19 Apr

Are Interest rates going up soon?


Posted by: Nisha Lalwani

The Bank of Canada left its main interest rate untouched at 1% Tuesday, while painting a brighter economic outlook and hinting for the first time since last summer that it’s beginning to look for an opportunity to raise borrowing costs.


The decision to stand pat for a 13th consecutive meeting was expected. But after weeks of sunnier rhetoric from Governor Mark Carney amid a strengthening domestic recovery, Bay Street analysts had been debating how far he would go in trying to reshape expectations that he may be on hold until late next year.


The statement on Tuesday’s decision was vague about timing, saying only that it may become necessary to increase rates, but that this would depend on “domestic and global economic developments.” But, just by saying so, Carney is clearly starting to lay the groundwork for rate hikes if the Canadian economy and the global backdrop continue to improve. Significantly, he boosted his 2012 growth forecast for Canada by four tenths of a percentage point, to 2.4%. And though he cut his 2013 forecast by the same amount, to 2.4%, the slack in the economy is now projected to be chewed up in the first half of 2013 instead of in the third quarter of next year, so possibly six months earlier.


“The external headwinds facing Canada have abated somewhat, with the US recovery more resilient and financial conditions more supportive than previously anticipated,” Carney and his rate-setting panel said, adding that the confidence of households and businesses is improving more quickly as a result, and both are driving the recovery. “In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”


Click here for the full Globe and Mail article.


Never ask anyone who lends money if you can afford a house.


Lenders care about their own money. Not yours. So while you’re thinking about how you’ll manage the cost of a mortgage and all your other living expenses, lenders seek the answer to one single question: How much risk is there that this person will not repay our money on time?


Not that lenders are oppressively picky. The more they lend, the more they make in interest. So there are no high hurdles in deciding who gets a mortgage. Partly, that’s because lenders know they have human nature working for them. If a family is having trouble paying its bills, you can be sure the mortgage will come first.


There are plenty of mortgage affordability calculators online, but they use the lender’s criteria for the most part. So let’s see what we can do to develop some simple rules that will help you understand how well you can manage the cost of owning a home.


Click here for more details from the Globe and Mail.


It’s a title Vancouver is more than happy to relinquish.


Canada’s hottest real estate market is finally cooling off, new sales figures show, much to the relief of those who have grown weary of talk of a West Coast property bubble.


At more than $761,000, the average cost of a Vancouver home is still higher than anywhere, but was 3.1% lower in March than in the same month last year. Sales activity is slower, too, down 22.3% through the first three months of 2012.


But the data from the Canadian Real Estate Association indicates that Toronto’s sizzling market is still gaining momentum, with average prices in the country’s largest city soaring more than 10% last month, to about $504,000.


Click here to read more from the Globe and Mail.


14 Apr

New restrictions on HELOCs – most likely within the year……


Posted by: Nisha Lalwani

There’s a good chance we could see new restrictions on HELOCs – possibly within the year.


Last week, Canada’s top banking regulator Julie Dickson explained why to BNN: “We started to see [HELOCs] being used as a substitute for a mortgage. Instead of having a mortgage on a house, you had a HELOC only, and that is not what these HELOCs were designed for originally. That’s why we suggested in the guideline strongly that there be a loan-to-value ratio of a maximum of 65%.”


“We want the (underwriting) practices at the banks buttoned down,” Dickson added, saying that some financial institutions were not following underwriting policies “to a T.”


As with OSFI’s other pending mortgage guidelines, the new 65% LTV HELOC change is up for public comment until May 1st.


Click here for the full CanadianMortgageTrends.com article.


Mark Carney has a dilemma: He views record high household debt the number one domestic risk to the economy, but believes he would hurt the recovery if he raised interest rates to slow borrowing.


But the Bank of Canada governor said in an interview with The Canadian Press that he would be prepared to intervene if things got out of hand.


“In exceptional circumstances, if there are issues that threaten financial stability, such as household debt… the bank could use monetary policy for that purpose,” he said. “That factors into our decision-making without question.”


By Carney’s telling, the situation is not that far from reaching the point of exceptional circumstances. He’s encouraged by the recent slowdown in the housing market. Household debt as a proportion of disposable income was close to 151% at the end of last year. The Bank of Canada’s own analysis expects the ratio to approach the 160% level reached in the US just prior to the 2008 financial crisis.


Click here for more from CTV News.

Canadian Finance Minister Jim Flaherty said on Tuesday he expected Canada to post moderate growth this year, noting that the country’s recovery remained fragile and Europe’s sovereign debt crisis continued to pose risks to the global economy.


Flaherty also reiterated he had no plans to take further steps to rein in Canada’s housing market, which some analysts say is overheating.


“I have no present plans to intervene in the housing market in Canada,” Flaherty told reporters in New York. “There has been some moderation in the market of late. I would prefer the market itself to correct to the extent a correction is necessary.”


The government and central bank have been cautioning Canadians of the risks of taking on too much debt, particularly through mortgages, with interest rates low and home prices high.


Click here for the full Financial Post article.


Is it time to break your mortgage?


Click here for five tips homeowners should consider before chasing after low interest rates from MoneySense.


It’s almost a chicken-and-egg argument, deciding whether the government comes first in the crackdown on consumer borrowing or if the banks should be responsible for reining in Canadian debt.


This month, Finance Minister Jim Flaherty sounded like he’d had enough of banks posturing for the federal government to get tougher on borrowers and called on financial institutions to clamp down on their own customers.


“I’ve tightened up the mortgage insurance market three times… I really don’t want to do it again,” he told reporters while commenting on the condominium sector.


While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead.


In the interim, all you have to do is walk into a branch, grab some pamphlets and you’ll see an array of offers that could get you into even more debt trouble.


Click here for the full Financial Post article.


More Canadians acknowledge they may be reaching the upper limits on borrowing, even though they believe they’re in the safe zone now, a new survey shows.


The annual survey, released by accounting firm PwC and conducted by Leger Marketing, found that almost two-thirds of respondents believed their current debt levels were about right.


But a similar number, 63%, said they wanted to decrease their debt levels over the next year – up 4.5% from a year earlier – and many indicated they were ready to cut back on discretionary spending to do it.


“This comfort is likely due to our high real estate values and low interest rates, which make the debt seem minor in relation to the value of the property and easy to carry month to month,” PwC said in a release.


Click here for details in the Globe and Mail.


It’s every family’s dilemma: What to pay first – the mortgage, the kids’ education or putting something away for retirement? Plan it right and a life free of many financial worries follows. Get it wrong and the kids may not get the education you want and your retirement could be threadbare. You may even be forced to sell your home if interest rates soar before you’ve paid down the mortgage a lot.


“Pay for the home first,” suggests Benoit Poliquin, lead portfolio manager at ExPonent Investment Management Inc in Ottawa. The reason: Buying your home quickly has financial advantages so powerful and so immediate that it would be foolish to ignore it.


“Look what the homeowner gets,” Poliquin says. “There is the return on equity. That is what the home gains in owner equity every month as the debt declines. The more you pay and the sooner you pay, the faster you gain equity through the mortgage.”


There is the possibility of capital gains that, in Canada, are not taxed as long as the home is a primary residence. Moreover, in many cities, price gains more than pay for interest costs, says Graeme Egan, a financial planner and portfolio manager at KCM Wealth Management Inc in Vancouver.


Click here for the full Vancouver Sun article.