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CMHC Surprises Housing Market With New Underwriting Changes…

Allow me to take you back two weeks ago when Evan Siddall (CMHC’s President & CEO) was testifying before the House of Commons finance committee. You may have heard the media report a couple of things…
1) Housing prices with fall 9 to 18%
2) CMHC may get increase the down payment requirement to 10% from the current 5%

Firstly, there is no national housing market! So while markets like Toronto and Vancouver get hit, it doesn’t mean that Saskatoon, Winnipeg, Edmonton or even Calgary will share to the same degree. Real Estate is very much local.

What I found interesting and what CMHC and the Media failed to report, was that CMHC would be driving the 9 -18% decrease they spoke of.

But I digress…

Oh and before I continue, let me say there is one silver lining but you will have to read to the end to find out more about that.

Here are the changes effective July 1, 2020..

1) Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to 35/42 down from the current 39/44
2) Increase the minimum beacon score requirement from 600 to 680 for at least one borrower (this will likely be the main applicant (higher income earner))
3) No non-traditional sources of down payment that increases indebtedness

So what does this really mean?

Let’s get the non-traditional sources like borrowing down payment from a line of credit, credit card, etc…out of the way first. I couldn’t tell you the last time we had a situation like this come across our desk, but this one will certainly have no material impact.

Reduced debt service ratios on the other hand…

If we look at a household income of $90,000, their max purchase would be $450,000. Come July 1 their purchase power would be reduce to $400,000. And this is assuming no debt!

For us in Calgary, our purchase power may be further reduced by the property tax increase many house holds are reporting.

Lastly, the 680 credit score requirement. I believe this will be impactful given our buy now on credit and pay it off in 10 years mentality…I believe this has to change. I say that because credit reporting agencies are putting more reliance on utilization these days. So someone with a 760 score today who misses one or maybe two payments could see their score drop below 680 and boom, they are no longer eligible for mortgage default insurance.

And what about that person who has two credit cards that are maxed out? Well, they too could see their score drop under 680.

Or what about that person with a $3000 limit on their credit card and found themselves over extend at $3200, for example? They too could find themselves impacted.

But! And this is a big but… there may be a silver lining!

We have yet to hear from the two private insurers, Genworth and Canada Guaranty. They have the ability to maintain status quo as they don’t have to follow CMHC’s lead.

Why?

Because this announcement is not Federal Government or Regulator mandated. So the two privates can continue with business as usual should they feel confident doing so.

I suspect they will be speaking with the Department of Finance next to gain clarity and insight, so stay tuned for that announcement.

I will be sharing the details the minute I hear more.

Should you find yourself asking why these changes are happening now, that will have to be for another post, as I have lots to say on the subject. That said, feel free to give our office a shout and we can discuss further.

In the meantime, give us a call to better understand the impact and how you can best insulate yourself and your family from these changes should they become the industry norm. Time is of the essence as July 1 is fast approaching. If you haven’t done so already, reach out to a Canada Mortgage Direct Mortgage Planner at 403.250.2100, as we looking forward to speaking with you and/or anyone you may know who may be looking to purchase or refinance a home.

Stay healthy!

Jeremy
403.250.2100

Bank of Canada Benchmark Rate Falls to 4.94%

Finally! Canada’s big banks lower their 5-year posted rates from the artificial highs they have been sitting at for months. Higher posted rates serves to bolster Bank profits as consumer choose to liquidate midterm and take advantage of today’s historic low interest rates.

But enough about the big Banks…

Down from 5.04% yesterday, a 4.94% Benchmark rate (the rate used for mortgage qualifying with the stress test) is welcomed news for those looking to get into the housing market. This 10 basis point drop (0.10%) equates to $3500 in additional purchase power. Not a lot, but great news nonetheless.

What impact might this have for you and your family, give a Canada Mortgage Direct Mortgage Broker today to learn more. 403.250.2100

Let’s chat…

Conspiracy, Collusion or just a Coincidence…you be the judge!

The mortgage market has certainly had its fair share of Government intervention over the years and everyone from the First-time Homebuyer to the buyer looking to move up and even investors looking to provide affordable housing options for renters. It has been a tough couple of years.

In looking for solutions, I have noticed something very peculiar and it has me thinking something odd is going on…but you be the judge.

Over the past 6 months the wholesale mortgage interest rates have fallen like a rock from 3.69% to 3.04% today and we are evening seeing 2.89% for 5-year money. WOW!! That is a 22% drop in rates.

You might be saying, that’s awesome as it works well for the consumer. Under normal circumstances I would agree, but this is anything but normal.

I’m sure you have heard of the ‘Stress Test’ that home owners have to go through when qualifying for a mortgage. This stress test uses the Bank of Canada Benchmark Rate which is simply the mode average of the big 5 Canadian bank’s posted rate. Today that Benchmark Rate, or Mortgage Qualifying Rate (MQR) as some like to refer to it, is sitting at 5.34%.

Here’s where things get interesting… this would be the time to get a bowl popcorn.

On May 10, 2018 that Benchmark rate increased from 5.14% to 5.34% due to mounting pressure from the bond market. Right after the increase the 5-year bond yield moved from 2.11 to 2.33 hitting a 7 year high before settling back down 2.11 days later.

Fast forward to today, that same 5-year bond yield has fallen to 1.33, yet the Benchmark Rate remains at 5.34%. It was back in June of 2017 when we last saw the 5-year yield at 1.33 and at that time the Benchmark rates was 4.64%.

In my estimation, the Benchmark rate should be around 4.69%, but we are just not seeing that today. Why?

Great question!!

I see one of three possible scenarios.

Scenario #1.

Keeping the post rate high at 5.34% allows the big Banks to offer deeper discounts. For example… a 5-year fixed rate offering to 3.04%, means a discount of 2.30%. Historically speaking, we are use to seeing discounts in and around 1.8% on average.

But as consumers, we want to drive that fixed rate as low as possible. I have already shared that today we can find a wholesale rate of 2.89% and as a consumer we go back to the Bank and demand it. Banker says sure and we walk away laughing. Sound familiar?

But are we really laughing or is it the Bank that is laughing?

By driving the fixed rate down to 2.89%, we have just drove the discount offered by the Bank up from 2.3% to 2.45%. Would it surprise you if I told you that the higher the discount, the higher the potential IRD penalty? That’s right, should you break the term of that mortgage before maturity, that IRD penalty can be massive! The joke may really be on us, the consumer.

So the question I asked myself knowing all this was…

By keeping the Benchmark qualifying rate artificially high, would Canada’s big Banks find themselves more profitable than the profit resulting from more Canadians being able to get into the housing market by simply lowering their Posted Rates, which in turn would lower the Benchmark Rate?

***Important to note… the Posted Rate for a wholesale lender is their wholesale rate. Their IRD penalty calculations are about one quarter this size of a big Bank penalty, on average. Click here for more on mortgage penalty calculations

Scenario #2

Did the Department of Finance reach out to the big Banks and ask them to keep the Bank Posted Rates artificially high to help them achieve their goals

Fueling the economy by limiting home ownership. I won’t get into this as it is another post on its own.

Scenario #3

Or is it just a coincidence that bond yields have fallen 31% in the past 6 months, yet the Bank of Canada Benchmark hasn’t moved?

I have an opinion, but you don’t care about my opinion so I will keep it to myself. This is where I turn to you and ask…

Is it a Conspiracy? Is it Collusion? Or is it all a Coincidence?

In the meantime, what we can expect is that consumers will continue to drive their rate offering as low as possible and banks will gladly oblige knowing they are driving up the discount of their Posted Rate… the larger the discount, the larger the IRD penalty. And for those who are on the cusp of qualifying and could use the help of a lower mortgage qualifying rate, you might have to wait a little longer.

Quick note… at the time this post was written, the big Banks Posted Rate was 5.34%. On Saturday, two days ago, RBC announced that they lowered their 5-year Posted Rate to 5.19%.

Until next time.

Jeremy

Canadian Mortgage Holders…Inverted Bond Yield Curve Provides Rare Opportunity

For those Canada homeowners who are looking to save money, a window of opportunity has just opened for those who act quick.

You heard us use the term inverted yield curve, but what does it really mean and how can I as a homeowner take advantage of this?

Great question!

The term inverted yield curve is industry jargon and we won’t go to great lengths to explain it…we need you awake for when I share the savings that may be available to you. Quickly, an inverted yield curve happens when long-term bond yields fall below the short-term yields. Given that mortgage interest rates are tied to bond yields, we are now seeing short-term fixed rates priced higher than say the 5-year fixed rate today.

We know, crazy…right?

Why is it a big deal?

Typically, we see a laddered approach to pricing where the 2, 3, 4 and 5-year fixed rates are incrementally higher as you go up in term. Today, that is less the case. For example… we are seeing some lenders with the 3 and 4-year fixed rates priced higher than the 5-year fixed.

What is the opportunity and how can I benefit?

We thought you would never ask!

If you have a fixed rate higher than 3.19% or you took out a new mortgage, refinanced and existing mortgage, or renewed your current mortgage after February 2018, there is a high likelihood your mortgage rate is greater than 3.19%.

Here is a quick story…

We have a customer who renewed her mortgage in December 2018 for a 5-year term at 3.59%…that was a great rate back then. Fortunately for the both of us she reached out to us, on the recommendation of a friend who is a current client of ours, to have us add her to our mortgage management software system as she was not a client of ours previously.

In taking her information, we saw a massive opportunity for her. Before we shared what we thought was possible, we wanted to run the numbers for her first. Here are those numbers.

$354,756.36 Mortgage Balance

$3,175.22 Breakage Penalty

@3.59% $53,496.74 In interest paid over the remaining 54 months

@3.04% $44,771.26 In interest paid over the the same 54 months

The is a savings of $8,725.48 in interest costs.

IT GETS BETTER!!

@3.59% $310,475.60 Remaining Balance after 54 months

@3.04% $301,747.12 Remaining Balance after the same 54 months

A further $8,728.48 in Principal reduction!

We walked her through these numbers and what do you think she said?

HECK YA! How quickly can we do this?!

How is this even possible?

Because in this case our client has 4.5 years remaining and lenders will use the 4-year fixed term for rate comparison purpose when calculating the penalty. With the 4-year fixed rate being priced higher than the 5-year fixed rate, this means that a 3-month interest only penalty will apply…not the massive IRD penalty. If you are with a bank, you may still be clubbed with a massive IRD, even in this case. But don’t be discouraged…we can help.

You might be thinking, why haven’t I heard of this until today?

Likely, it is because you are not an existing client of Canada Mortgage Direct. We say that because very few Mortgage Brokers pay any real attention to the data, trends, etc…, sadly. And banks, why would they help you save money at their expense?

At Canada Mortgage Direct, we are different. We believe you are hiring us to proactively manage your mortgage and provide the lowest cost of home ownership over the life of that mortgage. We want to bring you real value = real savings. Interest rate gets you from term to term, but Proactive Mortgage Management gets you to Mortgage Freedom, Faster!

ADDED BONUS

Canada Mortgage Direct believes that ‘Everyone deserves a home…we believe it should not not cost you your future.’

Our Adopt-A-Mortgage program is unique and responsible for saving Canadians thousands in unnecessary interest costs. It allows us to share market intelligence and provide addition savings beyond rate alone…this is where the real savings happen.

You may not have completed your mortgage with us or perhaps you’re with a big bank…that is okay. We understand that despite our best efforts, we cannot possibly help every Canadian homeowner. But we really want to help those who value our services.

For a limited time, we would like to extend our services to you, pro bono. No fees, No hidden fees, No kidding! We want to earn your future business.

What do you say, can we do the heavy lifting for you? If we can leave more of your hard earned dollars in your pocket, would you consider that a success?

All you have to do is call us or text us at 403.250.2100 or shoot us an email at, info@canadamortgagedirect.com.

THERE IS LIFE AFTER YOUR MORTGAGE ™

Real Estate: Federal Budget Missed The Mark

The 2019 Federal Budget Really Missed The Mark!

Wow! I had time blocked the Liberal Budget Announcement with anticipation of hearing some great news…boy was I disappointed. I was hoping to hear about tax cuts on both the personal and business side to help make Canada competitive yet again…nothing. I was hoping to hear that relief was on the way for those looking to get into the housing market without any strings attached. Not going to lie, I was left a little disappointed.

Anyway, I’m not here to ramble and my opinion really doesn’t matter because you want the facts. You want the numbers. I get it.

I am only going to discuss the announcement as it relates to the housing sector and there are only two:

  1. Increase to the First-Time Home Buyer RRSP redemption limit
  2. CMHC’s ‘Shared Equity Mortgage’

Before I begin I would like to disclose that for those who don’t know, I am a Mortgage Broker and have been for 16 years. If you feel there is a bias here, you are likely right. I am pro consumer! My fiduciary duty is to the consumer! I am their advocate first and foremost…not the bank’s and certainly not Government’s. As a result, if you are looking for a more balanced approach, you may wish to stop reading at this point and walk away. This is in no way a political rant, simply me providing information based both on facts as well as 16 years experience.

With that out of the way, let’s not waste anymore time.

First order of business, the increase to the First-Time Home Buyer RRSP Redemption limit. The Liberals have proposed an increase from $25,000 to $35,000. We’ll take it! Any increase is great news. In my experience, this will have a limited impact as most First-Time Home Buyers are not sitting on a pile of disposable income that they could 1) stock away into an RRSP knowing they can’t access it in an emergency and 2) borrow against in the future to purchase their new home and afford both the payments that come along with home ownership as well as the annual obligation of now having to pay back the RRSP at a rate of 1/15th every year. For example… borrowing $35,000 from the RRSP would leave the home buyer having to pay $195 monthly or $2333.33 annually back into their RRSP on top of any obligations that may already exist.

Again, I like it, but the impact is limited.

Next up, CMHC’s ‘Shared Equity Mortgage’. What a bad idea for all concerned, the home owner, CMHC and the tax payer.

Let me take you back a couple of years before we get into the numbers. When all these mortgage policy changes were introduced, both CMHC and the Finance Department were citing that it was necessary to peel back the risk to protect the tax payer by limiting tax payer exposure. Remember hearing about that?

Now they want CMHC to loan qualified first time home buyers, those whose household income does not exceed $120,000, 5% at a 3.1% mortgage insurance premium (90% loan to value) for a re-sale home or 10% at a 2.8% mortgage insurance premium for new home builds. This effectively increases tax payer exposure and goes against everything Evan Siddall (CMHC) and Bill Morneau (Department of Finance) have preached over the past 3 years. I won’t even get into the Government rhetoric about household indebtedness and how both Siddall and Morneau take very seriously, only to have government add to that burden.

I’m confused about this one for many reasons…

  1. It is supposed to take affect September, yet brokers, insurers, nor any lenders have any additional details. Stay tuned…
  2. How will they track who owes what?
  3. Will they register an interest on title?
  4. Will there be an additional mortgage insurance premium for Government involvement?
  5. How is this ‘Shared Equity Mortgage’ to be paid back…upon sale? I would suspect it would even be repayable upon a refinance?
  6. What happens in the event the property value falls and any equity has been evaporated or a client ends up in financial distress and needs to sell the home? The ‘Shared Equity Mortgage’ is percentage based so would CMHC participate in the loss? My fear is that this could force a client into hanging onto the property and if they can’t, a massive CMHC judgment in the amount of the 5 or 10% would be the result.
  7. Speaking of CMHC participation…would they participate at the same percentage when the property has been sold at a higher value then the original purchase? Meaning, would CMHC want 5 or 10% of the gain as well?
  8. The Liberal Government has set aside $1.25 Billion over three years to facilitate this.

These are a few questions that I am seeking answers for. I will provide clarity as the details unfold.

Let’s get to the numbers already. Okay, I get it!

I chose to chart the numbers from two different perspectives…

  1. What do the numbers look like based on a home of $500,000, which would be the max?
  2. What do the numbers look like based on an income of $84,000 annually?

This is clearly about buying votes! There is no way the average consumer can understand this. I mean I crunched the numbers and it gave me a headache. Under the ‘Shared Equity Mortgage’ program, the MAX MORTGAGE = 4X annual income + incentive…hence my headache.

Who is going to want to be in business with the Government knowing there is no benefit to them personally?

All that said, any news is good news and our housing market can use as much publicity as possible right now. If there was ever a time where Canadians needed the advice of an independent mortgage professional, that time is now!

In other news, and I will speak to this on Monday, the lack of anything meaningful in this Federal Budget must have the Bank of Canada on edge as rate cut is very much on the table. Markets are reacting and it is not looking good for Canada, however, lower borrowing costs (interest relief) is on the way.

If you haven’t done so already, please share this. Let’s get the word out to help educate all home buyers.

As always, feedback is appreciated.

Jeremy

Mortgage Stress Test Change Might Look Like

Two weeks ago I did a presentation at a Real Estate office to discuss the mortgage Stress Test and what the Government might be looking to do. It’s an election year and our industry association, Mortgage Professionals Canada, has been lobbying hard and advocating on behalf of both the consumer as well as industry members and more recently you might have heard the Federal Government say that they are looking at ways to make housing more affordable for Millenials. Of course the Mortgage Stress Test was brought forward as a topic and interestingly enough I came across an article yesterday titled, “Morneau taking close look at return to 30-year insured mortgages, homebuilders’ association says”…click to view. I wouldn’t say I’m psychic, but I would say we are thinking along the same lines.

What would the Government do?

We know the Mortgage Stress Test is not going away, it’s just not. So… the Government has two options as I see it. 1) lower the rates used for Stress Test qualifying rate or 2) bring back the 30-year amortization.

Let’s take an income of $84,000, single income or combined income, for this illustration with 5% down. Based on today’s qualifying rate of 5.34%, the max mortgage would be $415,000.

Scenario 1
Let’s suggest the qualifying rate is lowered from Benchmark rate of 5.34% to contract (rate 3.59% today) plus 1% for a qualifying rate of 4.59%. In this case the max mortgage would increase to $450,000(+/-).

Not bad…but what about a 30-year amortization?

Scenario 2
Let’s take the same $84,000 income, qualifying at today’s Benchmark rate of 5.34% but over 30 years, that would increase the max mortgage amount to $450,000(+/-).

So both scenarios yield the same result, but which works out better for the consumer?

From a monthly payment perspective, the 30-year amortization is the clear winner, as the monthly payment would be significantly less than that in Scenario 1. A lower payment allows for improved cash flow at the end of the month. A person can always shorten their amortization by simply increasing their monthly payment.

Which scenario works out best for our Government?

Scenario 2 would work out the best for Government because to go from a 25-year amortization to a 30-year, CMHC (Canada Mortgage and Housing Corporation) would increase the insurance premium for the privilege…likely somewhere between 0.25% – 0.50%. with 5% down, what would be 4% insurance premium under Scenario 1, would now be 4.25% – 4.50% under Scenario 2.

Now, when I shared this with an industry buddy a couple of weeks ago, he said, “makes sense but there is no way the Government has put as much thought into all this as you have…you’re over thinking it”. Perhaps I am and sometimes I over analyze. But if I am the Government, I’m doing whatever makes the most cents (pun intended) for me and doing it in the name of helping consumers.

Calgary Mortgage Brokerage Takes To TV To Educate Consumers

Homes & Lifestyles Canada, Calgary’s newest show airing on CTV, aims to help people navigate
the real estate industry while sharing the best that Calgary has to offer.

The weekly show, hosted by veteran real estate agent Kim Hayden, explores all that Calgary and
area has to offer, from homes and real estate, to businesses, décor, food, and upcoming events.
Each week, the show focuses on a specific theme such as mountain living, aging in place,
everything kitchens, to name a few. Hayden heads out on a journey related to the week’s theme,
talking to experts, community members and businesses. Along they way, the viewers tour homes
that are currently listed for sale, as well as unique residences that relate to the theme for the week.

Jeremy Nagel, broker/owner of Verico Canada Direct Mortgage since 2012, is in his second
season with the show, educating the public about financing issues and options available when
considering buying, selling or refinancing a home.

“Depending on what the topic is for that day, I’ll certainly speak to specifics of mortgage
financing . . . helping educate consumers as to financing around certain segments.”
The first episode on mountain living has Nagel talking about options for purchasing a second
property, such as a mountain cabin. In later episodes, Nagel discusses tips for financing a
renovation, strategies for entrepreneurs, working with a mortgage broker, revisiting debt, reverse
mortgages and buying your first home.

“The Calgary real estate market has seen some softening in sales activity over the past couple of
months likely due to the weather and homebuyer uncertainty as to what the new mortgage rules
might mean to them,” says Nagel. “What many don’t know is that the new mortgage rules, as of
January of this year, will have no impact on those with less than 20 per cent down.”

“For first-time homebuyers, it’s business as usual. I always encourage anyone looking to buy a
home, or even refinancing a home for that matter, to speak with a licenced mortgage broker who
can provide them with unbiased advice and product selection only available in the wholesale
market. As Benjamin Franklin once said, ‘failing to plan is planning to fail’.”

Last year, Nagel appeared in seven of the 13 episodes. This year he is in all 13.

The show airs weekly on Wednesdays at 8:30am on CTVtwo and repeats on Saturdays at 10am
on CTV Calgary, beginning March 28.

For more information about the show, check out the website at https://homesandlifestyles.ca.

Canada Mortgage Direct is one of Alberta’s leading mortgage brokerage firms, offering seamless
solutions for all mortgage needs.

Bank Mortgage Breakage Penalties…OUCH

When shopping for a mortgage, the majority of consumers ask one question, what is your best rate? True, some ask questions beyond rate, as they should, and today I’m going to help the majority look beyond rate. What if you obtained the lowest possible 5 year fixed rate on day one but two years later the penalty is ten’s of thousands of dollars? Did you really get a great deal? Let’s investigate…

Let’s take a mortgage balance of $375,500 and a 5 year fixed interest rate of 3.49%, which you have had for the past two years. And for whatever reason you have decided to break the term of your contract, maybe it’s to take advantage of today’s lower interest rates, debt consolidation, selling the existing home, etc…

A standard IRD (Interest Rate Differential) penalty would look like this:

Mortgage balance = $375,500
Your contract 5 year fixed interest rate = 3.49%
Number of years remaining on your term = 3 years
Current 3 year mortgage rate (term closest to the term remaining)= 2.89%

Standard IRD Penalty = A x C x (B-D)

$375,500 x 3 x (3.49% – 2.89%) = $6,759

Standard IRD Penalty is $6,759

Standard IRD penalties are typically offered by non-bank lenders available through the mortgage broker channel and are significantly different from that of a big bank IRD penalty calculation. Let’s look at a ‘Big Bank’ IRD penalty (I won’t mention which bank this is, but they are all similar).

Bank IRD penalty calculation:

First, we must determine your ‘discount’. To do this we must look back in time to when you first took out your mortgage 2 years ago…what was the posted rate? If you can’t remember, it should be posted on your original mortgage document. If you still can’t find it, I would suggest you consult your Bank representative. On the same mortgage document should be a break down of the mortgage penalty calculation, if not, you can find the break down below.

Part 1: Find the discount

The Bank 5 year fixed posted interest rate = 5.59% (This is the posted rate at time you took your mortgage out…your bank can let you know what it is)
Your contract 5 year fixed interest rate = 3.49% (this is the rate you were given)

5.59% – 3.49% = 2.1%

Your discount, the difference between the posted rate and your contract rate, is 2.1%.

Part 2: Choose the term closest to the term remaining
To do this, visit your bank website to select the term and corresponding posted fixed rate.

Part 3: The calculation

Mortgage balance = $375,500
Your contract 5 year fixed interest rate = 3.49%
Number of years remaining on your term = 3 years
Current 3 year mortgage rate (term closest to the term remaining)= 2.89%
Your discount (as determined above) = 2.1%
Current 3 year posted rate = 3.44%

Bank IRD penalty = A x C x (B-(F-E))

$375,500 x 3 x (3.49% – (3.44% – 2.1%))

$375,500 x 3 x 2.15% = $24,219.75

Your bank IRD penalty is = $24,219.75

What’s the average annual rate of interest, non-bank vs. big bank?

Bank

Average annual rate of interest: $375,500 x 3.49% = $13,104.95
IRD Penalty per year: $24,219.75 / 2 = $12,109.88

($13,104.95 + $12,109.88) / $375,500 = 6.72%

Average annual rate of interest: 6.72%

Non-bank

Average annual rate of interest: $375,500 x 3.49% = $13,104.95
IRD Penalty per year: $6,759 / 2 = $3,379.50

(13,104.95 + 3,379.50) / $375,500 = 4.39%

In conclusion, when looking at the illustration, it is clear that in the bank example, the lower the interest rate, the higher the discount, which means the larger the penalty. It is critical to do your homework to avoid situations like this where your penalty can double, triple or worse. It is known in the industry that some where between 60% – 70% of mortgage holders do not carry their mortgage to maturity. Make sure you are asking the right questions of you mortgage provider, bank or broker. By virtue of the employee/employer relationship, it is difficult to receive unbiased advice from a big bank and my suggestion would be to speak with a mortgage broker, even if it’s for a second opinion. Oh, and if dealing with a bank, ask the representative how they calculate their penalty.

Lastly, we are committed to helping Canadians save money and become mortgage free faster. To help you with asking the right questions, we have created a ‘Shopping Around’ questionnaire with 5 basic, yet very important questions. If you are interested in learning more, we would encourage you to call us at 403.250.2100.

Bank Of Canada Maintains Overnight Rate

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

At 10:00 am EST, Wednesday December 2nd, 2015, the Bank of Canada again did what we expected them to do … they continued to maintain their overnight rate. What this means to you is that once again the prime rate on your mortgage, line of credit or student loan will not change and remains at 2.70%. This is great news, but don’t forget to make the most of the low payments you still have, as the rate will increase in the future. If you haven’t done so already, give me a call and we can chat about helping you get set up with a great GIC, Tax Free Savings Account, or Retirement Savings Plan as your payments continue to remain low. The holiday season is upon us which often means our personal spending on gifts and celebrations will potentially blow our budgets as we spend more than we maybe should… let me help you get back on track with a review of your financial situation which might be a savings plan, purchasing an income property or debt consolidation to pay off high interest loans or credit cards. If you would like to chat about some budgeting and saving strategies – let me know, as I would be happy to assist.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision:
“In Canada, the dynamics of growth have been broadly in line with the Bank’s MPR outlook. The economy continues to undergo a complex and lengthy adjustment to the decline in Canada’s terms of trade. This adjustment is being aided by the ongoing US recovery, a lower Canadian dollar and the Bank’s monetary policy easing this year. The resource sector is still contending with lower prices for commodities. In non-resource sectors, exports are picking up, particularly in exchange rate-sensitive categories. However, business investment continues to be weighed down by cuts in resource-sector spending. The labour market has been resilient at the national level, although with significant job losses in resource-producing regions. The Bank expects GDP growth to moderate in the fourth quarter of 2015 before moving to a rate above potential in 2016. While bond yields are slightly higher, financial conditions remain accommodative in Canada.”
Based on this news and continued slower level of economic activity in Canada, the Bank has chosen to remain on the sidelines. A few economists suggest the BOC to remain there until 2017. Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

As for Fixed interest rates, they have climbed over the past couple of weeks in anticipation of a Fed increase. The average, fully featured, 3 and 5 year fixed rates are sitting at 2.34% and 2.79% respectively.

Based on this recent announcement, and the anticipation that the prime rate will remain low throughout 2016, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now. However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. Conversely, if you feel you would like to explore an adjustable rate option, give me a shout and we can chat about a couple of different strategies. The next announcement on any change to the prime rate is January 20th, 2016 at which time I’ll be in touch again.

To talk strategy or to just understand how you can benefit from today’s low interest rate environment, please give us a call one of our Mortgage Planners TODAY…we would be happy to assist.

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