Breaking up with your mortgages

Variable rates are looking good


Its a dicey decision whether to break your mortgage or not. Most banks are not encouraging it but in some cases it makes sense.Anybody who bought their first house in the 1980s must marvel at mortgage rates today. Or perhaps fume.

Another rate cut this past week from the Bank of Canada led all of the major banks to lower their prime lending rate to a new low of 2.5%. (since this article prime is now 2.25%)

Consumers who locked into variable-rate mortgages tied to prime before credit markets tanked are getting as much as 90 basis points below prime and borrowing as low as 1.6%. It’s the deal of the century.

In October, the banks suddenly changed the rules on borrowing and demanded consumers pay a 100-basis premium over prime if they wanted to go variable. The banks have eased up since and the premium on a variable-rate product is 80 basis points above prime for a 3.3% rate.

It poses an obvious question for anyone who has locked into rates as high as 5.75% on a five-year fixed-rate mortgage: Should they break that mortgage?

“It probably does make sense to break it now,” says Vince Gaetano, vice-president of Monster Mortgage.

He gives the example of one client who came into his office this past week with a $205,000 mortgage and a 5.24% interest rate. The customer had 3½ years left on a five-year mortgage. The penalty to break his mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates.

In that client’s case, his interest rate penalty is calculated based on the current four-year rate at his bank, now 4.14% on a discounted basis. The lost interest to the bank is about $7,800, which is what the customer will have to pay.

It’s a big penalty but Mr. Gaetano argues that if that same customer breaks his mortgage and goes with the variable-rate mortgage at 3.3%, the savings would be in the $13,000 to $14,000 range over 3½ years — more than offsetting the penalty.

There is also a nifty little trick you can pull off if you have a prepayment option on your mortgage. Mr. Gaetano’s customer has a 25% prepayment privilege, so he can knock $57,000 off his mortgage and lower his penalty by about $2,800.

“You can access [that 25%] from an unsecured line of credit or some credit cards for a few days and reduce your penalty because the penalty is based on the balance outstanding,” says Mr. Gaetano.

While not encouraging people to break their mortgages, the banks are acknowledging that some consumers who locked into higher rates can save money if they refinance at the new lower rates.

“I think it does make sense as an option for some people trying to lower their rate,” says Joan Dal Bianco, vice-president of real estate-secured lending at TD Canada Trust.

She says if you are refinancing your mortgage, you can take the interest rate differential penalty and tack it on to your new mortgage. If you have credit card debt, you can add that on too, and the refinancing makes even more sense.

The office of consumer affairs for the federal government has a great site to help you make the decision: http://www.ic.gc.ca/eic/site/oca-bc.nsf/%20eng/ca01817.html. Moshe Milevsky, a professor at York University’s Schulich School of Business, who created the calculator used on the government site, says it ultimately comes down to how much money you will save on your mortgage if you break the contract.

“To me, it’s pure mathematics. There is nothing speculative or probabilistic about the decision to break a mortgage. It is the classic example of undergraduate finance time-value-of-money calculations. If the homeowner can refinance into a mortgage with an identical term that reduces monthly payments above and beyond any penalty costs, then go for it. Plain and simple,” says Mr. Milevsky.

Breaking your mortgage based on a decision to go into a variable-rate mortgage is an entirely different decision.

“This decision shouldn’t be confused or muddled with the classic long or short decision, or whether real estate prices or interest rates are headed up or down from here,” he says.

So, it comes down to two choices: The first is to break your locked-in mortgage and renew for another fixed term. If it saves you cash, that is a no-brainer.

The second choice is whether to switch products and go with a variable-rate mortgage. Historically, consumers have saved money 88% of the time going variable, according to Mr. Milevsky’s own studies.

I’m still in the camp that favours a variable rate.

Dusty Wallet This will not save you any money, but if you are strapped for cash because one of the breadwinners in your home has lost a job, the banks will let you lengthen your amortization period. If you have a 25-year amortization you can lengthen it to 35 years without any service charges — other than the huge jump in interest charges!

Gary Marr, Financial Post
Note: Today’s variable rate mortgages with most lenders are being offered at prime (2.25%) plus .75% giving you a rate of 3.00%.

More Cash in our homes

Canadians continue to have more than two-thirds more equity in their home than Americans, according to a new survey.

The study for the Canadian Association of Accredited Mortgage Professionals shows Canadian homeowners have, on average, 72% equity in their house, compared with 43% for Americans.

"It is a very positive part of the Canadian housing story," said Jim Murphy, chief executive of Toronto-based CAAMP. "Canadians pay down their mortgages. Canadians are just more conservative than Americans."

The study also found that Canadians have dramatically reduced the amount of equity they are taking out of their home. A year ago 22% of Canadians had accessed the equity in their home through measures such as lines of credit. Today that is down to 15%.

"This speaks to the whole thing about people belt-tightening," said Mr. Murphy.

Despite the drop in prices in the Canadians marketplace, only 2% of Canadian mortgage holders have negative equity, in which the value of their mortgage is higher than the value of their home.

About the only new risk Canadians seem to be taking on is longer amortizations. While 83% of Canadians have an amortizations of 25 years or less, the number with 30-year and 35-year amortizations is rising. In the past six months, 46% of new mortgages have been for amortization of more than 25 years.

"I don't think it's a worry because [Canadians] are paying down their mortgages," said Will Dunning, chief economist with CAAMP, noting the percentage of Canadians in arrears on their mortgage is rising but the total is still 0.38% of all mortgage holders. "That's the middle of historical averages."

Mr. Dunning said the study also indicates that subprime mortgages are likely a very small percentage of the Canadian marketplace. Only 2% of all Canadian mortgages have interest rates of 8% or higher -- the low-water level for what would constitute the rate on a sub prime mortgage.

The survey did show that Canadians are also taking advantage of continued drops in interest rates by increasingly buying into variablerate products. CAAMP says 28% of Canadians have variable-rate products that are tied to prime. The number is rising, with 36% of new mortgage orientation in the past 12 months going into variablerate products.

With the Bank of Canada's decision to lower rates another 25 basis points and its commitment to not change rates for another year, Canadians are expected to continue to take advantage of a record-low prime rates, which are 2.25% at most financial institutions.

Gary Marr, Financial Post

NOTE: If you have been in your mortgage for over 2 -3 years now, it may be worth your while to review your current mortgage and interest rate and consider if refinancing your home makes sense, or if your in the market to buy your first or second home, its another good time to do so! Housing prices are down a bit and rates are as low as they are going to get! Dont wait much longer you could be missing your greatest opportunity.

How will Bank of Canada rate cut affect mortgages

The latest rate cut means consumers buying a house can borrow for as little as 3% interest on their loan if they are willing to buy into the Bank of Canada's statement Tuesday that it won't be changing rates until June, 2010.

If you don't believe the bank will hold steady on its promise, you can lock into five-year, fixed-rate mortgages for as low as 3.85% on a discounted basis -- the lowest rate in Canadian history. Note: some lenders are offering under 3.85 (some conditions may apply) so there is an even better rate opportunity out there if your sourcing out rates...

But all of that may amount to nothing when it comes to soothing a Canadian housing market in which new construction has fallen below 200,000 on an annualized basis for the first time in seven years. March existing-home sales were off 13.7% from a year ago.

"What is 25 basis points among friends? It's really nothing," said Benjamin Tal, senior economist with CIBC World Markets. "This is not something that is going to change the course of the market. It only helps at the margin."

Mr. Tal did say mortgage refinancings have risen dramatically in the past few months as Canadians who might have borrowed at 5.75% just over two years ago are ready to eat any interest rate penalty because a five-year rate mortgage is now so low.

The penalty to break an existing mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates.

Mr. Tal says while there is not much lower for variable-rate mortgages to go, the gap between short-term money and long-term money is still significant enough that the temptation is not to lock in.

"You might do better the first two years [of a five-year mortgage] but not the remaining three. I'm convinced long-term interest rates will rise. I can see [long-term] rising 200 basis points. These are emergency rates and at some point this emergency will end," says the economist.

John Turner, the director of mortgages at the Bank of Montreal says he's never seen anything like what is going on in today's market.

"There is a possibility of another drop," says Mr. Turner. "But does your tummy feel good about something that has a higher possibility of going up than going down any further."

He is convinced these lower rates will boost the housing market. The 13.7% decline in home sales in March was the smallest year over year decline in six months. "I think there is a segment of the market that couldn't afford a home before," said Mr. Turner.

Don Lawby, chief executive of Century 21 Canada, said while rates are declining, banks are getting tighter with how they hand out credit.

"If you are self-employed, the banks are demanding more documentation. Appraisals are getting harder too. It's not what you bought the house for but what it's appraised for," said Mr. Lawby, who also heads up a mortgage broker business. "There is not a lot of subprime out there for people with any credit problems in their history."

Garry Marr, Financial Post

Knowing your budget is half the battle

Affordability is a necessity for first-time homebuyers regardless of their financial situation

Paul Anderson and his wife, Sue, felt like they could only dream of home ownership. After having some credit problems, the effects of which lingered on for several years, they got their financial house in order and got up the courage to apply for a mortgage a few weeks ago.

Much to their surprise, and after some negotiating, the couple were approved. "I looked at my wife with a tear in my eye and realized ... I might get a house," says Paul, 42.

The couple have three children.

"There's good people out there with good jobs that really don't have a lot to bring to the party, but they're already paying $1,600, $1,800 a month [in rent] anyway," he says.

"At the end of the day, I'm a proud owner of a new home."

It's one of the best buyers' real estate markets in years, with interest rates at historic lows, falling house prices and new incentive programs available. But many consumers -- including many first-time homebuyers -- lack the knowledge and preparation to determine how much they can afford.

Banking experts say this is the first crucial step toward making any successful real estate transaction. Yet many consumers are missing out on opportunities to determine how much they can afford and they are overlooking tools available to help them get into home ownership.

The , for example, had no idea what to expect before they were approved for a $400,000 mortgage for a new home.

"It should start with getting pre-approved and not being intimidated by the process," says Laura Parsons, area manager in specialized sales with Bank of Montreal (BMO).

Many people think home ownership is out of reach because they haven't done the calculations or sought expert advice about their options.

"We look at university professionals or trades people coming out of school with all this student-loan debt, but it doesn't mean you cannot get into home ownership," says Parsons. She notes banks can consolidate debt to reduce monthly payments.

A pre-approved mortgage establishes realistic expectations about what you can afford based on your gross debt service ratio -- your gross annual income relative to the principal and interest of the mortgage plus typical heating costs and property taxes.

Canadian guidelines state those costs cannot exceed 32 per cent of your gross annual income.

"Pre-approval ... really demonstrates that a buyer is serious and that can help you with negotiating with sellers and agents," says Bernice Dunsby, senior manager of home equity financing with Royal Bank of Canada (RBC).

It also allows buyers to lock in their interest rates for 90 days in the event that rates go up, or they can take a lower rate during that time frame if rates go down further.

You must now have at least five per cent of the cost of the mortgage as a down payment.

If it's less than 20 per cent, it gets classified as a "high ratio" mortgage and will require insurance.

Despite gloomy public perception, banks are working with all types of people to develop home ownership plans and doing everything they can to get you a mortgage that works for you.

It's not just young couples with children who are buying these days, either.

"It's not your traditional buyers," says Parsons. "There are options for everybody."

While it's one of the best markets right now to buy, be realistic and work with an expert since each individual's affordability is different.

"Don't get caught up in the hype of the opportunity, but sit down with a specialist and determine what's right for you," says Dunsby. "You don't want to stretch yourself too thin."

By Derek Sankey, For Canwest News Service

Your once-in-a-lifetime Investment Opportunity

Heres an interesting article from MSN Money- these days most consumers are holding tight to their earnings , after watching some of their hard earned retirement savings go down the drain....

Is it time to consider taking a leap, break open the piggy bank of savings, and buy stock in hopes of making that money back and then some. Will the market currently at an all time low, bounce back...whats the saying "what goes down must go back up" you decide...

Heres the article....

"Panic" might be too weak a word for what we've been going through. Beyond the substantial shocks that stocks have sustained, the far larger lending market has seized up as well. Banks don't want to lend to each other, much less those of us out here in the real world, and the bond markets remain off-limits to all but the strongest of borrowers.

And all of that has left everyone terrified. The long-term future simply doesn't matter all that much to a company that risks oblivion in the next week if it can't roll over its maturing debt or cover tomorrow's margin call.

The companies hit hardest by this mess were built on the presumption of easy, cheap, and unlimited credit. Homebuilders such as MDC Holdings (NYSE: MDC) and KB Homes (NYSE: KBH) are in a world of hurt. In addition, even the strongest automobile titans, including Toyota, are feeling the impact of the credit crunch, while weaker ones like Chrysler teeter on the edge of collapse. But investment banks and financial institutions -- the largest and fiercest players on Wall Street -- were literally ground zero for this implosion.

The list of companies brought down by the implosion -- Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac -- includes some of the most notable names on Wall Street. The list of companies struggling to survive the economic downturn grows longer by the day. And that's creating a once-in-a-lifetime investing opportunity -- for you.

It's your turn
There are unbelievable bargains available now, the likes of which we haven't seen since the days of Benjamin Graham. Under less unusual circumstances, Wall Street's financial wizards would be leveraging themselves to the hilt to take advantage of the market's current conditions. But with their funds cut off, redeemed, or diverted into mere survival, they're forced to sit on the sidelines, rendered completely unable to act.

That's where you come in. As long as you have the patience to wait out the volatility, you can buy those very same bargains (without the leverage) and be richly rewarded when things return to normal.

The country, the stock market, and the strongest companies of the era survived the Great Depression. We'll get through this mess, too. Much the way Benjamin Graham and his protege Warren Buffett did after past catastrophes, the superinvestors of this generation will make their fortunes buying on the heels of this one.

Where to play
Even if you don't aspire to be the next Graham or Buffett (and don't have $5 billion sitting around with which to invest in a struggling company), there are plenty of bargains available to you right now.

But be careful out there -- not every company that has fallen is legitimately cheap. We're in the throes of a global economic rout, after all, and many companies deserve their slashed share prices.

Those whose prices have dropped as a result of forced selling or general market malaise, on the other hand, are the most likely to reward their shareholders for holding on through this mess. They typically have

Strong balance sheets,
Reasonable or cheap valuations, and
Moats protecting their core businesses.
Companies like these, for instance:


IBM (NYSE: IBM)
Unparalleled global reach in end-to-end technology hardware / software / implementation / consulting / services.
Earnings easily cover interest payments, trading for 11 times forward earnings.

Coca-Cola (NYSE: KO)
Rated world's most valuable brand by Interbrand, generally viewed as an affordable indulgence
Well-capitalized, trading for 12 times forward earnings.

Abbot Labs (NYSE: ABT)
Patent protection + FDA hurdles for competition assures profitability for a definite period, strong pipeline protects future outlook.
Minor debt, trading for 12 times forward earnings.

United Technologies (NYSE: UTX)
Has military contracts, which are largely recession-resistant, large footprint in HVAC, power, & other long-cycle equipment
Low debt levels, trading below 11 times forward earnings.

Kraft (NYSE: KFT)
Basic foods and drinks (like Maxwell House Coffee) are largely recession-resistant, and Kraft's brands lead in many segments.
Trading for 11 times forward and trailing earnings, generated $2.8 billion in free cash flow last year.


Although these companies are affected by the U.S.'s recession and the general tightening of consumer credit, their basic businesses are solid. Solid businesses, clean balance sheets, and cheap prices compared to intrinsic value mean these are the types of opportunities you should be taking advantage of right now -- while you still can.

This won't last forever

In ordinary times, companies this strong would not be available at such attractive prices. These deals are available only because the global financial meltdown has knocked out so very many of the institutional investors who would ordinarily bid these companies up much higher.

If you want to pay bargain-basement prices for some of the strongest businesses around, this is when you should pounce. It's not easy to buy when everyone is panicking, but it's precisely how generations of successful value investors have made their fortunes.




Although these companies are affected by the U.S.'s recession and the general tightening of consumer credit, their basic businesses are solid. Solid businesses, clean balance sheets, and cheap prices compared to intrinsic value mean these are the types of opportunities you should be taking advantage of right now -- while you still can.

This won't last forever
In ordinary times, companies this strong would not be available at such attractive prices. These deals are available only because the global financial meltdown has knocked out so very many of the institutional investors who would ordinarily bid these companies up much higher.

If you want to pay bargain-basement prices for some of the strongest businesses around, this is when you should pounce. It's not easy to buy when everyone is panicking, but it's precisely how generations of successful value investors have made their fortunes.

Choosing The Right Mortgage

New tack stresses sense, not cents

Ray Turchansky, Canwest News Service Published: Monday, March 30, 2009 FP Mortgages-Special Report

Traditionally, the most important consideration in choosing a fixed or variable mortgage has been which strategy would save the most money.

But that might no longer be the case: Choosing a type of mortgage and term today may come down to what makes sense for the individual homeowner rather than what saves cents.

"If you were buying a house 10 years ago, fixed versus variable was the biggest decision you made," says Moshe Milevsky, finance professor at 's and executive director of the Individual Finance and Insurance Decisions Centre. "But now there are more important things in place. Equity prices are falling, housing prices are falling. I think there are three or four things more important than fixed versus variable now."

Mr. Milevsky's 2001 study of five-year rolling interest rates from 1950 to 1999 showed that 88.6% of the time, homeowners would have been better off with floating or short-term mortgages rather than five-year, fixed-rate mortgages, saving an average of $22,000 on a $100,000 mortgage amortized over 15 years.

"The last time I looked at it, a year ago, the same strategy was holding up. Roughly ... 85% of the time, you were better off going with variable rates, rather than fixed rates."

Another, lesser consideration was peace of mind: New homebuyers might sleep better when essentially paying an insurance premium as part of locking-in payments for five years.

But saving a few dollars should no longer be the determining factor in the fixed-variable dilemma.

"Too much emphasis has been based on this study," Mr. Milevsky says. "It's the most-downloaded item on our Web site. But if you look at interest rates right now, you're debating over a per cent. When fixed rates were 9% and variable rates were 5%, that's a big difference. That's another issue."

The flattening of the bond yield curve in recent years meant you might pay only 1% or 1.5% more to lock in a long-term rate, and that made the stability of fixed rates much more attractive than it was five years earlier.

Many homeowners with variable rates below prime are now offered renewal rates above prime. Discounts can sometimes be negotiated on longer terms, and other times on variable rates.

"Renewing is not just a day at the bank, it's a major event in the life of your house," says Mr. Milevsky, adding that low rates make other considerations more important in the fixed-variable debate. "If you're going to renew in a year or two, what if your housing price is lower than the value of the loan, and the banks won't give you that again? What about locking in as long as possible? If I get the five-year rate, they're not going to bother me.

"No. 2 is how much money is put down. If you put down only 5%, how much of an effect will that have on your credit rating? Banks are more cautious. Getting a deal might depend on whether you go fixed or variable.

"[Then] there's the question of employment. If you do not have a mortgage with flexibility, what if you can't make a payment for months?"

One compromise may be a combination mortgage that is part-fixed and part-variable.

"I'm getting to be a bigger fan than I used to be," Mr. Milevsky says. "I used to say 'diversify your assets, not your liabilities,' but if you can make the deal to lock in some of your mortgage, that might be a good thing. But that's two mortgages, with two sets of prices, and if it's an extra $200 that's one thing, but an extra $1,000 is another."

Home buyers ignoring savings associated with mortgage rate guarantees: survey

Here's an interesting article and some of my comments about it below..

comment 1: Rate holds of 120 days is nothing new in mortgage broker land, 90-120 day rate holds have been the norm for years now. This allows buyers to secure a preapproval prior to shopping for a home or prior to a renewal....and it also gives buyers peace of mind when rates are changing regularly, it also gives them a snapshot of what they can qualify for. With rates on the downward float, it could be that the urgency isn't there, but one never knows when they could creep back up. Better to know what you can qualify for and secure a rate. Mortgage brokers do preapprovals for free! Why wouldn't you take advantage of some expert advise for free?

comment 2: WOW - It never ceases to amaze me that Canadians are still allowing "auto renewals" to take place. You see that number below (26%) The major banks boast about earning alot of business by renewing their clients at posted rates. Normally posted rates are at least a point and a half higher than what they have available to offer. I know some of us beleive they have our best interest at heart, if they did why wouldn't they offer you the best rate up front.....sorry to break it to you..their out to earn money too.... So for those of you or people you know that are coming up for renewal, or wish to secure a rate hold for a refinance or renewal, be darn sure that you do some research and speak to a mortgage broker to look at the "best" options available. You will be saving yourself thousands of dollars...and wouldnt we all like to spend that money on ourselves rather than the people who already have lots of money :-) !

Canadian Investment News wrote:

Close to half of Canadian home buyers wait less than 30 days before their home’s closing date to secure a mortgage rate, according to a recent Angus Reid poll.
The poll, commissioned by INGDirect, found that 40% of Canadian mortgage holders waited only 30 days or less in advance of the home’s closing, while another 27% waited nearly two months.

According to ING Direct, this last minute behaviour indicates that many Canadians are not taking advantage of the savings inherent in securing rate guarantees which are available as early as 90 to 120 days before a home closes. Analysis shows that those who used the full rate guarantee period of 120 days, saved 0.18% on average or about a $1,800 over five years. These savings are based on a $200,000 mortgage with a 25 year amortization, five year fixed term at 6.96% (average posted five year fixed rate over last 10 years) and paid monthly.

According to Martin Beaudry, vice president of lending at ING Direct, not taking advantage of the full period available, is a missed opportunity. “Securing a rate guarantee, even before you start looking for a new home or your existing mortgage comes up for renewal, is a quick andsimple way to save your money on mortgage interest payments over the long term. In fact, it’s the reason we’ve made guaranteeing an early rate at ING Direct that much easier via the rate hold, which essentially allows someone to hold a great rate without having to provide the information required during a more traditional pre-approval process.”

The rate hold, introduced by ING Direct this month, allows home buyers to quickly and simply hold a great rate for up to 120 days. For fixed rates this means protecting a low rate today against any increases that may occur over that time. For variable rates, it holds the best spread from ING Direct Prime, so if the spread changes andthe rate increases as a result, Canadians are still protected. The service is the first of its kind in Canada, ING Direct says.
Taking full advantage of a rate guarantee period makes financial sense for both new home buyers and those with existing mortgages. In fact, those with existing mortgages are the ones who could benefit most from a rate hold.

**The survey found that of the 64% of Canadians whose mortgages have come up for renewal, over one quarter (27%) indicated they let their mortgage automatically renew. Not negotiating a better rate than what is offered in a renewal letter by the current lender, or looking to alternate lenders for the best rate available in the market, means Canadians could be missing out on the opportunity to get a better rate**

**The survey found that Quebeckers were the worst offenders, being most likely to let their mortgages auto renew (36%) and apply for a mortgage 30 days or less before their home’s closing date (52%).**

http://www.investmentexecutive.com/client/en/News/DetailNews.asp?Id=48690&cat=3&IdSection=3&PageMem=&nbNews=&IdPub=

Tune up your credit score for more chance at a good mortgage

Heres a good article on what lenders are looking for now with regards to your credit and how you can continue or start to improve your credit.

By Fiona Anderson, Sun

If you’re thinking of getting your first mortgage or you have to renew one, you may be looking forward to the all-time-low mortgage rates now available. But beware, those mortgages — and any mortgage — may be hard to get.

One thing you can do to avoid being left out in the mortgage-less cold is to check your credit score, and make it the best it can be.

Lenders have tightened up their requirements and the government has made it more difficult to get mortgage insurance, said Brian Peterson, president of the Mortgage Brokers Association of British Columbia.

Last summer, the federal government set new guidelines for which mortgages can receive government-backed insurance.

Under the new rules, set out in a Department of Finance backgrounder, the government will no longer insure 40-year mortgages. Also, while zero-down mortgages are still available, the government will only insure 95 per cent of those loans.

The government also set a credit score floor of 620 for potential borrowers, with a limited number of exceptions allowed. (’s major credit-rating agencies use a scale from 300 to 900; the higher the number, the better your credit rating is.)

Peterson said the credit score floor has been reset at 600.

All mortgages in which the loan is more than 80 per cent of the property value require insurance. And lenders now sometimes choose to insure other mortgages at their own expense so they can sell them as part of an asset-backed security, Peterson said.

So while a borrower’s credit score is not the only criterion — lenders also want stable employment and a low debt load — it is an important one.

It’s a score people can improve.

There are two providers of credit scores in , Equifax and TransUnion.

Tom Reid, director of consumer solutions for TransUnion, has heard about cases where consumers who thought they had a good credit score are being declined for mortgages.

Reid recommends people aim to get their credit scores up to 750, and 47 per cent of Canadians are in that range.

Credit scores are based on reports lenders provide regarding loans they have made and their repayment. Lenders include credit card companies, retailers that have their own credit cards, and banks reporting lines of credit and auto loans.

For a good credit report, payments should be made on time, even if the payment required is small and almost not worth bothering, Reid said. And balances on credit cards should be kept below 50 per cent of the cards’ limit.

Keep applications for credit down to a minimum, except if you are shopping around for the best deal on a big purchase, Reid said. Potential lenders may think you are desperate for credit if you have a number of different companies checking your score at the same time.

Also have a mix of loans and credit cards to show you can manage debt, Reid said.

“It may be easier to manage [one loan] but it doesn’t show lenders that you have the ability to manage other types of credit with potentially higher payment obligations,” he said.

Also, before cancelling a credit card, think about whether keeping it could positively affect your score. If you’ve made the payments on time and have had the card for a while, you may be better off hanging on to it, and not using it. Once you’ve cancelled the card, you’ve also cancelled its positive credit history.

What hasn’t traditionally been included in credit reports is mortgages. But that’s changing with more financial institutions choosing to provide mortgage information, Reid said.

One problem some would-be borrowers may face is a lack of credit history. For them, Reid suggests starting with a credit card from a retailer as they are generally easier to get. Then make sure the payments are made on time.

The longer credit history you have, the better your score, so start early, Reid said.

The Financial Consumer Agency of Canada has helpful information about credit scores — how to read the reports and how to improve them — on its website

Refinance or Not to Refinance?

In today's market many people are considering their options with such low rates. Have rates hit rock bottom? Do you think rates are going to rise? Are you looking for a different mortgage product? The answers to these questions will help with whether refinancing your current mortgage today is the right thing to do.

Before you make this decisions you need to be clear on what refinancing your mortgage involves. Your home may be your biggest financial asset so you want to choose the right lender, the right product and the right mortgage broker. Remember that refinancing can be beneficial, but along with its benefits, comes costs too. If you remember the first time you set up your mortgage, you may encounter similar costs and procedures.

When you refinance, you pay off your existing mortgage and create a new one. If you have a first and second mortgage, often its a good time to consider paying both of them out and amalgamating them into one.

The interest rate you are currently paying is tied to your current monthly principal and interest payments. Lower rates mean lower monthly payments. Dependant on your current credit and application will determine your lowest rate option.

Lets compare;

A Mortgage of 100,000.00 with a Term of 5 year fixed and Amortization of 30 Years

Monthly Payment based at old rate of 5.75% = $579.28

Monthly Payment based at New rate of 3.99% = $474.96

Difference in monthly payments = $104.32

Interest savings over the 5 year term = $8556.20




Another option for you to consider is refinancing your mortgage to this new rate and keeping the payments the same as if you were still paying the old rate. Your then making extra principal payments every months and this will help you save THOUSANDS of dollars in interest over the life of your mortgage.




Tip:

Just by paying an extra $100.00 per month towards principal will reduce your
amortization by 3.3 years and save your $10,792.95 in interest.



Another cost to consider is your current mortgage may have a prepayment penalty.

A prepayment penalty is a fee that lenders might charge if you pay off your mortgage loan early, including for refinancing. If you are refinancing with the same lender, ask whether the prepayment penalty can be waived. You should carefully consider the costs of any prepayment penalty against the savings you expect to gain from refinancing. Paying a prepayment penalty will increase the time it will take to break even, when you account for the costs of the refinance and the monthly savings you expect to gain. A mortgage broker can walk you threw how to obtain such information at the time of refinancing.

If your considering refinancing to take advantage of lower rates to payout high interest rate debt this is another good reason to consolidate into one monthly payment. Reality is that it takes consumers longer periods of time to pay down high interest rate cards based on their monthly minimum payment commitment. As interest rates run on credit cards anywhere from 10% - 20% and your paying much higher interest costs, and your monthly payments are high, refinancing can save you thousands of dollars - definitely something to consider.

Determining your eligibility for refinancing is similar to the approval process that you went through with your first mortgage. The lender will consider your income and assets, credit score, other debts, the current value of the property, and the amount you want to borrow. Based on your credit will determine what type of rate we can offer you. On the other hand, if your credit score is lower now than when you got your current mortgage, you may have to pay a higher interest rate on a new mortgage but there is still options available for you.

Lenders will also look at the amount of the loan you require and the value of your home, determined by an appraisal. If the loan-to-value (LTV) ratio does not fall within their lending guidelines, they may not be able to offer as much money as you originally requested or not be interested in the loan at all.

Choosing a mortgage may be the most important financial decision you will make. You should get all the information you need to make the right decision. A mortgage broker can do this for you and walk you through the costs associated with refinancing to make an informed decision. They work for you not the lender.

What is Property Purchase Tax aka Property Transfer Tax in BC

When buying real estate in British Columbia, the government imposes a Property Purchase Tax based on the greater of the purchase price or the fair market value of the property. The tax is calculated at 1% of the first $200,000 and 2% of the balance of the value/purchase price.

Property Transfer Tax should not be confused with Property Taxes.

What is Fair Market Value?

Fair market value is the price that would be paid by a willing purchaser to a willing seller in the open market on the date of registration. An open market is where the property is offered for sale so that anyone likely to be interested in purchasing it may make an offer. For example, the seller lists the property with a realtor or advertises it for sale. If your tax return is reviewed by this office, you may be asked to provide evidence of how you knew the property was for sale.

In most open market transactions, the purchase price is the fair market value, as long as the transfer is registered within a few months after the sales contract is signed. In other instances, such as where no money changes hands or the transfer did not take place in the open market, the fair market value must be determined by other means, such as an independent appraisal or by reference to the most relevant BC Assessment value.


Property Purchase Tax Exemption

You may qualify for a tax exemption if you, and the property you are purchasing, meet the following guidelines:

Your down payment can not exceed 30% of the purchase price
The maximum purchase price to qualify for the exemption in Vancouver, Victoria, Squamish, Whistler, and the Fraser Valley is $275,000. In all other areas of the province, the maximum qualifying purchase price is $225,000.
You may never have previously owned an interest in your principal residence (anywhere in the world).
If you pay more than $11,000 towards the principal of your mortgage within the first year, or if your outstanding mortgage amount is less than 70% at the end of the first year, you will lose your property purchase tax exemption ($9,000 in some parts of the province).
You must be a Canadian Citizen or Landed Immigrant and have been a resident of British Columbia for at least 12 consecutive months immediately prior to the purchase.
The purchaser must occupy the property as their principal residence within 92 days of completion.

Under certain circumstances, the purchase of raw land or a building lot may qualify.
Other conditions apply.


How to File;

There are three types of Property Transfer Tax returns:

The green General Property Transfer Tax return is completed when NO exemption is being claimed.

The blue First Time Home Buyers' Tax return is completed when the transfer includes a qualified First Time Home Buyer.

The yellow Special Property Transfer Tax return is completed when claiming an exemption other than the First Time Home Buyers' exemption.

Most law firms and notaries have supplies of the tax return forms, or you can get them from any Land Title or Service BC-Government Agent office.

Why did I receive a letter one year after buying my first home?

If your home was purchased and registered on, or after, February 20, 2008, the ministry sends you a form letter one year after you bought the home asking you to confirm that the home is still your principal residence. This letter ensures that you meet the principal residency requirements of the exemption..

If your home was purchased and registered before February 20, 2008, the ministry sends you a form letter asking for details of your mortgage account(s). You need to have your financial institution or mortgage holder complete the mortgage details on the form letter, showing the outstanding balance on February 19, 2008. This is to ensure that you did not pay down your mortgage below the allowable limit before February 20, 2008


Where can I get more information?

You can get additional information by calling the BC Government at (250) 387-0604.

First-timers drive a rebounding market

Globe and Mail Update

March 13, 2009 at 10:34 AM EDT

Judging from the many shoes littering the front porches at open houses in recent weekends, it's clear that people are back buying houses.

Without a doubt, the market has picked up, and we're barely into March. It's a far cry from the abysmal real estate market of last fall and January this year.

According to the Real Estate Board of Greater Vancouver, residential housing sales were up 94 per cent last month compared with January. That translates into 1,480 sales for the month of February alone. January, on the other hand, was a record-setting sluggish month - the slowest for housing sales in 25 years.

The growth defies the sky-is-falling pronouncements that have made headlines since September last year. But there is a growing perception that it's a buyer's market. A recent RBC/Ipsos Reid poll revealed that 26 per cent of B.C. residents surveyed believed they would purchase a home in the next two years, despite the view that house prices will continue to fall over 2009.

The condo market is also feeling a surge of life, real estate marketer Bob Rennie says.

"Sales are up," he says. "We have sold 19 [units] at One Madison Avenue in Burnaby in the past six weeks, and another nine at L'Hermitage at Robson and Richards in the past 10 days.

"I do think that the market is seeing a little bit of confidence, combined with some great opportunities with great interest rates."

Armed with low interest rates and realizing a good deal when they see one, brave contrarians are defying fears.

"People can see the value - and the value is phenomenal," real estate agent Lorne Goldman says.

Mr. Goldman says he had a house for sale last year on the city's pricey west side with an asking price of $2.4-million. The sellers were offered $2.3-million, but the buyer failed to complete. The same house is now on the market for $1.85-million.

"It's also very basic Real Estate 101," he adds. "There are people who are getting married, there are people who are married having more children, people being transferred into Vancouver from other cities. There are people who have inherited money who want a bigger house.

"The market continues, despite what is out there in the general economy. The fundamentals are there. People still need to buy groceries, and they still need shelter."

Karin and Sean Whale are unfazed about talk that house prices may fall further or that it's not a good time to sell a home. They recently had a baby and are motivated by their changing lifestyle.

The couple owns a three-storey townhouse on the east side of the city near trendy Commercial Drive, and with the latest addition, they've outgrown it and are looking to trade up to a detached house. They don't worry about selling and buying into the same market.

"Buying low and selling low is not a scary proposition to us," Ms. Whale says. "We need more space at this time in our lives ...Vancouver detached house prices are the lowest they have been in two or three years."

Long-time Vancouver real estate agent David Campbell says that, unlike a year ago, it isn't the fixer-uppers and in-between houses selling. Demand is high for nice ones that don't require a lot of work, and there aren't a lot of them on the market. And the people buying, he says, are either first-time buyers or homeowners such as the Whale family who are trading up.

"We have many buyers, but we have seen the return of first-time buyers," Mr. Campbell says. "For a good part of, let's say, the last nine months, first-time buyers have been staying out of the market. They were a little scared as to what was happening last fall. But interest rates are at record lows, and prices have adjusted downward, and there are lots of first-time buyers coming back.

"We're getting a lot of move-up buyers as well taking advantage of the low interest rates who say, 'Now I can afford that spread up to the next one.' "

And unlike last fall, when the bottom fell out of the market, they aren't making low-ball offers - the prices have firmed up, he says.

"Last Sunday I had the busiest open house since April," Mr. Campbell says. "I had three offers on a house in 24 hours and it sold over asking."

But not just any house is selling, he adds. Buyers are being selective in this uncertain market.

"They want a good home, so they are picking the better ones," Mr. Campbell says. "That's where we get multiple offers."

Canadians more careful in financial decisions

Canadians more careful in financial decisions, survey says

News Canada


Thursday, March 12, 2009


According to the 2008 Desjardins Financial Security Rethink Retirement survey, Canadians are becoming more selective about where they place their hard-earned retirement savings. Initially, the survey conducted between June and August found that the majority of Canadians felt confident about their financial security and retirement plans. However, after the recent market fluctuations, Desjardins conducted a follow-up poll this past October.

The second survey asked questions to measure whether Canadians were becoming more cautious about their financial decisions. Canadians, particularly those over forty, said the following considerations would be very important to them when selecting savings and investment vehicles over the next year:

- More consideration to their personal and financial needs (49 per cent)
- Guarantee on the capital invested (48 per cent)
- Financial strength of their institution (47 per cent)
- Returns on the capital invested (40 per cent)
- Quality of advice received (39 per cent)

"Canadians over forty are not in a state of panic, but seem to be finally paying attention to what the financial services industry has been trying to get across for many years," said Michael Aziz, vice-president of sales and business development of individual savings products at Desjardins Financial Security. "Yes, most Canadians will be able to retire one day, but they are going to have to plan and work towards that goal. And part of this work will include the careful selection of their financial institution."

More information about the survey is available online at www.rethinkretirement.ca.

Raising your credit score to 740

As mortgage rates tumble, many would-be buyers and refinancers are missing the chance to lock in loans at record lows. The reason? Their credit scores aren't high enough to qualify for the best rates and in some cases are too low to qualify for any loan at all.

Credit scores are three-digit numbers lenders use to gauge your creditworthiness. Even people with lower scores could get a decent deal, and at the peak of the lending boom it seemed no score was so low that it merited a rejection.

Missing out on what may be once-in-a-generation interest rates is painful enough. But less-than-stellar credit can hurt in other ways. After all, credit information is used:

By insurance companies to evaluate applicants and set premiums.

By landlords to decide who gets apartments.

By employers concerned about higher risk of theft from those with troubled finances.

The good news is that it's possible to boost your numbers if you have a handle on your finances and you know how credit scores work
Plenty of folks are handling their credit well enough to earn good scores. You can, too. But first you need to recognize that:

You can't raise your scores if your finances are still in free fall. If you're unable to pay your bills, you certainly can't fix your credit. Real credit score repair will have to wait until your financial crisis has been solved and you have enough money to cover your expenses, plus some extra to begin paying down your debts.

You can't raise your scores if you don't use credit. Credit scores try to predict how well you're likely to use credit in the future by how well you've used it in the past. So while living a cash-only lifestyle may do wonders for your wallet, it won't boost your scores -- in fact, without continuing use of some type of credit, eventually your credit reports won't even generate credit scores.

You don't have to pay credit card interest to achieve great scores. "Using credit" is not the same as "carrying a balance on your credit cards." Carrying a balance is expensive, bad for your finances and completely unnecessary. Many of us who have achieved 800-plus scores pay off our balances religiously, and we know you can build and keep great credit scores without ever paying a dime of credit card interest.

You can't expect overnight results. You're likely to see improvement in your scores within 30 days if you pay down significant chunks of your credit card debt. But otherwise, credit repair takes time, and how much time depends on the many details of your credit reports. If you have serious black marks, such as bankruptcies or foreclosures, you can see significant improvement in your scores as time passes but you may have to wait until those negatives drop off your credit reports before you can join the 700-Plus Club.

Now that you understand the basics, you can use the following techniques to get your scores over 740.

Give your limits a wide berth
Spread out your debt. More than a third of your score depends on how much of your available credit you're using -- your so-called credit utilization. The formula likes to see big gaps between your balances (whether you pay them off each month or not) and your limits, especially on credit cards. (You're rewarded for paying down installment debt, such as mortgages and auto loans, but your scores improve much more dramatically when you pay down revolving debt such as credit cards.) In short, it's better to have small balances on several cards than a big balance on one card.

A balance is a balance. You have to worry about your credit utilization ratio even if you pay your balances in full each month. The balance that's reported to the credit bureaus is typically the one on your last statement, not the balance that's left over after you pay your bill. So if you charge $9,000 on a $10,000 card, it's going to look like you're using 90% of your limit (which is really, really bad), even though you paid off the balance in full when you got the bill.

Shoot for 10%. The less of your available credit you use, the more it rewards you. Keeping your credit utilization below 30% on your cards is good; getting it below 10%is even better. If you regularly use more, ask for a higher limit, spread your charges out on more than one card or make two payments every month -- one just before your monthly statement closing date to lower the balance reported to the credit bureaus and a second one just before the due date to avoid late fees.

Push back against lower limits. Credit card issuers are reducing limits right and left; in fact, one banking analyst estimated that the newly risk-averse companies would slash $2 trillion of the $5 trillion in existing credit limits. This can be awful news for your credit scores, but you can and should try to push back. If you can't get the issuer to reverse its decision, move your balance elsewhere.

3 strategies for lowering utilization

Move debt to installment loans. If you've got high balances that you can't pay down quickly, consider transferring the debt to a personal installment loan. The interest rate you'll pay is typically higher -- 13% or so for people with good credit, compared with less than 10% on many credit cards -- but the scoring formula treats installment loan balances more kindly than the same debt on credit cards.

Or move debt off your credit reports entirely. You can make debt seem to disappear by paying it off with a loan from a friend, family member or retirement plan, none of which typically show up on your credit reports.

Play the home equity card cautiously. Moving a credit card balance to a home equity loan or line of credit may improve your scores but put you at greater overall financial risk. If you fail to pay the bill, you could lose your home.

Don't close accounts or let them be closed. Closing accounts can't help your scores and may hurt them. Yet many issuers these days are slamming shut inactive cards rather than continue to carry these unprofitable accounts. If you've got cards you haven't used in a while, take them out for dinner or a movie, and pay the balance promptly. Better yet, use them to charge a regular expense, such as your electric bill, and arrange for automatic payments.

Apply for credit sparingly. Applications for credit don't ding your scores as much as some people fear; typically, you lose five points or less. But when every point counts, such as when you're in the market for a mortgage or a car loan, you don't want to squander any of your scores. Wait to apply for any other credit until you've secured the loan you want.

Using a Mortgage Broker vs Your Bank?

A Mortgage Broker works for you, the client, whereas Bank Specialists are employed by the financial institution.

The benefit of using a Mortgage Broker is the fact that they have the ability to offer you mortgage products from a number of financial institutions. Because a Bank Specialists works for the bank, that means that they can usually only offer you their institution’s products.


Brokers are typically paid the same amount no matter what rate is offered to the client. Bank specialists’ rate of pay is generally reduced in direct relation to the amount they discount your rate from the bank’s posted rate.


Depending on your Province, Mortgage Brokers must be licensed and are subject to a strict set of requirements. Accredited Mortgage Professionals (AMP) must take continuing education courses in order to maintain their accreditation. Bank specialists are not licensed and require no formal training.


Because Mortgage Brokers don't work for a specific lender, your assured that you will be given impartial advice. A bank specialist has a limited number of their own institutions products and while it may not be the best mortgage product out there, they will do their best to sell you their institutions mortgage product because if they don't your going somewhere else.


Mortgage brokers use their knowledge and experience to negotiate the best possible rate and product for you from a number of lenders. When you see a bank specialist, that mortgage negotiating is typically left up to you.


For conventional financing, the services of a mortgager broker are generally provide at no cost to you. If there is a cost, you will be advised of those costs up front.

So in conclusion, if you have the ability to use the services of a professional Mortgage Broker and have that Mortgage Broker do all your mortgage leg work at no cost, why would you not take advantage of the offer?

Why use a mortgage broker?

Benefits of using a Mortgage Broker

Using a mortgage broker is an effective way of getting a mortgage package to suit your needs without having to commit hours of your time to searching and browsing. When you use a mortgage broker service, you will simply be cutting out all of the time and work involved in finding a mortgage to suit your circumstances – and it won’t cost you a cent to do it. A good mortgage broker service will be able to source a wide range of mortgage options on your behalf, and will then put forward the ones that offer the best value in terms of interest rates and monthly repayments. All you have to do is complete one simple application form, which saves you the hassle of having to complete a form for each lender in which you are interested.

An established mortgage broker will already have formed contacts, and relationships with a wide range of mortgage lenders. He or she will therefore know which lenders may cater for your particular needs. For instance, if you have a poor credit rating and you are looking for an affordable mortgage, the broker will most likely know which lenders offer affordable finance to those with a tarnished credit history and can therefore approach the right lenders straight away. If you were looking for a bad credit mortgage without the help of a broker, you could end up going through one application after another with a range of unsuitable lenders, and you could end up with a long line of refusals, which could make your credit rating even worse.

Using a mortgage broker is a great way to get a good value, affordable mortgage that is tailored to meet your needs and circumstances. It is also an excellent solution to getting a good mortgage deal without having to put in the hard work and time that you would have to without the assistance of a professional broker.

There is lots to choose from but where would you go to find a reputable mortgage broker? Well look no further, i have been in the finance industry for years and have dealt with hundreds of mortgage brokers in BC. Please contact me and i will put you in touch with a reputable mortgage broker in your area.

You can also visit these websites; FICOM, MBABC and CIMBL to locate mortgage brokers in your area.

What is a Mortgage Backed Security?

NHA MBS At A Glance

NHA Mortgage-Backed Securities are comprised of pools of amortized residential mortgages insured by Canada Mortgage and Housing Corporation (CMHC) under the National Housing Act (NHA).

NHA MBS Issuers are approved by CMHC and must be either a chartered bank, a trust company, an insurance company, a credit union, a loan company or a caisse populaire.

There are four different categories of NHA MBS pools available to Investors: "exclusive homeowner"; "multi-family"; "social housing" (such as co-ops and seniors residences) and "mixed" (a combination of any of the above).
Timely payment to the Investor of principal and interest is guaranteed by CMHC, who also insures the underlying mortgages, The automatic pass-through of the principal paid on the mortgages and interest (based on the coupon rate of the respective NHA MBS pool), is paid to Investors on a monthly basis by the Central Payor and Transfer Agent (CPTA), Montreal Trust.
A wide range of terms is available - ranging upwards from 6 months to 25 years. Five-year terms have been the most popular.
NHA MBS are RRSP and RRIF (Registered Retirement Savings Plans and Registered Retirement Income Funds) eligible.
NHA MBS are exempt from non-resident withholding tax — an important consideration for foreign Investors and Canadian expatriates who would normally pay this tax.

NHA MBS Key Features
NHA Mortgage-Backed Securities are extremely popular, today more so than ever before. Over 45,000 retail and institutional Investors have invested more than $27 billion during the first ten years of the NHA MBS Program.

Maximum security
As investments, NHA MBS are the only mortgage-backed securities fully guaranteed by CMHC on behalf of the Government of Canada.

Attractive rates of return
Investments in NHA MBS earn returns that are comparable to GIC’s and are higher than Government of Canada bonds with equivalent terms.

Liquidity
NHA MBS investments offer investors the liquidity associated with an active secondary marketplace. (The securities can be bought and sold readily through Canada’s financial industry.)

Timely monthly payments
Payments to NHA MBS Investors may be made by cheque or by direct deposit into an account of your choice.

Convenient denominations
Denomination in multiples of $5,000 make NHA MBS investments convenient for all Investors.


NHA MBS Stability, Security, Timely Payment Guaranteed
Deciding on the value of an investment means balancing return on investment on one hand, with security versus risk on the other.

NHA Mortgage-Backed Securities are:

ideal for individuals seeking a secure source of regular income with attractive returns on the money invested;
ideal for large Investors, such as pension funds, looking for attractive yields and predetermined cash flows to meet pensioners' obligations.
Like Government of Canada bonds, NHA MBS prices in the secondary market tend to fluctuate with changing interest rates, declining as interest rates rise and rising as interest rates fall. When new issues are created for sale, their prices and respective yields will reflect the current interest rates available in the marketplace.

With today’s low inflation rate, the real rate of return for NHA MBS is very high indeed, making them a sound and secure investment.

NHA Mortgage-Backed Securities are a sound investment that offer maximum safety and attractive returns.
Their unique insurance-guarantee combination makes NHA MBS an unparalleled investment when compared to other low-risk investment options. An investment you can bank on!

And there’s no limit to the Government of Canada backing provided through CMHC. The backing applies to the entire investment, whether it’s $5,000 or $50 million. Unlike savings account balances and GIC’s, security isn’t limited to the $60,000 maximum provided by the Canada Deposit Insurance Corporation.

"Canada will be the first to rebound"

Quote from Prime Ministers Speach March 10, 2009

Improved Access to Financing

Suffice it to say that the Government of Canada is injecting $200 billion dollars of credit into the system through a range of mechanisms, including the Business Development Bank, the Export Development Corporation and, of course, the Bank of Canada

Read the whole article by clicking on the GLOBE AND MAIL link below...

Fear trumps low interest rates - The Canadian Press

Ottawa - Jim Rawston, RM of Invis says its a great time to buy a house.

We've never seen interest rates, both variable and fixed, so low. Pair that with falling housing prices and it's a no-brainer.

People have to have somewhere to live and whether you are paying for a mortgage or paying rent, you still have to be paying to live somewhere.

But something is missing in the equation. As prices for most consumer goods, cars and homes decline - in some cases plunge - and the cost of borrowing falls, Canadians have been hesitant to buy.

The Bank of Canada did its part this week to lure consumers and businesses out of their fox hole, dropping the overnight rate down to an unheard of half per cent - virtually zero.

Canada's chartered banks lowered their prime rate to 2.5 per cent on Tuesday, shortly after the central bank moved, and by the end of the week were lowering other lending rates.

TD Canada Trust, for one, is reducing several of its posted fixed-term mortgage rates on Saturday. TD's biggest decrease was with its two-year mortgage, which falls to 5.0 per cent from 5.75 per cent.

Scotiabank went even further, dropping nearly two full percentage points off the advertised price for its 10-year mortgage, which fell to 5.25 per cent from 7.15 per cent, effective Friday.

By almost every measure, Canadians have slowed down borrowing and spending, most visibly in the auto sector, which saw sales volume crash by 28 per cent in February.

The Canadian housing market, for years a source of boundless growth, has come crashing to earth with sales, prices, and construction of new homes all down, in many cases by double-digits.

Consumers have also stopped discretionary purchases, as the 5.4 per cent contraction in retail sales in December - the largest in 15 years - shows.

"I think they're scared out there," says Bruce Cran of the Consumers' Association of Canada. "Consumers are tapped out and frightened of over-spending. They are going back to being savers."

Bank of Canada deputy governor Pierre Duguay may have a point in saying there is a danger of "irrational fear" taking hold, but there are also very real reasons to be concerned.

Canada lost 129,000 jobs in January, the third straight month of decline, and announcements of future layoffs are being posted almost daily. Everyone is predicting the Canadian economy has much further to fall after contracting 3.4 per cent in December.

There is also fact that the days of easy money are over. Chartered banks are being more choosy who they lend to and interest rates - low as they are - are higher than they might be given the central bank rate and non-existent inflation.

Variable rate mortgages, for example, formerly could be had below the banks' prime rate. The prime rates have fallen, along with the Bank of Canada's moves, but now banks' variable mortgage rates are well above prime.

Individuals have also cut back on borrowing, hence spending. TD Bank chief executive Ed Clark said this week that overall demand for loans is coming down.

Under normal times, economists would say that is a good thing. Rampant buying, particularly in the United States, was a major contributor to the financial sector meltdown that brought the world low.

Americans have now pulled back big time making matters worse, even though the Federal Reserve rate at 0.25 per cent is lower than the Bank of Canada's. The U.S. once lamentable savings rate has shot from just above one per cent to five per cent in a matter of months.

The amount of debt Canadians held as a ratio of their income increased last year to 136 per cent from 130 per cent. What kept them solvent is that low interest rates made the cost of servicing that mounting debt at affordable levels.

That is as long as jobs, incomes and the economy were advancing. In a recent CIBC World Markets report, economist Benjamin Tal showed the squeeze was underway.

Canadians assets fell by $160 billion in the third quarter, he noted, adding that with house and equity values falling, Canadians would likely be another $180 billion poorer in the fourth quarter. Values haven't gotten better since.

As well, debt is rising and consumer bankruptcies are jumping - 13.5 per cent last year with expectations they could hit 30 per cent growth this year. Mortgage arrears are also on an upward path, rising from a record low of 0.24 per cent to the current 0.33 per cent, the highest in six years.

But the big number, says Tal, is the number of Canadians who have lost their job and the much bigger number that are for the first time in many years afraid of losing their job.

"The issue is confidence," he said. "People talk about the unemployment rate going to eight and nine per cent, but the focus should be on the 91 per cent of people who are employed and are concerned about their jobs."

Tal and most economists believe that Canadians will start spending again because they no longer can put off purchases. But he doesn't believe they will spend with the reckless abandon of the recent past.

"After the crisis is over, consumer spending will be stronger but not like it used to be because it was artificially strong before, using borrowed money," Tal said.

Rawson believes that time is coming soon, at least in the housing market.

Applications for mortgages in his Toronto office have doubled since December, Rawson says, with many in the pre-approved market. That usually involves first-time prospective buyers making sure all their ducks are lined up before taking the plunge.

"These are people who haven't bought yet but they will buy in the future," he says.

Expert Advise on Credit

As mortgage professionals, we are in an ideal position to help clients "score credit points" by providing helpful advice to those having difficulty obtaining an affordable mortgage. For instance, all three credit reporting agencies offer consumers free access to their credit reports on an annual basis if they apply in writing. They can also secure their credit score online. While the reporting agencies charge a fee for an online credit score, consumers also receive an accompanying copy of their credit report.

This can be helpful information for many people. Applicants who have reviewed all three of their credit reports prior to applying for a mortgage have an opportunity to rectify any errors. This can also provide an opportunity for you to discuss with them any potentially problematic issues and suggest ways in which to address these issues.

If an applicant has accounts in arrears, for example, you may suggest these should be paid in full or settled with creditors as soon as possible. Debt management professionals can assist in arranging lump sum settlements of accounts. While a paid or settled account is reported as delinquent for six years from the date of the last payment, the longer it has been paid or settled, the less impact it will have on an individual's credit score.

If an applicant's credit report indicates an insufficient credit history, this can be established if the individual obtains new credit (ideally a personal loan or line of credit of a minimum of $5,000, plus a credit card) and builds a reliable payment history for 12-24 months, depending upon the amount of available equity.

For those with more serious credit issues, your best advice would be to refer them to an appropriate personal finance professional.

Serious issues would include a very low credit score, maxed-out credit, several payment delinquencies, or a consumer proposal or bankruptcy. By referring such applicants to a professional specializing in debt management or credit optimization, they will be able to develop a strategy to improve their credit scores.

Individuals with a very low credit score and unmanageable debt may have to undertake a consumer proposal or bankruptcy in order to improve their cash flow and enable them to restore their credit profiles over a longer period of time. In this case, you might want to refer the individual to a bankruptcy trustee that is licensed to administer these solutions.

Mortgage insurers require consumers that have completed one of these formal insolvency processes to have significant re-established credit of at least two accounts (ideally, a loan and a credit card) for at least 12 months. In most situations, however, a low credit score may be raised sufficiently to secure a mortgage within a few months through informal counselling or coaching.

Ultimately, by directing unsuccessful applicants toward financial professionals who can help them "score points" for their credit profile, you can build your future business with appreciative applicants who return to you or refer their friends and family members to you.

So keep in mind, when you score points for your clients, you score points for yourself: repeat business and referrals.

Eric Putnam is a senior advisor and financial coach with BDO New Beginnings (www.bdonewbeginnings.ca), which helps Canadians resolve their financial problems and optimize their credit profiles


Consumer credit scoring formula example

Payment history - 35% weighting. Recent payments more than 30 days late, collections, judgments and bankruptcy negatively impact payment history.

Outstanding debt - 35% weighting. This includes the number of creditors owed, balances and allocated limits.

Credit account history - 15% weighting. This refers to the length of time accounts have been open.

Recent inquiries - 10% weighting. This includes hard inquiries from lenders within the past 12 months.

Types of credit - 10% weighting. This includes a mix of revolving credit accounts (card or line of credit) and installment loans.

Source: Equifax Canada

Canadians Optomistic about home buying : RBC

Wednesday, March 4, 2009 CBC News

Almost two-thirds of Canadians think the time is right to buy a house despite the ongoing global recession, according to a new survey released Wednesday.

RBC said 65 per cent of people in this country term the current housing sector a "buyer's market." More than a quarter of Canadians said they would look to buy a new house within the next two years.

That optimism is despite the current economic environment: Canada's GDP dropped by an annualized 3.4 per cent in the last three months of 2008 and home prices were down more than 11 per cent in January 2009 compared to a year earlier.

"The current economic environment does not appear to have dampened Canadians' overall confidence in the housing market," said Karen Leggett, head of RBC's Home Equity Financing.

"Canadians continue to have an overwhelming belief in the long-term value of a home and we're seeing this in the buying intentions of many first time homebuyers this year," she said.

Indeed, the current interest in purchasing a new home was four percentage points higher than the 23 per cent for the same time in 2008 and is at its highest level since 2007.

Falling home prices
One reason for the relatively positive outlook among Canadian homeowners and potential purchasers was the belief that slumping home values will drop even further in 2009.

More than half — 54 per cent — of Canadians said they think housing prices will be lower this year than they were at the end of 2008.

Cheaper prices combined with falling interest rates — down 50 basis points after March's rate cut by the Bank of Canada —indicate that people believe they will be able to pay less for a relatively valuable asset that will begin rise in net worth as the economy recovers.

Of course, that scenario only plays out as the economy recovers

In another recent survey, a majority of Americans said they think the North American recession is getting worse, not better, a situation that could pushing home values down further and delay a decision to buy a new home.

Regional differences
Alberta remains the most optimistic place in Canada for home buying in the near future.

Canadians who: say it's a buyers' market


B.C. 78%
Atlantic 58%
Sask./Man. 34%
Alberta 72%
Source: RBC

Canadians who: say will buy house in '09 or '10
B.C. 26%
Atlantic 25%
Sask./Man. 25%
Alberta 35%
Source: RBC


In the oil-rich province, 35 per cent of residents said they will purchase a new abode this year or in 2010. That level of buying interest contrasted sharply with Quebec where only 22 per cent of those surveyed said they would buy a home in 2009 or the year after.

In Ontario, 30 per cent of people asked expressed an interest in purchasing a new house.

Ipsos Reid conducted the poll between Jan. 6 and Jan. 9, 2009. The online survey of 2,026 adult Canadians is considered accurate to within 2.2 percentage points, 19 times out of 20.

Bank of Canada cuts prime rate by 1/2 point

CBC News Canada's -

chartered banks slashed their prime lending rates by half a
percentage point Tuesday, mirroring a similar Bank of Canada cut in the bank
rate this week.At least five major banks - RBC, Bank of Montreal, National Bank of Canada,TD Canada Trust and CIBC - reduced their charges to their most credit-worthy
customers by 50 basis points. It marked the second time in a row Canada's
major lending institutions quickly followed the Bank of Canada's lead in
reducing borrowing charges by the same central bank decrease. In January,
the private banks dropped their lending costs by half a percentage point,
following the Bank of Canada's lead. Prior to January, however, the banks
had endured a blizzard of criticism when they only passed a portion of the
Bank's rate reduction to their customers, leading to cries of "gouging" by
consumer groups.

First-time homebuyers could lead real estate rebound

Kristine Owram The Canadian Press

Lower home prices and shifting demographics mean first-time buyers could lead a rebound in Canada's real estate market, experts said yesterday at a

real estate conference in Toronto.Phil Soper, president and chief executive of Brookfield Real Estate Services, said rookies are the largest category

of buyers in the real estate market, accounting for close to 70 per cent of all transactions at the height of the housing boom.

However, they've been scared away in droves by the economic downturn, which was led in part by record foreclosure rates in the

United States as homeowners defaulted on their mortgage debt.

Such a lack of first-time buyers can grind the real estate market to a halt, Soper told Scotiabank's annual real estate outlook conference.

"When new buyers stop entering the market, it's like sand in the gears,'' he said.

Although Canada has managed to duck the severity of the housing crisis in the U.S., the 10-year boom that saw housing prices soar,

particularly in the western provinces, ended abruptly last year.

Canadian housing starts -- the number of new residential construction projects -- were down to 211,056 in 2008,

about eight per cent lower than an average of almost 230,000 in the period from 2004 to 2007. Resale activity fell by 17 per cent

in 2008 while home prices dipped by one per cent, according to Scotiabank.

Things seem to have worsened dramatically in January, with housing starts falling to an eight-year low of 153,500

annualized units and home prices down 11 per cent year-over-year.

And the bank predicted the decline will continue through 2009, with housing starts forecast to fall to around 155,000 units,

another 15 to 20 per cent decline in the number of resales and a 10 per cent drop in prices.

But Adrienne Warren, a senior economist and real estate specialist at Scotiabank, said this points to a buyers' market.

"Certainly the softening we've seen in prices, the increase in listings, is giving first-time buyers more choice,'' Warren said.

 

 

Heres an interesting article from the Globe and Mail.....

The art of mortgage renegotiation
ROB CARRICK
Globe and Mail Update

Falling mortgage rates have revealed yet another way the banks are charging their clients more in these financially stressful times.
Rates on mortgages have fallen a lot in the past several months, prompting many people to ask about renegotiating in order to cut costs. “The bulk of my business today is people breaking their mortgages,” said Jim Tourloukis, a mortgage broker with Advent Mortgage Services in Markham, Ont.
The problem in breaking a mortgage is the penalty that lenders charge. Banks typically have two ways to calculate the penalty and recently they've switched to the more expensive one.
A little context may help you gauge how annoyed you should be about this. With a recession and global financial crisis hurting their revenues, the banks have been pushing up interest rates on lines of credit, charging more in service fees and adjusting credit card rules to extract more money from clients. Mortgage penalties are somewhat different in that they're mainly influenced by what's happening with interest rates.
It's boilerplate in mortgage contracts for penalties associated with breaking a loan to be set at the greater of three months' interest or the difference between the interest the bank could make on your mortgage as originally arranged versus lending money out at current rates.
Mr. Tourloukis explained that three months' interest was the typical penalty until rates began to fall hard in the past couple of months. Now, the so-called interest rate differential, or IRD, is the larger penalty.
“The spread between the client's rate and what banks can lend money for now has grown dramatically,” he said.
If you have any thoughts of breaking your mortgage, get on it today. If mortgage rates fall further, and they could ease a little bit more, then interest rate differentials will grow in size and cost you more.
Mortgage brokers say breaking your mortgage is worth some thought if your current rate is in the low 5-per-cent range or more. Mr. Tourloukis said he's been renegotiating five-year, fixed-rate mortgages at 3.99 per cent for clients who several months ago signed up for similar loans at 5.79 per cent. Other mortgage brokers are showing five-year rates in the low 4-per-cent range.
The first step in breaking a mortgage: Ask your lender what your penalty would be. There's no standardized calculation of penalties, so your number will depend on your lender's own policies and personal circumstances like the amount you've borrowed and the number of years left on your mortgage.
In some cases, breaking your mortgage just won't make sense because of the steep IRD amount. “If you have a lot of time left on your term, it could be deadly,” said Vince Gaetano, vice-president at Monster Mortgage in Toronto.
Practices vary widely among banks, but one method for calculating the IRD is to compare a client's original rate against the posted rate for the term that corresponds with the remaining time left on the mortgage. Example: You're two years into a five-year mortgage, so your IRD would be calculated using the current posted three-year rate.
Once you know your penalty, ask your lender to show you how much interest you'd save by renegotiating with the best possible current rate. If the penalty overwhelms the potential savings, then you have a couple of options beyond giving up.
One is to try and negotiate the penalty lower, or have it eliminated altogether. Mr. Tourloukis said lenders have the discretion to help clients out this way.
Another is to chop the amount of money you owe on your mortgage, thereby reducing the penalty for breaking the loan. The way to do this is to take advantage of the prepayment privileges built into most mortgages.
For example, you might be allowed to prepay as much as 20 per cent of your outstanding balance in a year without incurring any charges. Make this lump-sum payment and then get a quote on the penalty to break your newly shrunken mortgage.
There are a couple of strategies to look at if you'd benefit from breaking your mortgage but can't afford the penalty charge.
One is to take the cost and add it to your mortgage balance. In some cases you'll still end up paying less interest than if you stayed with your current mortgage.
Another possibility is a blend and extend, where you jump into a new mortgage that blends your existing rate with the lower current rate and extends your term by a few years. There's no penalty charged in a blend and extend, but you won't save as much as you would if you paid the penalty and got the best possible current interest rate.
“If you want the better rate, you have to come up with the cash,” Mr. Gaetano said