey homes and condominium apartments, and fell by 0.6 percentage points for detached bungalows; however, the levels of all Measures still modestly exceeded long-term averages in the province. RBC expects that modestly strained affordability in Quebec will further deteriorate in the period ahead when interest rates rise.
· Atlantic Canada: Home resale activity sputtered late in 2010 and reversed some of the gains achieved at the end of the summer and early fall. This has not disrupted property values in the fourth quarter as home prices generally appreciated; yet, housing affordability improved for most housing categories because declines in interest rates provided a dominant offset. Only condominium apartments saw a slim deterioration in affordability as the RBC Measures rose by 0.1 percentage point compared with declines of 0.5 percentage points for detached bungalows and two-storey homes. Affordability levels continue to be mostly attractive in Atlantic Canada from both historical and cross-country perspectives. RBC projects that is likely to remain so in the near-term despite our expectation of higher interest rates. Market conditions have recently swung in favour of buyers which will exert downward pressure on prices in coming months.

Home buyers race to beat tighter mortgage rules

2011-02-23T10:33:00.000-05:00

By Tony Wong

Tighter mortgage rules have caused home sales in Canada to spike temporarily, but analysts say there is still a reckoning to come.
Canadian existing home sales were higher than expected in January because of buyers jumping in the market early before new mortgage regulations take effect, says the Canadian Real Estate Association.
Seasonally adjusted activity rose by 4.5 per cent in January, compared with a month earlier, reaching the highest level since last April.
Much of that activity was led by the Toronto and Vancouver markets, according to CREA in figures released Tuesday.
The Toronto market beat the national average, with sales up by a seasonally adjusted 5.2 per cent.
“We anticipated the announcement of tighter mortgage regulations which will come into effect this March, would pull forward sales activity in the first quarter of 2011, “ said Gregory Klump, CREA’s chief economist. “The sharp rise in sales activity in Toronto following the announcement confirms this.”
In January, Ottawa reduced the maximum amortization period to 30 years from 35 years for new government backed insured mortgages with loan-to-value ratios of more than 80 per cent.
It also lowered the maximum Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.
“It was widely expected that sales activity would pick up through January and February of this year as buyers bring purchases forward to beat out tighter mortgage insurance rules,” said Diana Petramala, an economist with TD Bank.
However, economists are forecasting the strong first quarter will be followed by a weaker second quarter as a result.
“As was the case the last time the federal government made mortgage insurance rules more restrictive, the strength in sales will likely be followed by a short period of weak housing data,” said the bank.
Some of the strength in the housing market is also because of continued low interest rates, says the bank. But that is not expected to last for long. Interest rates are expected to remain low for the first half of 2011, but the bank expects the first in a series of rate hikes in July.
“The rise in interest rates is expected to dampen housing activity in the coming months,” said Petramala. “On the whole, the housing market remains in a well balanced position with little price pressures on the horizon.”
The bank expects prices to move “sideways” over the next few months, but not dip significantly.
Royal LePage CEO and president Phil Soper also said Tuesday he expects housing prices to remain essentially flat, or in line with inflation by the end of 2011.
Other forecasts have pegged the market to be as much as 25 per cent overvalued.
“Despite the doom and gloom forecasts I think it will still be a solid year,” said Soper. “An improving economy and jobs market will help to offset any restructuring in home prices, which is key. If there is any overshooting in the market, it is also happening at a time when there is underlying economic improvement overall.”
The national average price for homes was $343,675 in January. That figure has been flat for the last three months. However, it is up 4.5 per cent compared with January of last year.
CREA says some of that gain was a distortion resulting from million dollar home sales in Vancouver, which remains the country’s priciest market.
If Vancouver were taken out of the equation, prices would only be up by less than 2 per cent, or about inflation, according to BMO Capital Markets Economist Doug Porter.
“The market appears to be well balanced apart from Vancouver,” said Porter. “However, that city marches to its own drummer and its particular rhythm may not have implications for the rest of the country.”
On an unadjusted basis, Canadian existing home sales were down 6.6 per cent in January compared with the same month a year ago when sales were hitting record levels.
Listings are also increasing, up by 3.9 per cent, meaning more choice for buyers. However, sales activity remained strong. The number of months it took to sell a home was 5.5 months, the lowest level since March of last year.
Busy January
4.5 per cent – how much sales activity rose in Canada
5.2 per cent - how much sales rose in Toronto
$343,675 - the national average price for homes last month
5.5 months – the average time to sell a home

3 ways to deal with rising mortgage rates

2011-02-22T09:17:00.000-05:00

By Moshe Milevsky

Here we go, again. The economy is generating more jobs, a handful of banks raise mortgage rates and all of a sudden you’re being advised to lock-in your mortgage before the bank doors slam shut. In fact, some say you’d better hurry-up and buy a house now before mortgage rates go so high you’re locked-out of the housing market for ever.
This is not the first time that mortgage rates are on the brink of blooming only to fade a few months later. This has happened more than a handful of times in the last decade. The headlines are often the same. A month or two of increasing mortgage rates, the public is urged to act now, and then a few months later something unforeseen appears on the horizon.
The last occasion was just over a year ago. The posted 5-year mortgage rate in March, 2010 went from 4.7 per cent to 5.15 per cent in April, and then to 5.3 per cent by May. The recommendations were clear: lock-in. But then, by October they were back to 4.5 per cent. The economy sputtered, Greece and Spain hit the headlines and the rest was history.
Don’t get me wrong. Short-term interest rates are abnormally low today and the Bank of Canada has pledged to raise them eventually. But that is a far cry from advocating that you lock-in your mortgage - which is actually driven by long-term bond market rates - or heaven forbid using this as an excuse to buy a house you can’t really afford.
My main concern is about relevance and context of this advice. I call it the fallacy of “carve-out thinking.” It stems from the misguided notion that modern-day personal financial problems should be viewed and solved in isolation.
Remember that mortgage payments are just one component of your personal balance sheet. You may also have an RRSP, TFSAs and other investment accounts. You may also have a pension, cottage or rental property and a very large portfolio of debt. Every one of these holdings is sensitive to interest rates.
If long-term interest rates move up quickly and substantially then any bonds or fixed income investment you hold will fall in value – possibly by a lot. A big and sudden rise in interest rates won’t be kind to the real estate market either. There will be many spillover side effects.
Reacting to this fear by locking-in your mortgage is akin to preparing for an ice and snow storm by only salting your driveway, but forgetting to close your windows. Sure, that helps, but if you really believe a bad storm is on its way, there are many other – possibly more important—things you should be doing to prepare.
So what should you do with your mortgage? Here’s the best guidance I can offer.
1.Don’t rush into home ownership because you are convinced that mortgage rates are headed-up and you will never see 5 per cent again.
2.If you’ve just bought a home and you have a large mortgage, relative to the home’s value, I urge you to lock-in for as long as possible. You probably should not have “floated” to begin with and are now facing the probable risk that real estate prices decline and interest rates increase. Add to this the possibility of job loss, disability or other macro factors, and you are the ideal candidate for a fixed rate mortgage. The last thing you want to be doing is trying to renew your mortgage in a year or two from now, if rates increase and possibly the appraised value of your house has declined by 10 per cent or more.
3.If your mortgage payments are only a small fraction of your monthly expenses and you have built-up substantial equity in your home, and – this is key – you have a diversified portfolio of financial assets, like stocks and bond inside your RRSP and other accounts, then my advice to you is very different.
If you are concerned that interest rates are on their way up, then perhaps you should change your asset allocation and reduce the fixed income investments in your portfolio. Remember, if mortgage rates increase, this is because long-term interest rates have gone-up and the longer the duration of your bonds, the greater are your losses. I say, lighten-up on bonds. If the prognostications prove correct and rates go up, then yes you will pay more on the mortgage but you were spared the pain in your RRSP. On the other hand, if rates stay around their current levels, then you win. . Remember, locking-in today will likely involve paying more than what you are paying right now, often by 1 per cent to 2 per cent more. Think of it as insurance.
The point is to think more holistically about all the financial assets – and risk exposures—on your personal balance sheet. As for me, I have a floating rate mortgage because I can tolerate the risk and want to pay as little as possible for unnecessary insurance.

Average household debt tops $100,000

2011-02-18T09:24:00.000-05:00

At 38 years old, Jill Skorochod seemed to have a pretty comfortable life.

She had a well-paying government job and ran a small business training dogs, owned a small but comfortable house in North Toronto, and drove a new car. She also had three dogs of her own, all bull mastiffs.
That house, however, had two mortgages on it, the car had an expensive lease, and she lay awake at night worrying about the $40,000 of debt she’d racked up on credit cards.
“I was using my house like a big credit card. I refinanced my mortgages a few times,” said Skorochod. “I got so sick of worrying about the ‘what ifs,’ like ‘what if I need to fix the roof, or what if something happens to one of the dogs.’ ”
She was making roughly $4,000 a month after taxes, but almost $3,900 of that was going to pay off debt.
That kind of debt load is an all-too-common problem, according to a study released Thursday by the Vanier Institute of the Family, an Ottawa-based research group. The study found Canadian families have an average of $100,000 in debt. The average debt-to-income ratio now stands at a record 150 per cent, meaning for every $1,000 of after-tax income, households owe $1,500. In 1990, average household debt was $56,800, while the debt to income ratio was 93 per cent.
That amount of debt puts people at risk of bankruptcy and being forced out of their homes, especially if interest rates rise, as most economists and analysts are predicting, said Vanier Institute director of programs Katherine Scott.
“It is very worrying,” said Scott, who says financial institutions such as banks bear much of the responsibility for Canadians getting into such deep debt. Most people simply don’t understand the risks of taking on large mortgages and home equity lines of credit when rates are poised to rise, according to Scott.
“I don’t think any one bank has done this as a strategy, but banks as a group have profited from people’s lack of financial literacy. A lot of the time, there seems to be a kind of finger-pointing at individuals like ‘how could they take that vacation’ or ‘why did they need that car,’ but that’s really not fair,” said Scott.
In a statement posted on its website, the Canadian Bankers Association says its member institutions aren’t doing anything wrong.
“Banks are closely monitoring household debt levels and the economic recovery in Canada to ensure that Canadian households can manage their debts well. Banks in Canada remain prudent lenders that manage risk carefully, only lending to clients who demonstrate the ability to repay their loans,” the statement read. The CBA also pointed out that its members also advise clients on how to manage their debt responsibly, and avoid getting into financial trouble.
As for Skorochod, she admits she got into trouble in the first place by not budgeting, and making some faulty assumptions.
“I think when you’re younger, when you get a new job, it’s always for a little bit more money than the last one, and you assume that’s going to always be the case. And the house I was living in was just too much money for a single income,” she admitted.
Where did the money go? A new piano here and a bit of work on the house there. Enough food to feed three 100-pound-plus dogs, and eating a lot of takeout food because of her busy schedule put Skorochod deep in the hole.
“When I figured out how much money I was spending on my stomach, it was scary,” said Skorochod, who turns 40 next week.
Last year, however, after much soul-searching and some counseling from Credit Canada, she sold her house. The North Toronto bungalow she bought in 2003 for $279,000 went for $420,000. She paid off her credit card debts, and bought a house near Victoria Park and Danforth for $247,000.
“I’m debt free, I’ve got a new place, and I’ve just gotten engaged. Things are a lot better now,” said Skorochod.
Oh owe
$100,000 - the average debt load of Canadian families.
150% - the average debt-to-income ratio for Canadians which means for every $1,000 of after-tax income, households owe $1,500.
93% - the average debt-to-income ratio for Canadians in 1990.
$58,000 – the average debt load of Canadian families in 1990

Think Outside the Bun

2011-02-14T09:32:00.000-05:00

Rob McLister, CMT

That is Taco Bell’s slogan. It’s meant to remind us that fast food doesn’t end with hamburgers. Tacos are pretty tasty in their own right.
In the lending world, the closest equivalent to “the bun” is the 5-year fixed mortgage. Like hamburgers are to fast food, the 5-year fixed is to mortgages. It’s been the most popular term in Canada for years.
Yet, despite its prevalence, qualified borrowers owe it to themselves to think outside the 5-year fixed. A little extra risk can sometimes yield a lot more reward.
Fixed 5-year mortgages are especially popular in uncertain/rising rate markets (like today’s). People who can’t afford rate risk, and those who cannot qualify for shorter terms, often choose a 5-year fixed by default.
Even individuals with rock-solid financial resources frequently gravitate to 5-year terms. Much of the time that’s because they don’t want to overthink the safety of a longer-term mortgage. In other cases, it’s because no one has ever shown them how much 5-year fixed terms really cost over the long run.
No matter how popular 5-year terms are, however, mortgages are not a one-size-fits-all proposition. For those who can stomach the chance of higher rates at renewal, various compelling alternatives exist. One happens to be the 3-year fixed.
Lenders like Merix Financial, HSBC, and others still have three-year rates in the 3.35% range or better. That’s 59+ basis points below current 5-year pricing.
At those rates, (from a purely mathematical and hypothetical perspective) the 3-year fixed performs better in our internal simulations than any other term, be it a variable or a 1, 2, 4, 5, 7 or 10-year fixed.1
With major banks forecasting a 2% rate hike in 24 months, 3-year fixed mortgages model even better than variable-rate mortgages (primarily because of the 3-year’s low rate and its 36 months of rate-hike protection).
This doesn’t mean a 3-year will definitely save you more money than any other term. It just means they offer very good value with decent odds of interest savings.
On a $300,000 mortgage with a 25-year amortization, a 3.35% three-year will save you about $5,130 over a 3.94% five-year fixed. That’s over 36 months.
After 36 months, you can move into any other term you want (e.g., a 1-year fixed, variable, or another 3-year fixed). As long as your rate at renewal is about 5% or less, you’ll come out ahead of today’s 5-year fixed.
A few other points about 3-year terms:
· You can make your 3-year fixed payment equal to a 5-year fixed payment, thus shrinking your amortization even faster.
· People tend to refinance 5-year terms roughly every 3.5 years on average. Three-year terms let people out without a penalty just before many of them are getting ready to renegotiate their mortgage.
The “optimal term” (if there is such a thing) changes as rates fluctuate and as borrowers’ finances change.
All things considered, however, the three-year fixed is the sweet spot of the mortgage market at this particular point in time.

Canadians gloomy about personal finances

2011-02-08T09:07:00.000-05:00

A Royal Bank of Canada survey suggests Canadians kicked off the year in a gloomier mood about their own finances and the national economy than last year.

The RBC Canadian Consumer Outlook Index found that less than half, or 43 per cent of Canadians believe the economy will improve over the next year.
That's a notable decline from the 56 per cent who expressed optimism about the economy last year.
Only 38 per cent of Canadian say they feel their personal finances will improve in the next year, down from 45 per cent a year ago.
The findings come as economic growth moderates and as Canadians digest staunch warnings from government officials about their borrowing habits.
Despite the cautious outlook of consumers, many experts predict the economy will continue to grow this year and next.
A great way to consolidate debt is to use the equity in your home. Visit us today for your free, no obligation finance review http://www.tmdc.ca/

Scheme saw large mortgages obtained with stolen identification

2011-02-07T15:03:00.000-05:00

HAMILTON — A 45-year-old Hamilton woman has pleaded guilty to six charges in connection with the use of false documents to defraud local financial institutions of more than $200,000 in mortgage funds.

Lauren Paolini is believed to be one of six accused involved in the scheme that saw large mortgages obtained with stolen identification for modestly priced homes before the properties were flipped for substantial profits.
The mortgages would immediately go into default leaving the lending institution with significant losses.
Paolini will be sentenced for her role in the scams after a pre-sentence report is presented to Ontario Court Justice Richard Jennis on April 13.
Crown counsel Kevin McKenna read an agreed statement of facts Thursday indicating in June, 2007, a woman using the name of Orla O’Brien secured a property mortgage for the purchase of a $107,000 Oak Avenue home from Scotiabank in the amount of $152,000.
The mortgage immediately went into default and the bank sold the property for $82,000.
Orla O’Brien was in fact Patricia Bobb. Bobb obtained a mortgage with various pieces of indentification and pay stubs in the name of O’Brien from Hunt Material Handling. Paulini, who worked for Hunt, provided the documentation knowing it would be used fraudulently.
The loss to Scotiabank was $67,000.
Later that year, Paolini personated Jacqueline Soehner of Kitchener to obtain a $279,278 mortgage from the Canadian imperial Bank of Commerce for the purchase of a Queen St. S. home valued at $140,000.
“Ms Soehner had not purchased this property and was the victim of identity theft,” McKenna told court.
Paolini’s secured mortgage obtained fraudulently in Soehner’s name immediately went into default. The loss to the bank was more than $121,000.
On Nov. 14, 2009, Paolini used the stolen identification of Christine McSavaney of Kitchener to obtain a $120,000 mortgage from My Next Funding Corporation to buy a Cannon Street East home valued at $80,000.
The mortgage immediately went into default costing the lender almost $36,000. Paolini obtained a line of credit with the CIBC in the name of McSavaney in the amount of $16,350. The money has been used and no payments made toward the debt.
On Jan. 4, 2010, Paolini presented herself as Ruth Ann Piggott at 1130 Barton St. E. Paolini used an Ontario driver’s licence in the name of Ruth Ann Piggott to obtain a $6,000 loan. The money is gone and there have been no payments toward the debt.
Paolini also used the same driver’s licence to seek a $9,000 loan from Wells Fargo Financial Corporation in Etobicoke in December 2009.
The lender provided her with $4,442 of the amount. That money has disappeared.
McKenna said Paolini was a relatively minor player in the frauds. Still the Crown counsel said he will be seeking jail time at the sentencing hearing.

Reduce CMHC role in mortgage insurance: CD Howe

2011-02-03T13:21:00.000-05:00

John Greenwood, Financial Post

TORONTO — The federal government should limit taxpayer exposure to potential problems in the housing market by reducing the role of the Canada Mortgage and Housing Corp. in the provision of mortgage insurance, CD Howe Institute said in a report Monday.
The CMHC has a pervasive presence in the domestic mortgage market, potentially resulting in “unmanageably large risks in financial markets” that are ultimately borne by the Canadian public, according to the report.
Under current rules, people who borrow more than 80% of the value of the home they want to buy must also take out insurance, and the CMHC is by far the most dominant player in that market.
According to the report by Finn Poschmann, vice-president of research at the CD Howe Institute, the CMHC now backstops mortgages equivalent to more than 30% of Canada’s gross domestic product.
That’s left Canadians exposed to “large, ill-defined risks,” said the document, which argues that Ottawa should crank back the CMHC’s presence in mortgage insurance and allow more room for private sector insurers.
Originally conceived as a vehicle for executing public policy, CHMC insurance levels have expanded dramatically, especially in the wake of the financial crisis as the government encouraged banks to hike lending by allowing them to securitize more home loans.
Critics worry that the unintended consequence of government policy was that mortgages became too easy to get, pushing up real estate prices across much of the country to unsustainable levels.
“Beyond the presumed benefits of promoting home ownership, [activities of the CMHC] have had some clearly harmful and well-understood consequences, as well as other less well-understood but also harmful consequences in world financial markets,” Mr. Poschmann said.
The CD Howe recommendation comes on the heels repeated warnings from the Bank of Canada that Canadians have become over leveraged and need to start paying down debt.
One of the main concerns about the CMHC is the lack of disclosure about the quality of its mortgages and details of the types of loans it insures. For instance, when the government announced earlier this month that home equity lines of credit, or HELOCs, would no longer qualify for CMHC insurance, many analysts expressed surprised that such loans were ever allowed to be part of the CMHC program in the first place.
Canada is hardly alone in its policy of boosting home ownership as the United States and many other countries have adopted similar initiatives. But Canada is one of the few western nations that have not so far been hit with a steep decline in real estate prices in the wake of the financial crisis.
The report also makes the case for beefed up oversight of CMHC as right now its relationship with the Office of the Superintendent of Financial Institutions is primarily a courtesy arrangement under which the crown corporation is not compelled to follow OSFI directives.
According to Mr. Poschmann, Ottawa should adopt new legislation to remove the ambiguity from the relationship by legally requiring the CMHC to comply with guidelines laid down by the federal regulator.

Canadians Better Off, Even If They Don't Feel It

2011-02-01T14:33:00.000-05:00

John Ivison, National Post · January 23 marks the fifth anniversary of Stephen Harper's 2006 election victory and in early February, he will pass Lester B. Pearson's time in office to become Canada's 11th longest-serving prime minister. As Mr. Harper told Postmedia News this week, it has been a roller-coaster ride: "Some days it feels like five months, and other days it seems like 50 years."

The five-year milestone has presented the Liberal leader, Michael Ignatieff, with his latest electoral gambit -- to ask middle-class Canadian families whether they are better off after half a decade of the Harper government?
In fact, by almost every pocketbook metric, Canadian families are better off than they were five years ago --even if they don't feel it.
The new strategy emerged from research carried out by the Liberals' pollster, Michael Marzolini, as part of his firm Pollara's annual nationwide poll of Canadians' personal financial expectations. He found a new sense of caution and retrenchment, after optimistic expectations for 2010 were not met.
According to the Pollara poll, middle-class Canadians feel themselves under siege, with four in 10 claiming their incomes are failing to keep pace with the cost of living. They are anxious about their retirement, family debt and the value of their investments. Many Canadians believe every step forward they make is being hampered by assaults on their incomes such as new taxes and user fees. Ominously for the government, they appear less than impressed about claims Canada is doing better than its international competitors -- the economy may be improving but they feel their own situation is not.
Mr. Ignatieff has leapt on the survey's findings on his current 20-event, 11-ridings winter tour, making the claim that Canadians are worse off and the economy is weaker.
He is gambling that voters look at their own situation and calculate whether they have done well over the past five years. If the answer is yes, they will vote for the party they voted for before but, if not, he hopes they can be persuaded to switch.
Mr. Ignatieff's central contention is that Canadians' standard of living -- as measured by GDP per person--has fallen 1.3% since the Harper government came to power.
The only problem with this for the Liberal leader is that it isn't true -- real GDP per capita did fall between 2005 and 2009, the trough of the recession, but has since recovered. If you annualize the first three quarters of 2010, the numbers show real GDP per capita is up
0.2% over the 2005 figure.
Other indicators are similarly positive.
Average hourly wages have outpaced inflation, especially for men, who now earn $4 an hour more than they did at the end of 2005.
The fiscal and monetary response to the recession has created one very real problem identified by Mr. Ignatieff -- an extremely high level of indebtedness. Encouraged by cheap interest rates, Canadians now owe $1.50 for every dollar of disposable income, up from $1.08 in 2006.
Yet, national net worth per capita, which measures the health of assets like homes and investments, stood at a record high of $179,000 in the third quarter of 2010, up from $155,000 five years ago. Even at the bottom end of the socioeconomic ladder, the number of children living in low-income families fell by 250,000 between 2003 and 2008.
Retirement income is another leading concern raised by the Liberals but many more Canadians are now members of registered retirement plans than in 2005.
And the feeling that the tax burden is growing is also illusory, at least according to the Fraser Institute's Tax Freedom Day, the day on which the average Canadian family has earned enough money to pay all taxes imposed on them by three layers of government. It advanced to June 5 in 2010, from June 23 in 2005.
These bald statistics don't tell the whole story, of course. In the intervening years, there was a painful recession that saw unemployment spike at 8.7% in August 2009 (it is now sitting at 7.6%, still higher than the 6.8% in 2005).
Canadians remain anxious. According to Mr. Marzolini's research, two-thirds of the population thinks we're still in recession.
Yet, crucially, voters do not seem to blame the federal government, perhaps accepting that, if things are not noticeably better than they were five years ago, they could have been immeasurably worse.
Non-Conservatives can claim with some justification that the Harper government's record of achievement is pretty penny ante when compared with other five-year-old administrations.
But the picture improves when you consider what didn't happen. Mr. Harper is an incrementalist who agrees with Canada's longest-serving prime minister, William Lyon Mackenzie King, that "it's what we prevent, rather than what we do, that counts in government."
The pressures of power have forced Mr. Harper, by his own admission, to make compromises he never thought he would have to make. "We spent the first three years of our government in a situation where people were saying, 'Why don't you take more risks? Why don't you make more grandiose commitments? Why don't you have a bigger more ambitious agenda on anything?' And then all of a sudden, we're spending the next two years dealing with a crash in the global economy and trying to operate a situation where we're trying to protect what everybody has. So things just change constantly and you do have to be adaptable," he told Postmedia's Mark Kennedy this week.
There appears to be some appreciation that the Conservatives have provided solid, if stolid, government through the recession.
An Ipsos Reid poll before Christmas suggested six in 10 Canadians believe the political process is operating well and there is no need for an election. They may not vote Conservative, but they are not so disgruntled they are demanding change -- at least not to the extent they have coalesced around Mr. Ignatieff or any of the other opposition leaders. This bodes well for Mr. Harper, sincegovernmentstraditionally find themselves in real trouble when the time-for-change number rises above 60%.
"Every election comes down to that -- continuity or change," said Darrell Bricker, president of Ipsos Public Affairs. "Mr. Ignatieff is trying to increase the desire for change that is a pre-condition [for a Liberal government]. But Canadians are not overwhelmingly concerned about the economy and even if they become more concerned, his opponent is leading him on the issue by 20 points."
The Liberals insist that stress about the future has created enough volatility to give them a fighting chance. "Perceived reality is often a self-fulfilling prophesy," said Mr. Marzolini, the Liberal pollster, as he unveiled his New Year's poll to the Economic Club of Canada.
Mr. Ignatieff had best hope so, otherwise Mr. Harper will pass both R.B. Bennett (five years and 77 days) and John Diefenbaker (five years and 305 days) to become Canada's ninth-longest serving prime minister before the end of this year.

Get the most after-tax bang for your investing buck

2011-01-28T09:03:00.000-05:00

Looking at the asset mix of a portfolio is the easy part. Deciding how to break out where investments should be held is not so easy. Decisions about where to hold investments can have a significant long-term effect on your wealth. I believe that for wealthy Canadians, this is where some of the biggest investment mistakes occur.

Here are some key rules to follow to squeeze the most out of your investments.
Consider a basic scenario that we might use with a client:
Taxable accounts
Cash and equivalents 8 per cent
Preferred shares 27 per cent
Bonds/Convertible Debentures 5 per cent
Stocks (Growth) 60 per cent
RRSP/RRIF/TFSA accounts
Cash and equivalents: 2 per cent
Preferred shares: 0 per cent
Bonds/Convertible Debentures: 68 per cent
Stocks (Dividend): 30 per cent
Total accounts
Cash and equivalents: 5 per cent
Preferred shares: 13 per cent
Bonds/Convertible Debentures: 37 per cent
Stocks: 45 per cent
Conventional wisdom suggests that it is important to start out with a well thought out review of your overall asset mix. The next step is to maximize it for tax purposes.
If an Ontario resident has $60,000 of income, the tax rate on interest is 31 per cent, on capital gains it is 16 per cent, and on dividends from eligible corporations (most publicly traded Canadian companies), the tax rate is 10 per cent.
The above illustration outlines how to take advantage of these differences.
In the cash or taxable accounts, there is 13 per cent that would have interest income (8 per cent cash plus 5 per cent bonds). This faces the highest tax rate, and is generally to be kept to a minimum in a taxable account.
The preferred shares are in the cash account for safety, but also because they produce dividend income, which is taxed at a much lower rate than interest.
The stocks are geared more toward growth companies that may not generate any taxable income. The only tax consequence is from the gains or losses resulting when the stock is sold. For gains, this can be deferred for many years without paying tax. In addition, if someone is affected by clawbacks to Old Age Security because of their income, the growth stocks can significantly help as they would produce very little income, as opposed to other investments.
On the tax-sheltered side, we want to look at the overall asset target, and make sure that the highest-tax investments are held in a place where the tax is sheltered. As a result, almost all of the bonds are held in the tax-sheltered accounts. For the equities, we put the income-producing stocks in here rather than in the cash or taxable account. Another reason for this stock separation is that growth stocks tend to be more volatile and, in general, are more likely to see a capital loss (as well as a higher capital gain). If they are held in an RRSP, then the tax benefits of a capital loss will disappear. To be more clear, if you buy a stock for $10 and sell it for $0 in an RSP, you have lost 100 per cent of your investment. If it is held in a taxable account, at least you can use that $10 loss against a $10 capital gain. For someone in the top tax bracket, that $10 loss can be worth $2.30.
You can make an argument that high-growth companies should be held in an RSP because if there are large gains, you don’t have to pay capital gains taxes. This can make sense in some cases, but makes more sense for someone younger. For someone older, this gain will ultimately turn into taxable income when withdrawn from an RSP or RIF – possibly within 10 or 20 years. If someone is younger, this capital gain can grow tax-free for a much longer period of time and provide much greater benefit before it is withdrawn and taxed at the highest rate.
Now comes the issue of Tax-Free Savings Accounts: Should they be managed the same way as an RSP in terms of sheltering taxable income?
There are two schools of thought. One is to simply shelter income in the TFSA, so you would hold bonds and cash and interest income-generating investments in the TFSA.
The other school of thought is to invest in small-cap growth stocks, the benefit being that if the stocks grow significantly, it actually boosts the total amount of TFSA sheltering room you can use in the future.
I think both make sense as long as you maintain the overall discipline around your portfolio asset mix.
The key point is that investing is all about what you keep after all fees and taxes. The hard money is made by strong investment management. The easy money is made by being tax smart. Unfortunately, too many people are leaving the easy money on the table.

What you should know about Mortgages

2011-01-25T10:21:00.000-05:00

So you are thinking about buying a new home? You may be wondering how mortgages work, if you would qualify for a mortgage loan, and if there are any special issues you should be aware of.

Here is a look at some facts and information about mortgages.

Canada has one of the most solid mortgage systems in the world, which has evolved over many decades. It’s a balanced system that helps people become homeowners, while not encouraging excessive risks-that is, it demands responsible behaviour from both lenders and borrowers. Read more.

Canadian growth less than expected: IMF

2011-01-25T09:04:00.001-05:00

The global economy is set to improve faster than expected this year, but while developing economies will exceed expectations, advanced economies such as Canada will see slower growth in 2011, according to a new report from the International Monetary Fund.

The World Economic Outlook issued Tuesday by the IMF predicts the global economy will expand by about 4.5 per cent this year, up from an earlier prediction of 4.2 per cent.
Canada's 2011 growth estimate is revised downward in the report, from 2.7 per cent predicted a few months ago down to 2.3 per cent.
Overall, advanced economies will slow from the 3 per cent growth recorded last year, to about 2.5 per cent this year.
However emerging economies will see a much faster rate of improvement, with predicted growth of 6.6 per cent this year and similar advances in 2012. That's down slightly from 7.1 per cent last year, but still a strong rate of advance.
In its Global Financial Stability Report, issued alongside the World Economic Outlook report, the IMF said there are still major problems within the global economy.
"Nearly four years after the onset of the largest financial crisis since the Great Depression, global financial stability is still not assured and there remain significant policy challenges to be addressed," said the report.
The report focused particular concern on Europe's weak economic health and said more money should be put into bank rescue funds.
"The most urgent requirements for robust recovery are comprehensive and rapid actions to overcome sovereign and financial troubles in the euro area and policies to redress fiscal imbalances and to repair and reform financial systems in advanced economies more generally," the WEO Update said.
Among advanced economies, the reports predicted the following:
Canada
2010: 2.9
2011: 2.3
U.S.
2010 -- 2.8
2011 -- 3.0
Euro Area
2010 -- 1.8
2011 -- 1.5
Japan
2010 -- 4.3
2011 -- 1.6
U.K.
2010: 1.7
2011: 2.0
But the numbers are more robust among "emerging and developing" economies. Russia is predicted to improve from 3.7 per cent growth to 4.5 per cent. China will see a dip from 10.3 per cent growth to a still-impressive 9.6 per cent. Sub-Saharan Africa is predicted to go from 5 per cent growth in 2010 to 5.5 per cent in 2011.
In the Global Economic Stability report the Washington-based IMF said financial problems in Ireland and Greece have raised fears among other countries about the manageability of their sovereign debt.
Jose Vinals, the IMF's director of monetary and capital markets, told reporters that even more than two years after the global financial crisis, global financial stability is still at risk.
"Banks face significant funding needs now and over the next two years. In many advanced economies, we need to deal with the legacy of the crisis by resolving financial fragilities once and for all," Vinals said.

Tighter mortgage rules may yet save us from ourselves

2011-01-24T09:43:00.000-05:00

By Ray Turchansky, Freelance Edmonton Journal

People who remember the days when there was only one type of mortgage -- with interest fixed at five per cent annually for the entire 25 years -- will also remember the cartoon character Pogo saying: "I have met the enemy, and he is us."
Indeed, there are times when we need to be saved from ourselves.
Two years ago, when Trevor Hamon was branch manager with Dundee Private Investors, he warned of serious peril by banks offering home-equity lines of credit and by people taking debt into retirement. I've since seen people go $100,000 into their HELOC, lose it investing on penny stocks and essentially wind up paying for their home twice.
In fact, Canadians currently owe $1.48 for every dollar of their disposable income, which is more household debt per capita than in the United States. And the argument that household debt is immaterial as long as the value of the house increases is no longer comforting. TD Economics expects existing home sales in Canada to drop about eight per cent in 2011 and prices to slip one per cent.
So the government faced two options -- raise Bank of Canada interest rates, which would soon increase mortgage rates, or tighten mortgage lending rules, which was wisely done for the third time since 2008.
Effective March 18, the maximum amortization period is reduced from 35 to 30 years for government-backed mortgages with loan-to-value ratios greater than 80 per cent; and the maximum Canadians can borrow to refinance their mortgage falls from 90 to 85 per cent of the value of their homes.
In addition, effective April 18, the government will no longer insure lines of credit with homes as collateral, such as home-equity lines of credit.
The Canadian Association of Accredited Mortgage Professionals said in a news release that it "supports measures that strengthen owners' equity in their homes and encourages the reduction of their mortgages. CAAMP is also pleased that there was no change made to the down-payment requirement as it recommended."
Less enthusiastic was Randall McCauley, vice-president of government relations at the Canadian Real Estate Association, who said in a release: "We're not sure the government needed to take this step now."
Much has been made about how reducing amortization periods from 35 to 30 years on a $300,000 mortgage at four-per-cent interest will cause monthly payments to go up $105. Instead, people should be thankful that the change will save them $42,288 in interest.
Adrian Mastracci, portfolio manager with KCM Wealth Management in Vancouver, has shown that paying off a $240,000 mortgage at 5.75 per cent costs you $65,165 in interest if paid off in 10 years, but $313,410 in interest if paid off over 35 years.
Said Mastracci after the latest mortgage changes were announced: "The repayment of debt is a best investment for many, particularly in jittery times, and it's risk free."
Two rules of thumb are not to go into debt for consumer purchases using either home equity because the value of the home could drop, or retirement savings because you might not be able to fund living expenses once employment income ends. The exception is when you combine the two by taking out the $25,000 allowed from your registered retirement savings account under the Home Buyers Plan, which makes sense because you have to pay it back or be taxed on the withdrawal, and because you're not paying interest on the loan.
The concept of home ownership is often founded on three beliefs: that interest rates won't spike, making payments unbearable to maintain; that the homebuyer will remain employed; and that property value will continue to rise and build up equity.
But in the U.S., after prolonged near-zero interest rates lured people to buy houses, interest rates rose, the financial crisis boosted unemployment and people used their homes as automatic-teller machines, refinancing them to buy depreciating assets like gas-guzzling cars and flat-screen TVs. The result was a deluge of houses for sale, which lowered prices and in many cases wiped out home equity completely.
The Canadian government saw housing become a sinkhole in the U.S. and has decided to Sherpa us around that crevasse.
In 2006, mortgage insurers, including Canada Mortgage and Housing Corp., began extending amortization periods from 25 to 30 years, then 35 and even 40. There was even talk of 50-year mortgages. At the same time they began insuring interest-only loans that essentially required no down payment.
When more than half the mortgages taken out during the first six months of 2008 had 40-year amortization periods, the federal government started putting speed bumps on the road to ruin. It reduced mortgage maximums to 35 years and eliminated interest-only loans by requiring a minimum five-per-cent down payment.
Last year came a second round of changes, making borrowers meet the standards for five-year interest rates, lowering maximum mortgage refinancing from 95 to 90 per cent of home value and requiring a 20-percent down payment for government-backed mortgage insurance on rental or investment properties not lived in by the owner.
And now, a third wave of changes, to save us from ourselves.

Lending standards may already be too tight: mortgage professionals

2011-01-21T09:21:00.000-05:00

By Sunny Freeman, The Canadian Press

TORONTO - The risk of mortgage rates rising to unaffordable levels in the near future is "negligible" and recent measures taken by Ottawa to clamp down on housing loans may be too harsh, says Canada's mortgage industry association.
Due to the effect of tightened lending rules "housing demand at present and for the near future is probably lower than it needs to be," according to the Canadian Association of Accredited Mortgage Professionals, which represents brokers and others in the industry.
In fact, the group suggested in a report Wednesday that the rules may need to be relaxed.
CAAMP said that a vast majority of borrowers studied had left themselves room to absorb a hike of as much as one percentage point on fixed-rate mortgages and even more on variable-rate mortgages.
"Canadians — lenders and borrowers — have been highly prudent in the mortgage market," Will Dunning, the association's chief economist, wrote in the report.
"There have been some calls for mortgage lending criteria to be tightened further. This analysis concludes that Canadian lending criteria are already tight enough. In fact, some might argue that with the changes implemented in April 2010, Canadian criteria are currently too tight."
The report came two days after federal Finance Minister Jim Flaherty further altered lending rules to curb higher-risk borrowing in the housing sector. Changes coming into effect in March include reducing the maximum amortization period to 30 years from 35 for insured mortgages and limiting how much money Canadians can borrow using their homes.
It was the third time mortgage rules have been tightened in the past three years, a period in which historically low interest rates have been fuel for rampant borrowing.
On Tuesday, Bank of Canada governor Mark Carney left the key overnight lending rate untouched at one per cent, but with a renewed warning that household debt is mounting.
Both Carney and Flaherty have warned repeatedly over the past several months that Canadian consumer debt is rising too rapidly and threatens the future health of the economy.
Flaherty dismissed the CAAMP report Wednesday, noting that the group has a vested interest in seeing the housing and mortgage markets remain robust.
"My concern has been to strike the right balance between the availability of credit in the residential housing sector and the danger of developing any sort of bubble in the housing sector," he told reporters, adding that he doesn't believe further tightening will be necessary at this time.
John Andrew, a professor at Queen's University School of Urban and Regional Planning, said it's unlikely mortgage reforms would put a significant chill on the housing market because the changes are aimed at the highest-risk borrowers, who are already unlikely to qualify for insured borrowing from most lenders.
"I dispute their claim that the housing market is slowing down," he said.
"I don't see (mortgage changes) really affecting the market that much because there really aren't that many lenders that are going to be lending ... to that type of a borrower anyway."
But CAAMP said changes made by Flaherty last April had already disqualified a significant number of potential borrowers, thereby curbing debt growth.
Last April, the government introduced changes that forced borrowers to meet the standards for a five-year fixed-rate mortgage even when applying for a lower interest, shorter-term loan.
That slimmed average gross debt service ratios, a measure used by banks to test how much housing debt will eat into income, by about one per cent to 19.3 per cent in the second half of the year, the CAAMP report said.
The study also tested the impact of higher mortgage interest rates, assuming a rate of five per cent by the end of 2012. That would raise the cost of a fixed-rate mortgage by about one percentage point but would have a bigger impact for those with variable rates, about 2.5 per cent.
It found that expected increases in income levels should more than offset increases in interest rate payments and most borrowers would be able to absorb the shock.
"Recent mortgage lending, in an environment of very low interest rates, results in some risk of financial difficulties if and when interest rates increase in future," Dunning wrote in the report.
"However, the degree of risk does appear to be extremely small."
Still, the CAAMP report found the amount of outstanding mortgage debt in Canada surpassed $1 trillion in August and stood at $1.08 trillion in October — about 57 per cent higher than five years earlier.
That represented a debt growth rate of 9.4 per cent per year. The figure is slightly lower than the average over the past decade, but troubling because it far surpassed income growth.
Mortgage defaults also remain higher — at about 0.43 per cent — than they were before the recession, when the rate stood at less than 0.30 per cent, the report found.
However, CAAMP said that as the housing market slows, debt growth is already decelerating and as of October stood closer to seven per cent, below the 10 per cent average for the decade.
The report was based on 59,000 insured mortgages for home purchases and 26,500 for refinancing that were funded in 2010. The vast majority of those included in the data — 97 per cent —were considered high risk, meaning the loan-to-value ratio exceeded 80 per cent.

Further rise in Canadian dollar could delay rate hike

2011-01-20T09:19:00.000-05:00

MICHAEL BABAD

Among the many things complicating Mark Carney's life are a fat current account deficit and a strong dollar that could stay his hand on interest rates.
Mr. Carney and his rate-setting panel at the Bank of Canada flagged both those issues yesterday when they held their benchmark rate at 1 per cent. They also cited poor productivity gains among Canadian businesses, Europe's debt troubles, and the tentative nature of the global recovery.
They did upgrade their outlook for Canadian growth, and said the global rebound was picking up speed. But one of the things that caught the eye of economists was the fact that the central bank mentioned, for the first time in recent memory, the current account deficit, which swelled in the third quarter of last year to $17.5-billion.
That was the eighth quarterly deficit since late 2008.
"Net exports are projected to contribute more to growth going forward, supported by stronger U.S. activity and global demand for commodities," the Bank of Canada said as it announced no change in the overnight rate.
"However, the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high."
The current account is the broadest measure of trade. As Globe and Mail economics reporter Jeremy Torobin wrote Wednesday, a deficit in the flow of trade and foreign investment can provide an early warning of a country taking on too much debt, while a surplus can show it doing little to stimulate domestic demand.
The Canadian dollar , while slipping yesterday on the Bank of Canada's comments, has been hovering over parity with its U.S. counterpart, and economists suggest further gains in the currency could prompt the central bank to hold off on raising interest rates. While rates are expected to remain unchanged for some time yet, the timing of the next rate hike has been a source of speculation.
"If you were looking for a sign from the Bank of Canada that it was uncomfortable with the Canadian dollar's recent trip through parity, look no further than Tuesday's policy statement," said BMO Nesbitt Burns economist Benjamin Reitzes.
"The bank specifically mentioned the current account deficit for the first time in recent memory, highlighting its 20-year extreme. The 'persistent strength in the Canadian dollar' and poor productivity performance ... were stated as the key reasons for the deterioration. The bank's apparent unease with the continued C$ strength suggest that a further appreciation could delay the next round of rate hikes beyond current expectations."
As for productivity, the Bank of Canada has "put it on its list" of threats to the economy, added Sal Guatieri, Mr. Reitzes' colleague at BMO.
Lagging productivity has been an issue that has dogged Canada for some time.
Over the past year, Canadian factories have actually outperformed those in the United States by driving labour costs down at a faster pace, Mr. Guatieri said, but he compared that to "the woeful underperformance" of the previous nine years.
"Any backsliding in productivity could worsen Canada's competitiveness, widen its current account deficit, detract from growth - and temper the monetary tightening cycle," he said.
Senior economist Pascal Gauthier of Toronto-Dominion Bank added that Mr. Carney and his colleagues appear "to have gone to lengths not to sound hawkish" in an attempt to spark another surge in the dollar.

What mortgage changes mean for you

2011-01-18T11:27:00.001-05:00

If you already have a mortgage, you likely won’t be affected by new rules announced Monday by Finance Minister Jim Flaherty.
But you may feel the pinch if you’re already stretched to the limit and want to borrow more against your home by refinancing or by taking out a line of credit secured by your equity.
Starting March 18, you’ll be able to refinance only up to 85 per cent of the home’s value, down from 90 cent today. For a home worth $300,000, you’d get access to $255,000 by refinancing, compared to the $270,000 you’d get by refinancing at 90 per cent today.
The government has also limited the maximum amortization — the time it takes to pay off the entire mortgage — to 30 years, down from the current 35 years. This change is also effective March 18.
Finally, Ottawa will no longer allow home equity lines of credit to be backed by government insurance, starting April 18.
Here’s a guide to the new mortgage rules introduced in the past two years and why they’re necessary.
Q: Which changes have hit borrowers the hardest?
A: The Conservative government is embarking on its third round of mortgage changes.
In October 2008, it axed 40-year amortizations and “no money down” for insured mortgages. Homebuyers now needed a 5 per cent down payment and amortizations were capped at 35 years if your mortgage was insured by Canada Mortgage and Housing Corp. (CHMC) or a rival insurer, such as Genworth Financial.
(Mortgage insurance is mandatory if you borrow more than 80 per cent of a home’s value.)
You also needed a minimum credit score to qualify for an insured mortgage. (A credit score assesses the risk of problem borrowers, based on credit records.)
Last April, Ottawa brought in a second round of changes. Borrowers with insured mortgages had to qualify for a fixed-rate five-year mortgage, even if they eventually chose a variable-rate mortgage that required lower payments.
It also cut the refinancing limit for insured mortgages to 85 per cent of the home’s value (down from 90 per cent). That will drop again to 80 per cent this March.
The first reforms were most significant, says Jim Murphy, president of the Canadian Association of Accredited Mortgage Lenders; those after 2008 were just tweaks.
Q: Is the Harper government worried about a U.S.-style mortgage crisis?
A: Not really. It’s clear that Canadian banks had higher lending standards than U.S. banks and did not sell off mortgages to investment dealers (which took away a bank’s responsibility to ensure the loans were sound).
But Flaherty is nervous about the rising debt levels of Canadian households, which are starting to match U.S. levels. Mortgages are a large part of our total debt.
He wants Canadians to build equity and not use their homes as cash cows, to borrow against for even homes or a fancier lifestyle than they can really afford.
Mark Carney, governor of the Bank of Canada, is pushing for stricter limits too. He expects some borrowers could be in trouble when higher interest rates rise as the economy recovers.
Carney’s fear is misplaced, says Murphy. One-third of Canadian homeowners have no mortgages. And only half of the rest have insured mortgages — meaning their equity is less than 20 per cent of the home’s value.
His group will release a report Wednesday, based on an analysis of billions of dollars’ worth of mortgages, showing that higher rates will affect a minority of borrowers.
Last October, a TD Bank economic report estimated up to 10 to 11 per cent of households could be financially vulnerable if the Bank of Canada’s overnight rate rose to 3.5 per cent (from today’s 1 per cent).
While a major financial crisis isn’t brewing, TD said higher rates could hurt low-income families and many of those in the 55-plus age group, who were carrying heavier debt loads than in the past.
Q: Will the latest mortgage changes hurt the economy?
A: A rush to get 35-year amortizations before they disappear could boost real estate sales, but only temporarily. Economists expect 2011 to be a slower year than 2010 and house prices to be flat or weaken a bit.
Spending fuelled by home equity lines of credit — such as renovations, vehicles and debt consolidation — may fall as well. But few banks insure these HELOC loans.
Flaherty’s changes could relieve pressure on the Bank of Canada to raise interest rates, as long as inflation stays low. And that’s good news for mortgage borrowers.

Will mortgage rules add chill to a cooling market?

2011-01-17T10:24:00.000-05:00

STEVE LADURANTAYE

Just a few days ago economists gushed that the Canadian housing market had achieved a soft-landing - cooling off without crashing and returning to relative normalcy after a year of explosive growth.
That hasn't stopped the federal government from stepping in to make sure it stays that way. Changes to the mortgage rules - including a move to maximum 30-year amortizations instead of 35 years, and caps on home equity borrowing - will squeeze more marginal buyers out of the market.
It's already happened once - last year the Feds made it more difficult to qualify for a mortgage by forcing all borrowers to qualify at the five-year fixed rate, instead of the usually lower variable rate.
In practical terms - the changes to amortization lengths would add about $1,300 a year to the typical mortgage. Not huge, but enough to make someone think twice if they were already unsure if they could afford their new purchase.
The average Canadian resale home sold for $344,551 in December. Assuming a five-year mortgage at 4 per cent interest, and the minimum five per cent down payment of $17,227, a 35-year mortgage would have monthly payments of $1,441. Shorten the amortization period to 30 years, and the monthly payment increases to $1,555.
How much immediate effect that will have isn't entirely clear, of course, because there hasn't really been much evidence that Canadians are abusing longer amortization periods. The Canadian Association of Accredited Mortgage Professionals released a study late last year that showed 22 per cent of Canadians have mortgages with amortization rates exceeding 25 years, compared to 18 per cent the year before.
But the changes aren't necessarily targeted at today's market - the government wants to make sure Canadians are not taking advantage of record low interest rates to splurge on houses they won't be able to afford when rates inevitably start rising again.
Of course if this move proves heavy handed and freezes an already cooling market, interest rates will be the last thing those trying to sell homes will care about. They'll be more interested in finding out where all the buyers went.

Tax-free accounts may be better than RRSPs

2011-01-14T09:08:00.000-05:00

For many Canadians – particularly those with a low income – Tax-Free Savings Accounts (TFSAs) may be the best way to save for retirement, according to a report released Thursday by Jamie Golombek, tax and estate planning expert at the Canadian Imperial Bank of Commerce.

The report runs counter to the two-month-long rush at the beginning of each year known as RRSP season.
It shows that given identical tax circumstances, compounding, and dates of contribution and withdrawal, the amount of after-tax cash that can be accumulated within an RRSP or TFSA is identical.
Those who can afford to contribute to both an RRSP and TFSA should do so, but the reality is that most Canadians don’t have enough cash to do both each year, Golombek points out.
If you have a high income during your working years and expect that to drop in retirement, an RRSP may be best.
But if the opposite is true, a TFSA may be the better choice, Golombek writes.
Canadians typically rush to put money into an RRSP in order to qualify for a refund on their income taxes, a phenomenon Golombek calls “Blinded by the refund.”
“Conventional thinking seems to have steered most Canadians towards the tried and trusted plan, the RRSP, at the expense of the TFSA,” Golombek writes.
In the report, Golombek compares a $5,000 contribution to an RRSP. No tax is paid when the money is deposited. Assuming a 5 per cent rate of return, that would grow to $13, 266 after 20 years. If the tax rate at the time of withdrawal is 40 per cent, the net cash from that investment is $7,960.
Compare that to a $3,000 contribution to a TFSA – that’s $5,000 before the 40 per cent tax rate takes $2,000 off the top. It grows to $7,960 after 20 years with a five-percent annual return. Since no taxes are due when the money is withdrawn, the net cash from the investment doesn’t change – and is equal to the proceeds from the RRSP.
Here’s the worst part for those with a low-income in retirement: even modest withdrawals from an RRSP can affect government benefits and tax credits such as the Guaranteed Income Supplement (GIS), Old Age Security (OAS) Benefits, the Age Credit or the GST/HST credit.
The TFSA has a clear advantage here – since withdrawals from a TFSA are not considered to be “income,” they have no impact on those benefits.
Starting in 2009, Canadians ages 18 and over can contribute $5,000 a year into a TFSA. Those who open one this year can immediately contribute $15,000 because the unused contribution room from previous years accumulates.
Like an RRSP, investment income from the cash, stocks, bonds, or mutual funds held in the TFSA is not taxed.
Withdrawals from a TFSA can be made at any time for any reason, though you have to wait until the next calendar year to put the funds back in the account.
Contributions made to an RRSP reduce your taxable income – hence the tax refund – but taxes are due with your take out the funds at retirement.
Make withdrawals early or for a reason other than funding your education or buying your first home, and you’ll be hit with hefty withholding taxes.
And what about that tax refund from your RRSP?
Don’t think of it as a windfall, but simply the “present value of the future tax payment that will have to be made on the RRSP withdrawal,” Golombek says.
The best option is to consult a financial advisor or accountant who can help run the numbers and consider your unique situation.
“Ultimately, an individual’s specific financial circumstances and long term retirement goals will determine which vehicle is most advantageous,” Golombek said. “Perhaps with some financial guidance and a better understanding of how these new savings vehicles work, TFSAs may become the retirement vehicle of choice for many more Canadians going forward.”

The Catch 22 of low interest rates, fat debt

2011-01-11T09:07:00.000-05:00

MICHAEL BABAD

Some people want to know why the Bank of Canada would consider raising interest rates when high consumer debt levels are such a threat. Still others wonder why the central bank doesn't just go ahead and do it to discourage borrowers from taking on more than they can handle.
The answer, of course, is that the Bank of Canada looks at a lot of things in terms of overall conditions and policy, notably its inflation target of 2 per cent.
The central bank has been warning for months now that high consumer debt is worrisome, and very risky for those who can't juggle the costs when interest rates inevitably rise further. Yesterday, a deputy governor at the Bank of Canada explained why, as one economist has put it, policy makers have left the pantry open while saying 'hands off the cookie jar.'
Agathe Côté gave an audience in Kingston, Ont., a lesson in how low rates can juice a sputtering economy, by boosting lending and spending, and how that creates its own risks. But there, she warned, borrowers and their lenders should be the ones exercising caution.
"The bank recognizes that low interest rates, while necessary to achieve our inflation target, create their own risks," she said. "Prudence on the part of individuals and financial institutions is the first line of defence against these risks. Supervision of financial institutions can also be effective in limiting excessive concentration of risk. The development and use of selected macroprudential tools constitute another line of defence."
Household spending, representating about 60 per cent of demand in Canada, was crucial in getting the country out of recession, but now household finances have become "increasingly stretched."
Ms. Côté noted, as others have before her, that household debt has surged at twice the pace of personal disposable income since the depths of the recession. It now stands at 148 per cent of disposable income. Coupled with low rates, rising house prices and home-equity loans have also led to the growth in credit, and, in turn, spending.
These high debt levels are now a threat. If things go south, a shock could spread through the economy.
"Some have asked if increasing interest rates poses such a threat to households, why raise them?," Ms. Côté said. "Yet others have asked if household debt is such a concern, why not raise rates and discourage borrowing?"
The "cornerstone" of monetary policy in Canada is its inflation target. "In setting interest rates to achieve the inflation target, developments in household finances need to be weighed along with all the other factors influencing economic activity and inflation. Canadian monetary policy is set for overall macroeconomic conditions in Canada."
Ottawa has already brought in stricter mortgage rules, she noted, and the Bank of Canada's three rate hikes since the recession's end have served as a reminder to borrowers that cheap money won't last. That has started to have an impact.
"The BoC can only hope that its message is not being lost on deaf ears," senior economist Pascal Gauthier of Toronto-Dominion Bank said after Ms. Côté's speech. "At 148 per cent … and rising, the debt-to-income ratio is but one measure underscoring the need to pay close attention. By our calculations, economic and financial fundamentals suggest that a more sustainable debt-to-income ratio would lie around 138-140 per cent. Nonetheless, if debt grows in line with income, a policy response would not be needed. However, if debt outpaces income for another sustained period of time, targeted regulatory tightening may well be required to more firmly nudge households towards a more prudent path."
Stay informed on the latest lending rates.

What retirement? More planning to work longer

2011-01-05T09:44:00.003-05:00

More than two-thirds of Canadians plan to keep working after they officially retire, according to a survey by Scotiabank.

In Ontario, seven-in-10 plan to work during retirement the survey found with a little under half saying they would do so because they need the money. An even higher portion said they plan to work primarily because it keeps them mentally and socially active.
In terms of what retirees hoped to do with their time if not working, travelling and spending time with family and friends topped the list, followed by reading, exercising, taking up a hobby and going back to school.
The study also found that a little more than half of Canadians think they will need less than $1 million to have a comfortable retirement. Another 28 per cent think they will need between $1 million and $2 million.
“There's no magic number that Canadians should be aiming for, [but] it's important that Canadians are realistic,” Gillian Riley, a Scotiabank senior vice-president said.
When it comes to building a nest egg, about three-quarters (78 per cent) of those expecting to retire say they have been saving for an average of 15 years and are still putting money away.
Half of Canadians (55 per cent) who plan to retire report saving less than $20,000 over the past five years.
While the bulk of money for retirement will come from RRSP contributions and savings, many Canadians indicated their retirement would also be funded by money from the government, their work pension or inheritance.
About 5 per cent expect to earn a comfortable retirement from a lottery win and 4 per cent expect it to come from their children.

Optimistic signs of an economy gaining momentum

2010-12-20T10:13:00.000-05:00

SIMON AVERY

This is a light week for economic data in the lead up to the holidays. But even as activity slows down after a dramatic year in the markets, optimism is unquestionably on the rise.
Expectations have brightened over the last few weeks, getting a boost from the U.S. Federal Reserve’s second round of quantitative easing, Congress’s $858-billion (U.S.) package of tax cuts, and improving economic numbers.
Markets are close to locking in double-digit gains for 2010: 12 per cent for the S&P 500, 10 per cent on the Dow Jones industrial average, and 12 per cent for Toronto’s S&P/TSX. Stocks haven’t enjoyed these heights since before the collapse of Lehman Brothers in September 2008.
A dozen brokerage strategists surveyed by Bloomberg are anticipating further gains for the broad S&P 500 next year. Their median estimate is for an increase of 6.7 per cent in 2011.
Yields on U.S. Treasuries are at their highest level since May, with the 10-year bond settling in at 3.34 per cent on Friday. The rise, in part, reflects a more upbeat economic outlook, as well as the realization that expanding U.S. debt will have to be funded and that inflation may reappear.
The Chicago Board Options Exchange Volatility Index, also known as the VIX, sank 10 per cent Friday to 16, its lowest point since April. The VIX became part of main street’s vernacular this summer. As the barometer of market anxiety surged past 30 this spring, and then closed in on 50 in June, it seemed to be charting civilization’s course to financial ruin. These days, the VIX is barely mentioned, even in detailed reports from economists and equity strategists.
The U.S. Conference Board on Friday said its index of leading economic indicators increased in November by the most in eight months. The rise is “an early sign that the expansion is gaining momentum and spreading,” said Conference Board officials, but they remain cautious. “Looking further out, possible clouds on the medium-term horizon include weaknesses in housing and employment,” said economist Ken Goldstein.
Most market watchers now think that the U.S. economy will manage to grow 3 per cent next year, nearly half as much more as they were forecasting a few months earlier.
On Thursday, U.S. durable goods orders are expected to show a decline for the second consecutive month, weighed down by weak orders for aircraft. But when the transportation sector is removed from the results, orders could show a 2 per cent rise, a positive signal in terms of capital spending by businesses. Consumer spending, meanwhile, is expected to have risen 0.5 per cent and income 0.3 per cent.
In Canada on Thursday, the latest GDP figures are expected to show a rebound for October, following September’s dip.
Despite the cavalcade of good news, stubbornly high jobless rates, sovereign debt loads and the troubled U.S. housing sector remain concerns. James Marple, senior economist with Toronto-Dominion Bank, warns that there could be as much as 21 months supply of housing in the U.S. market when homes in foreclosure are included. The housing industry is a key driver of the economy, and real estate accounts for roughly one-quarter of household wealth in the U.S. That means the U.S. consumer is not about to carry this recovery.
It will take another two or three years for the economy to grow sufficiently to bring some relief to housing and unemployment, he says.
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Banks hike mortgage rates across the board

2010-12-15T09:11:00.001-05:00

By Michael Lewis
Mortgage rates are moving higher thanks to the rising cost of borrowing in the bond market.
RBC Royal Bank was the first of the big banks to announce increases this week, with the Toronto Dominion Bank following suit Tuesday.
Dan Eisner, chief executive of Calgary-based True North Mortgage, said the Bank of Nova Scotia has “warned” of a pending hike, adding that he expects all of the big banks, along with other lenders, will have pegged their so-called special fixed rates higher by the end of the week.
TD Canada Trust hikes effective Dec. 15 range from of a 10th of a percentage point to nearly a third. The highest increase affects one-year closed mortgages, which are now at 2.94 per cent, an increase of 0.29 per cent.
TD’s five-year closed rate is up 0.20 per cent to 4.24 per cent, while its seven-year closed is at 4.94 per cent, an increase of 19 basis points.
RBC on Monday hiked its six-month convertible rate by 0.10 per cent to 4.05 per cent and raised its five-year closed by 0.20 per cent to 4.24 per cent, among other special fixed rate offer increases.
The changes follow cost hikes in the North American bond market, where banks raise money to finance mortgage loans to consumers — and come as investors dump North American bonds and rotate cash into rising stock markets. That has forced the banks and other borrowers to pay higher interest rates on bonds to win investors.
Concerns about global economic woes and market volatility had spurred many investors to move their money out of stocks and into bonds this year. But the Treasury bill buying spree culminated in the U.S. Federal Reserve’s announcement early last month that it would buy U.S. bonds in an effort to add liquidity to the American economy.
While mortgage rates remain low, the increases occur at a time when the Bank of Canada is warning consumers to reduce liabilities and control spending due to record levels of household debt.
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Amount Canadians owe continues to rise

2010-12-14T09:15:00.000-05:00

CRAIG WONG

Canadians continue to rack up more debt but the speed at which they are piling it on is beginning to slow, the TransUnion credit agency reported Tuesday.
The average debt for about 24.8 million Canadians tracked by the report, which excludes mortgages, rose to $25,163 — up 4.3 per cent in the third quarter compared with a year ago.
The main source of non-mortgage debt for Canadians was vehicles, with credit card purchases a distant second.
However, despite the increase is the amount of debt, TransUnion said Canadians seem to be managing their debts better than they were, with delinquency rates and past-due balances dropping across the country.
The national credit card delinquency rate was down nearly 10 per cent in the third quarter of this year compared with a year ago when the Canadian economy was just beginning to recover from a major recession.
"There continue to be positive signs in the credit market as Canadians slowly manage out of the recession," said Thomas Higgins, TransUnion’s vice-president of analytics.
"The most positive sign has been the significant decrease in past due balances (outstanding debt that is at least 30 days past due), which has dropped 15 per cent since last year after three years of increases."
Jeffrey Schwartz, executive director of Consolidated Credit Counselling Services of Canada, said the report was good news in that fewer Canadians have been missing payments, but bad news because overall borrowing continues to grow.
"We are still at extremely high levels on a debt-to-income ratio and that's a little scary and that's still going up, so that is a concern," he said.
Bank of Canada governor Mark Carney has voiced concern about consumer debt and the ability of borrowers to meet their payments once interest rates begin rising again.
However, Mr. Schwartz noted that borrowers are becoming more conscientious of their debt loads and he is seeing less panic among borrowers than at this time last year.
"They are looking for opportunities to get out of debt and even try it on their own so they can maintain their credit standing as best they possibly can," he said.
Quebec posted the largest increase in debt at 6.6 per cent, while Manitoba had the lowest increase at 2.6 per cent compared with the national average of 4.3 per cent.
However, TransUnion says that is still an improvement over the double-digit increases that had been going on since before the recession.
Canadian average credit card debt increased to $3,709 from the previous quarter’s $3,614, but fell 1.7 per cent compared with a year ago.
Average auto loan debt increased to $16,183 from the previous quarter’s $15,135, and up 9.8 per cent from a year ago.
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Four easy steps to a wealthier new year

2010-12-09T09:10:00.000-05:00

ANGELA SELF

A fresh start is only a few weeks away and I’m looking forward to it. This year, instead of all of us making a laundry list of things we’ll likely lose interest in come Valentine’s, let’s come up with just a few thoughtful resolutions - and nail them. Putting away more money but in fewer pots, and being more efficient with managing money are at the top of my list. Here are a few other ideas to take you into a happier, wealthier and financially healthier new year.
Manage your money easier
I put a few nerd-alert gadgets on my holiday list, including a shredder and a receipt scanner. Seriously. You can see the full list here (in case you’re feeling generous). Simple tools to help me stay organized and spend less time inputting, filing and searching is what 2011 is all about. Online tools like Money Strands will also help you streamline your finances and simplify. Next year, we should also follow the example of New York Time’s columnist Ron Lieber and take a fiscal health day. You can see more of what this day entails here to get the idea. I’m going to schedule mine in February. I’ll let you know how it goes.
Focus your financial goals
This year my financial goal was to max out my TFSA. I stopped funding my retirement account and other secondary savings accounts to achieve this goal. What should your top goal be this year? That depends on your life stage and your values. We all want to build wealth, but what we need or want, in what time frame, and for what reason, is different for all of us.
You might value a conservative savings account over travel, or travel over early retirement, or a home over something else. Taking on too many goals at once decreases focus, so focus on the most important. Trying to do too much can also be discouraging if your progress inches slowly rather than in leaps and bounds.
Stick to your 'Rather Factor'
What would you rather spend your money on? Your response will likely relate to your values and to what you care about most. Determine your rather factor and keep it top of mind and on the tip of your tongue, because this allows you to spend money on the things you love and dramatically cut costs on the things you don’t. Sticking to your rather factor means attaching a "why" to your values.
You value being debt-free. Why? Because you’ll have freedom, the chance to explore other opportunities when debt-repayment is off the table, the ability to finally save for financial security or a kitchen renovation or a vacation. When you attach an emotion to the reasoning, you’re better be equipped to see the resolution through.
Automate some fun
While it's a great idea to automate your savings, don’t forget to include a fun-money account just for you. Set one up for yourself in the New Year to cover unexpected splurges, the good stuff. It will take you less than 10 minutes to link your chequing and savings accounts online and have a certain amount automatically sent to your various saving pots each month. It's easy to do this on your banking institution’s website or by calling your bank directly.
This year, I’m opening a sub-account entitled “Love,” which will house money to spend on the things and the people I love. You don’t have to put a lot away, but if you’re saving a little bit each month toward something that’s important to you, you’ll be motivated to fund the account and watch it grow.
These are simple resolutions. They don’t take much time to set up or maintain and they'll be easier than trying to tackle a lengthy list of goals. Focus your energy and resources on a few resolutions, see them through, and you’ll be ahead of most other people before the snow’s even melted.

4 mistakes to avoid for a more profitable 2011

2010-12-08T10:00:00.000-05:00

Here are four mistakes to avoid if you want to make 2011 more profitable.

1. Don’t sell your top-quality stocks just because they’ve gone up.
Selling your best stocks too soon is a particularly big risk for 2011. When the market recovers from a black hole like the one it fell into in 2008 and 2009, somebody always says it has gone up “too far and too fast.” Applying this pseudo-conservative advice gives you an excuse to take profits, which appeals to us all. But it hurts your results in the long run.
In the course of an investing career, some of your stocks will go up way more than you’d ever guess, some do about as well as you’d expect, and some stagnate or fall. The top performers contribute an over-sized part of your lifetime profit.
You need a few “five baggers” (stocks that go up, say, 500 per cent) to make up for the inevitable losses of 20 per cent to 40 per cent or more that strike every portfolio. If you’re too quick to sell stocks that seem to have gone up “too far and too fast,” you’ll never have any five-baggers.
2. Don’t be afraid to sell speculative stocks.
My advice in point one above applies mainly to well-established companies. In contrast, you should be ready to take at least partial profits in any low-quality stocks you own that go up substantially.
Of course, it takes judgment to spot low-quality stocks. But some of their chief earmarks are a lack of earnings history, a dependence on projects that are still under development, and investor relations material (press releases, websites, emails and so on) that seems promotional rather than informative.
You may want to apply the “sell-half rule”: sell half of any speculative stock you own that doubles, so you get back what you initially invested.
3. Don’t settle for profitless security.
The marketing directors at financial institutions are just like their counterparts at soap companies. They don’t want to create products that are bad for you or will hurt you. They just want to create products that you’ll buy.
Today, investors are huddled on the “fear” end of the fear-greed spectrum. One way to appeal to them is to come up with innovative financial offerings that provide a no-loss guarantee.
The problem is that guarantees cost money, and buyers pay for them. That’s one reason why “guaranteed” investment innovations generate far less profit than stocks, plain-vanilla mutual funds, or other forms of ‘un-guaranteed’ investment. For that matter, the guarantee may be far flimsier and loophole-riddled than you’d guess from reading the sales brochure.
You only learn about these limitations by reading and understanding the prospectus or offering memo. In general, the closer you look at the fine print, the less likely you are to buy.
4. Don’t close your mind to new information.
When shopping for a new car, you may at first feel equally drawn to a Ford and a Toyota. If you buy the Ford, an all-too-human mental process takes hold. You begin to ignore faults that occur in Fords, and disregard anything good about Toyotas.
This is your mind’s way of making peace with your decision. In today’s world, it’s a good thing. Most of today’s cars can do what most consumers expect. Besides, replacing a new car soon after you buy is expensive and wasteful, and we all have better things to worry about.
Unfortunately, the same process takes hold when you buy a stock, or begin dealing with a new broker. But investments and brokers vary more widely in quality than do cars.
You aren’t (or shouldn’t feel) stuck with those that turn out to be bad choices. That’s why you should keep an open mind about your investments. That’s good advice this year and every year.

Inflation hits two year high

2010-11-30T10:28:00.002-05:00

Canadians shelled out more for gas and energy October, pushing the annual inflation rate to a two year high with Ontario reporting the highest boost in prices for all the provinces.

Consumer prices rose 2.4 per cent in the 12 months leading up to October, the largest increase since October 2008, Statistics Canada reported on Tuesday.
October’s boost followed a 1.9 per cent increase in September. “About half of the 0.5 percentage point increase can be attributed to higher gasoline prices,” the report showed. In October gas cost 8.8 per cent more than it did the same time the previous year. Energy prices advanced 9.1 per cent and transportation costs and insurance premiums rose 4.6 per cent and shelter costs rose 2.8 per cent.
In Ontario, prices rose 3.4 per cent in the 12 months leading up to October after a 2.9 per cent increase in September. Gas prices were up 11 per cent, and significant increases were recorded in electricity and the purchase of passenger vehicles.
Underlying core inflation for the country, which excludes energy, rose three-tenths of a point to 1.8 per cent, nearing the Bank of Canada’s target two-per-cent range.
The sharp run-up in core and overall inflation took markets by surprise.
Consensus among economists was inflation would increase to about 2.2 per cent, based on a recent pick-up in oil prices and the continuing impact of the new harmonized sales tax in Ontario and British Columbia.
Craig Alexander, senior vice president and chief economist with TD Bank Financial Group said in a note while core inflation came in above consensus “the result does not indicate that an inflation problem is in the cards.”
The report “also does not alter our perspective that the Bank of Canada is on hold until next July,” he said. Alexander said “the uptick of inflation is likely an aberration and will not last.”
“In truth, the outcome in October is a bit of a head scratcher. The acceleration of inflation is at odds with the underlying economic environment and the strength in the Canadian dollar this year,” he said.
Not all prices were higher in October. Prices for clothing and footwear edged down 0.1 per cent, although the drop was less than the 2.2 per cent reported in September.
Mortgage interest costs retreated by three per cent, the price of computer equipment and supplies dropped 12.5 per cent and air transportation and furniture were lower than the previous year.
Doug Porter, deputy chief economist with BMO Financial Group said after “a steady stream of mild inflation readings, it’s a bit of a jolt to get a true high-side surprise,” in a note.
“The underlying firmness in domestic spending has clearly put a floor under inflation, with rising energy prices adding a lift,” he said.
Porter noted that core inflation remains below the central bank’s 2 per cent target “as does headline inflation after accounting for the impact” of Harmonized Sales Tax.
“However, if we see anything close to a repeat performance in the next few months, there will be some serious misgivings at the Bank about keeping rates at 1 per cent for much longer,” he said.

Canada's inflation rate jumps half-point to 2.4 per cent, highest in two years

2010-11-29T09:12:00.000-05:00

By Julian Beltrame, The Canadian Press

OTTAWA - Canada's annual inflation rate jumped to 2.4 per cent in October, its highest level in two years, as Canadians were hit with price hikes for most things from gasoline to cars, shelter and food.
The half-percentage-point increase in the annualized consumer price index was well above what analysts had forecast, and is likely to raise some alarms with the Bank of Canada.
Statistics Canada blamed higher energy costs for most of the increase, particularly an 8.8 per cent hike in gasoline prices, but most things were noticeably higher in October.
Transportation costs rose 4.6 per cent, while shelter costs increased 2.8 per cent.
Other higher costs included food which was up 2.2 per cent, electricity 8.1 per cent, cars 4.9 per cent, car insurance 4.6 per cent, and property taxes by 3.5 per cent.
On a month-to-month basis, Canadians paid 0.4 per cent more in October for a basket of items than in September.
Economists had expected an increase to about 2.2 per cent from a recent pick-up in oil prices and the continuing impact of the new harmonized sales tax in Ontario and British Columbia — two populous provinces that can move the national needle — but the higher number suggests that inflation may be more sticky than previously thought.
Even the underlying core inflation, which excludes volatile items like gasoline, rose three-tenths of a point to 1.8 per cent, edging nearer to the Bank of Canada's two-per-cent target.
Central bank governor Mark Carney, whose prime mandate is to guard against price spikes, is still expected to hold steady on interest rates at the next scheduled decision date next month, however.
Not all prices were higher last month. Clothing and footwear continued to be bargains as prices edged down 0.1 per cent, although the drop was less than the 2.2 per cent seen in September.
As well, mortgage interest costs retreated by three per cent, the price of computer equipment and supplies dropped 12.5 per cent and air transportation and furniture were lower than last year as well.
Regionally, the two HST provinces continued to have among the highest inflation rates in the country, with Ontario leading the way at 3.4 per cent, half-a-point higher than in September, and British Columbia at 2.9 per cent. Newfoundland's inflation also remained elevated at three per cent.
Alberta and Manitoba had the lowest inflation among provinces at 1.2 per cent.

Inflation at highest rate in two years

2010-11-23T09:38:00.002-05:00

The Canadian Press

OTTAWA—Statistics Canada says Canada’s annual inflation jumped half a point to 2.4 per cent last month, as the cost of gasoline, cars, shelter and food all rose.
The rate follows a 0.2 per cent rise the previous month and brings the country’s annual inflation rate to the highest it’s been in two years.
On a monthly basis, overall prices increased by 0.4 per cent in real terms from September.
Prices rose in every province, but no more so than in Ontario, where the inflation rate reached 3.4 per cent.
The bigger-than-expected increase was partly attributed to the introduction of the harmonized sales tax in the big provinces of Ontario and British Columbia, but even underlying core inflation saw a hefty lift, to 1.8 per cent from 1.5 per cent in September.

Is retirement chained to your home?

2010-11-16T10:25:00.000-05:00

Garry Marr, Financial Post

Canadians plan to take longer to pay off their mortgages, maybe even 35 years, but they don't expect it to affect their retirement plans. Something in that plan just doesn't add up.
A new study from the Canadian Association of Accredited Mortgage Professionals (CAAMP) shows consumers are taking advantage of longer amortization lengths at previously unheard of levels. Statistics released this week show 42% of mortgages originating in the last year went for an amortization period of more than 25 years.
It's a huge jump when you consider that just five years ago, you couldn't even get an insured mortgage backed by the government that was amortized above that period. Now the government limits insured mortgages to 35 years.
The reason for the longer amortization periods is simple: you can qualify for more mortgage when your monthly payment is lower because it is spread out over 35 years rather than 25.
Within the same survey by CAAMP, consumers were asked about their retirement expectations. Those with extended amortizations plan to retire on average at 61.9 years old. Those amortizing their mortgage for less than 25 years plan to retire on average at a surprisingly similar 61.5 years old.
"This data on expectations does not prove that actual retirement will be unaffected by recent trends in housing and mortgage markets," CAAMP says in its study. No kidding. "But it does suggest that consumer's evaluations of their life-cycle options have not been materially altered."
Are consumers being entirely realistic about their future?
Will Dunning, chief economist with CAAMP, says the percentage of Canadians retiring with a mortgage is small — small enough that it is difficult to track.
"We find a lot of people taking [longer amortizations] are making additional payments," Mr. Dunning says, adding previous studies have shown people try "aggressively" to repay their mortgages.
Victor Fiume, president of the Canadian Home Builder's Association, says Canada is just catching up to a trend that has taken place in other jurisdictions.
"In many, many countries across the world, paying off a home is a multi-generational kind of thing. It doesn't happen in this generation. Lots of the stuff going on in England is multi-generational because the houses are so expensive," Mr. Fiume says.
There is no arguing the increased flexibility a longer amortization mortgage gives, but increasingly some consumers find themselves getting into financial trouble because they have bitten off too much, says Patricia White, executive director of Credit Counselling Canada.
"People will always decide what is easiest for them," she says. "But you have to plan in advance to make accelerated payments. You need to make some conscious decisions about how to get rid of that mortgage debt faster."
Canadians always do better when they have direct withdrawals from their bank accounts and less discretionary power about paying down debt, Ms. White adds.
Vince Gaetano, a principal broker and owner at Monster Mortgage, agrees people who choose the longer amortization and the lower payment rarely take advantage of that extra cash flow to make additional payments later on. "It's a very small group of people who do that," he says.
He thinks consumers going for the longer amortization are banking on the fact their homes are going to rise in value faster than any gains they get paying their mortgage off earlier.
"Real estate over time will appreciate at more than 2% to 4% per year," Mr. Gaetano says. "People are saying, 'It won't affect my retirement because I plan to retire with a home that will appreciate in value [in addition to the principal you are paying down].' It's not a bad strategy if you are in a market that gives you consistent appreciation, but you are not going to get that in every market in Canada."
There is no getting around the fact the people who take a longer amortization will take longer to repay their loan. The CAAMP study found consumers going longer than 25 years, were done with their mortgage at age 53 on average, compared with an average of 47 years for those going for the less than 25 years.
If you are going for a longer amortization, you better hope your home goes up in value because you are going to have fewer mortgage-free years in which to save. It's hard to believe that won't affect retirement plans.

What's in your TFSA?

2010-11-15T09:18:00.000-05:00

NOREEN RASBACH

Just over two years ago, I wrote a column for The Globe’s investing section about Tax-Free Savings Accounts. It was a few months before TFSAs were widely available (on Jan. 1, 2009) and financial experts, who enthusiastically hailed them as “revolutionary,” predicted an onslaught of publicity about how best to use the accounts. TFSAs, they said, were going to be as well known as RRSPs in no time.
Well, the second anniversary is coming up, and there seems to be a lot of confusion amongst Canadians about TFSAs. In a poll released by the Bank of Montreal this week, 36 per cent of respondents say they have a TFSA -- but many are unclear about what you can use them for.
The survey of 1,513 Canadians found 20 per cent did not know that mutual funds are eligible with a TFSA (they are), 26 per cent were unaware that GICs are eligible (they are, too) and 37 per cent had no idea what investments were eligible (cash, mutual funds, exchange-traded funds, stocks, GICs and bonds – if you can put it in a RRSP, you can put it in a TFSA).
The difference between RRSPs and TFSAs is that for RRSPs, you get a tax break when you invest but must pay taxes when you withdraw. With TFSAs, you get no tax break when you invest but you don’t have to pay taxes when you withdraw. So if I invested $5,000 in stocks through the account and they doubled in value (hey, I can dream), I could take the $10,000 out of the account and pay no taxes on the $5,000 profit.
There’s a limit of $5,000 a year that you can put into the account, but Janet Pettigrew, district vice-president with the Bank of Montreal, said that limit may be confusing consumers who believe they need $5,000 just to open one. In the poll, 40 per cent of respondents who didn’t have a TFSA said it was because they didn’t have enough money to invest in one.
“People think they have to have extra money for a TFSA,” she said. “They don’t realize they can start by putting, say, $500 or $1,000 in. No matter how small the amount is, it’s still good to start your savings within a TFSA.”
Ms. Pettigrew also worries that consumers are using TFSAs like traditional saving accounts – that is, they’re just storing cash in them rather than taking that money and putting it into other investment options, like GICs or mutual funds, and earning higher interest. She suggests that these people go to see a financial planner at their bank and get some free advice about some alternative ways to save and invest.
The question for me has always been whether it is better to put money in an RRSP or a TFSA? Ms. Pettigrew suggests that for a long-term investment – like retirement funds -- use the RRSP; if you want to save for something shorter term – like a vacation, a home renovation or a new car -- use a TFSA, which is more flexible.
If you’ve used up all your eligibility room in your RRSPs, taking full advantage of a TFSA makes sense, she said.
Canadians may not be fully aware of all of the specific options available in TFSAs, but they have come around to them in general. The new investments accounts have a high approval rating – nearly 70 per cent surveyed agreed the TFSA is a good investment and savings tool. That’s a good start.

More homeowners opting for long amortization

2010-11-10T11:44:00.000-05:00

Canadians are taking longer to pay off their mortgages but don’t expect it to affect their retirement plans.

A new study from the Canadian Association of Accredited Mortgage Professionals (CAAMP) showed 42 per cent of new mortgages in the last year went for an amortization period of more than 25 years. Five years ago, you couldn’t even qualify for an insured mortgage backed by the government that was amortized for more than 25 years.
In the same survey, CAAMP found those with extended amortization plan to retire on average at 61.9 years, while those with less than 25 years amortization plan to retire on average at 61.5 years.
“This data on expectations does not prove that actual retirement will be unaffected by recent trends in housing and mortgage markets,” the CAAMP report noted. “But it does suggest that consumers’ evaluations of their life-cycle options have not been materially altered.”
Homeowners opt for longer amortization periods because the monthly payment is lower when spread over 35 years instead of 25.

Canadians comfortable with their mortgage debt levels; One third have made additional payments in the last 12 months

2010-11-09T12:01:00.000-05:00

Canadian Association of Accredited Mortgage Professionals releases

Annual State of the Residential Mortgage Market in Canada report

TORONTO, Nov. 8 /CNW/ - Canadian homeowners are comfortable with their mortgage debt, have significant home equity and could withstand an increase in their mortgage interest rate, according to the sixth Annual State of the Residential Mortgage Market report from the Canadian Association of Accredited Mortgage Professionals (CAAMP), released today.
Highlights:
The vast majority of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments.
One in three (35 per cent) mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last year.
89 per cent of Canadian homeowners have at least 10 per cent equity in their homes and 80 per cent have more than 20 per cent equity.
Overall home equity is at 72 per cent of the total value of housing in Canada; for homeowners who have mortgages, equity level averages 50 per cent.
As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6 per cent from last year.
"Canadians are being smart and responsible with their mortgages," said Jim Murphy, AMP, President and CEO of CAAMP. "They are building equity in their homes and making informed, long-term mortgage decisions. The survey results speak to the strength of our mortgage market, especially when compared to the United States."
Homeownership is a good long-term investment
Most Canadians agree that buying a home is a good long-term investment and are focused on their mortgages to support that investment.
Many mortgage holders are making voluntary additional payments: 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments, and 7 per cent did both.
Canadians are exercising caution when taking out their mortgages, with a majority choosing a fixed-rate (66 per cent). A five-year fixed-rate mortgage remains the most popular option in Canada. Despite the fact that variable rate mortgages have become much less expensive compared to fixed rates, the majority choice is still fixed rates: this decision is based on people's individual assessments of risk, not just the cost difference.
Potential rate increases won't be a problem
The CAAMP study found that a vast majority of Canadians have significant capabilities to afford higher payments if and when mortgage interest rates rise. 84 per cent report that they could weather an increase of $300 or more on their monthly payments.
Most of the people who have low tolerances for increased payments have fixed rate mortgages, by the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.
Also, Canadians have been able to negotiate better than posted mortgage interest rates. For five year fixed rate mortgages arranged in the past year, the average rate is 4.23%, which is 1.42 points lower than typical, advertised rates.
Of the 1.4 million Canadians who renewed their mortgage in the past year, 72 per cent were able to renegotiate a decreased rate: on average, rates are 1.09 percentage points less than the rates prior to renegotiating.
Canadians have significant equity in their homes, strengthening the housing market
Canadians' home equity is impressively high. Among homeowners who have mortgages, the average amount of equity is about $146,000, or 50 per cent of the average value of their homes.
The amount of equity take-out in the past year is unchanged from last year with around one in five homeowners, or 18 per cent, taking equity out of their home, at an average of $46,000. The most common purpose for equity take-out is debt consolidation and repayment (45 per cent) followed by home renovations (43 per cent), purchases and education (19 per cent) and then investments (16 per cent).
The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in October 2010.
Need advice? Want the latest rates? Check out http://www.tmdc.ca/

2010-11-04T11:10:00.001-04:00

Deloitte Report: Mortgage brokers making inroads with first-time buyers. http://ping.fm/CPx7G

2010-11-04T11:05:00.001-04:00

Deloitte Report: Mortgage brokers making inroads with first-time buyers. Mortgage Brokers http://ping.fm/8xn93