Royal Bank and TD Canada Trust announced Monday March 28 they are increasing several mortgage rates by up to 6/10ths of a percentage point.
The biggest jump is attached to the popular five-year fixed closed rate, which moves from 5.25 per cent to 5.85 per cent at both banks. That's the posted rate, which is routinely discounted by the big banks.
RBC's new discounted rate for the five-year term also rises 6/10ths of a percentage point to 4.59 per cent. TD's rises the same amount to 4.55 per cent.
Both banks also raised their three-year and four-year fixed closed rates. The posted three-year rate at Royal Bank climbs one-fifth of a percentage point to 4.35 per cent, while the posted rate at TD jumps 4/10ths of a point to 4.70 per cent.
The posted four-year rate at both banks jumps 4/10ths of a percentage point to 5.34 per cent.
Other banks are expected to follow suit. The new rates, effective Tuesday, represent the first hike in Canadian mortgage rates since last October.
Variable mortgage rates, which rise in tandem with the Bank of Canada's key overnight lending rate, are unchanged. But they are likely to be heading up soon too.
Bank of Canada governor Mark Carney warned last week that inflation was higher than expected. That had some market watchers forecasting that the central bank could move to raise its key lending rate as early as June.
The key rate has been at a rock-bottom 0.25 per cent since April 2009 to help the economy recover.
Fixed-rate mortgage rates tend to move higher when long-term bond yields rise.
A survey released last week by RBC found almost two-thirds of respondents expected the cost of servicing a mortgage to rise this week.
Monday, March 29, 2010
Thursday, March 18, 2010
Everyone should keep his or her own credit history
I came across the article below from last month’s Globe and Mail and could not agree more with the author. But I will take it a step further. EVERYONE should keep and maintain his or her own credit history – even if you are adverse to debt of any kind.
Even if your credit history is in bad shape right now – don’t give up on it – time is your friend – and all the open wounds and scars from the past will disappear in time.
I advocate every young person begins establishing his or her credit history as soon as they turn 18 – and to consciously manage and build it so that by the time they hit their twenties, they will not be impeded in their efforts to buy or lease a car; rent an apartment; secure a mortgage; apply for a line of credit; apply for that sexy credit card loaded with rewards features, etc. etc.
Some people admirably live their lives without any use of credit – they go by the philosophy, if I don’t have the money – I ain’t buying it.
I had two thirty something clients in the office the other day who had no credit history at all. They had saved $120,000, and owned their own cars, and were quite self sufficient. They decided it was time to buy their first home together.
Let me tell you, that was a difficult mortgage to place – they qualified in all other respects – but no credit history means lenders cannot assess your willingness and ability to repay a debt obligation – even if logic dictates that clearly you are solid people.
The article below focuses on couples – and the need for both to establish their own individual credit histories – especially true when one partner makes a larger income, and credit applications are traditionally keyed on that person – with perhaps the lesser income person tagging along with a supplementary card.
Couples should keep their own credit histories
By Angela Self
From The Globe and Mail February 09, 2010
Even if you're happily coupled, you need credit in your own name. Start building it today.
I made a common money mistake in my early 20s: I combined all of my finances with my live-in boyfriend's. It seemed like the smart thing to do at the time. As it turned out, not so much.
After we separated, I could not qualify for even a credit card in my own name. Even though I co-owned a condo and made regular payments on our joint card, I had not built up any credit history of my own. As far as the banks were concerned, I did not have a financial identity.
I'm not alone in this one. I have met many couples who combine all areas of their finances, including credit cards, lines of credit and bank accounts.
Having a joint account is important for couples. It's a place to funnel money for shared expenses and common goals. However, having an individual account and credit in your own name is equally important.
It's not about hiding purchases from your partner, as you should each know what's coming into and what's going out (dollar-wise) of all accounts. Rather, it's about maintaining a level of independence, financial identity and know-how.
Bottom line: Even if you're happily coupled, you need credit in your own name. Start building it today.
Angela Self is one of the founders of the Smart Cookies money group. Read her biweekly column on managing debt and saving money at globeinvestor.com [http://www.theglobeandmail.com/globe-investor].
Wednesday, March 17, 2010
Owning up to your debts spells relief
In the past two weeks, I have attended more than thirty insolvency counselling sessions with clients who have recently either declared bankruptcy or entered into consumer proposals. By law, anyone entering into one of these debt solutions MUST attend two credit counselling sessions over the next few months after the initial program begins.
The thirty clients were a mix of first and second counselling sessions. I always speak off the record with each of the people to learn more about them, their circumstances, and their future.
In EVERY case, that is 30/30 there are no regrets about taking this important step forwards - the sense of relief is palpable and a sense that there is a light at the end of the tunnel, and they are not simply handing over all their excess income to their creditors each month, but still getting no farther ahead.
These people come in all shapes and sizes. Many are single parents; some are homeowners; some have battled illness; poor investments, bad luck or bad business decisions. Some lost their jobs due to the recession, or their business may have gone under due to the recession.
Whatever the reason, they decided the music had stopped playing, and it was time to face up to their reality. One gentleman today has weathered major illness for both he and his wife; lost his job three months ago, and has been struggling with debt problems his whole life. He is 69 years old ! Finally, he said enough is enough, and he walked in and out of the meeting with a spring in his step and a smile on his face - said it's the happiest he has been in years.
Another gentleman came to the meeting direct from a chemo session - he was also remarkably upbeat - not withstanding his very serious prognosis. He wants to make sure he does not leave behind a mess for his estate/kids to deal with - he is hoping he will make a full medical recovery, but if that is not god's will, at least he will go out on his terms with a clear consciense.
It makes me feel good to be a part of an industry that can do so much good for people in financial distress, and to live in a country where we truly can get a second chance.
Ross Taylor
rosst@rosstaylor.org
The thirty clients were a mix of first and second counselling sessions. I always speak off the record with each of the people to learn more about them, their circumstances, and their future.
In EVERY case, that is 30/30 there are no regrets about taking this important step forwards - the sense of relief is palpable and a sense that there is a light at the end of the tunnel, and they are not simply handing over all their excess income to their creditors each month, but still getting no farther ahead.
These people come in all shapes and sizes. Many are single parents; some are homeowners; some have battled illness; poor investments, bad luck or bad business decisions. Some lost their jobs due to the recession, or their business may have gone under due to the recession.
Whatever the reason, they decided the music had stopped playing, and it was time to face up to their reality. One gentleman today has weathered major illness for both he and his wife; lost his job three months ago, and has been struggling with debt problems his whole life. He is 69 years old ! Finally, he said enough is enough, and he walked in and out of the meeting with a spring in his step and a smile on his face - said it's the happiest he has been in years.
Another gentleman came to the meeting direct from a chemo session - he was also remarkably upbeat - not withstanding his very serious prognosis. He wants to make sure he does not leave behind a mess for his estate/kids to deal with - he is hoping he will make a full medical recovery, but if that is not god's will, at least he will go out on his terms with a clear consciense.
It makes me feel good to be a part of an industry that can do so much good for people in financial distress, and to live in a country where we truly can get a second chance.
Ross Taylor
rosst@rosstaylor.org
Frantic housing market ready for calm
Supply shortages still expected in big centres, but wave of new listings elsewhere will be boon to buyers
STEVE LADURANTAYE From Tuesday's Globe and Mail Published on Tuesday, Mar. 16, 2010 12:00AM EDT
After a historic runup in prices, the Canadian resale housing market is set to cool down as a wave of new listings hits the market, providing badly needed inventory for hungry buyers. The number of homes on the market nationally increased for the third consecutive month in February on a seasonally adjusted basis, according to the Canadian Real Estate Association. The industry group said yesterday there were 4.7 months of inventory available in Canada in February, up from 4.5 months in January. That trend has put buyers and sellers in an equilibrium not seen since before the market downturn began about two years ago.
The ratio of new listings to sales, an indicator used by analysts to gauge the health of the resale housing market, left the "favourable to sellers" range to the "balanced market" range in February, according to National Bank Financial. It's a sign of stability for a sector that has seen wild price appreciations as buyers competed ferociously for the few homes on the market. "Further expected supply increases will continue to take the steam out of housing markets as the year progresses," said Gregory Klump, chief economist at the Canadian Real Estate Association. "There are still a number of major markets where sales negotiations favour the seller due to a shortage of inventory, but supply has begun rising."
More listings help prevent bidding wars and could slow house-price gains this year. The association expects prices nationally to decline slightly next year. Still, some major markets such as Toronto and Vancouver will be slower to add listings this year, industry officials said. "You still see a supply shortage in the big centres because the people who need to sell and move up just don't see anything they want to buy," said Phil Soper, president of Royal LePage. "But we're ahead of the curve on new listings in February, and March will be absolutely critical if that trend is to continue."
The Monday following Ontario's March Break is traditionally the busiest listing day in Canada, as the weather turns favourable and parents who will need to relocate their children realize the school year is coming to an end. "That's the day everyone puts on their game face and gets chopping," Mr. Soper said. "It happens every year - it's like the summer blockbuster season." The busy spring will have consequences, however. Many of the homes will be put on the market earlier than in other years as owners look to cash in on the hot market. The flurry of activity is expected to dampen sales in the last half of 2010. "I think we'll see a sharp up-tick in sales, followed by a massive pullback," said TD Bank economist Millan Mulraine. "We're taking sales from the end of the year and moving them up. Then you should see a market that is more in line with fundamentals."
In the meantime, the number of home sales continued on a tear in February with a 44 per cent year-over-year gain from recessionary lows a year ago, CREA figures showed. The average price of all homes sold on the Multiple Listings Service in February was $335,655, up 18.2 per cent from a year ago. The relentlessly strong price gains since last year's lows have fuelled worry about the formation of an asset bubble. Finance Minister Jim Flaherty is watching the country's mortgage market carefully but does not believe there is a housing bubble, he said in an interview with Bloomberg.
Anything that helps prices stabilize would be a welcome development for policy makers, who are taking steps to make it more difficult to qualify for a mortgage in a bid to cool off the market. While more listings are expected this year, buyers are expected to be out in full force for the foreseeable future. Buyers are expected to rush into the market in the coming months to avoid changes to mortgage application rules in April, anticipated higher interest rates by midsummer and the introduction of harmonized sales taxes in Ontario and British Columbia in July.
STEVE LADURANTAYE From Tuesday's Globe and Mail Published on Tuesday, Mar. 16, 2010 12:00AM EDT
After a historic runup in prices, the Canadian resale housing market is set to cool down as a wave of new listings hits the market, providing badly needed inventory for hungry buyers. The number of homes on the market nationally increased for the third consecutive month in February on a seasonally adjusted basis, according to the Canadian Real Estate Association. The industry group said yesterday there were 4.7 months of inventory available in Canada in February, up from 4.5 months in January. That trend has put buyers and sellers in an equilibrium not seen since before the market downturn began about two years ago.
The ratio of new listings to sales, an indicator used by analysts to gauge the health of the resale housing market, left the "favourable to sellers" range to the "balanced market" range in February, according to National Bank Financial. It's a sign of stability for a sector that has seen wild price appreciations as buyers competed ferociously for the few homes on the market. "Further expected supply increases will continue to take the steam out of housing markets as the year progresses," said Gregory Klump, chief economist at the Canadian Real Estate Association. "There are still a number of major markets where sales negotiations favour the seller due to a shortage of inventory, but supply has begun rising."
More listings help prevent bidding wars and could slow house-price gains this year. The association expects prices nationally to decline slightly next year. Still, some major markets such as Toronto and Vancouver will be slower to add listings this year, industry officials said. "You still see a supply shortage in the big centres because the people who need to sell and move up just don't see anything they want to buy," said Phil Soper, president of Royal LePage. "But we're ahead of the curve on new listings in February, and March will be absolutely critical if that trend is to continue."
The Monday following Ontario's March Break is traditionally the busiest listing day in Canada, as the weather turns favourable and parents who will need to relocate their children realize the school year is coming to an end. "That's the day everyone puts on their game face and gets chopping," Mr. Soper said. "It happens every year - it's like the summer blockbuster season." The busy spring will have consequences, however. Many of the homes will be put on the market earlier than in other years as owners look to cash in on the hot market. The flurry of activity is expected to dampen sales in the last half of 2010. "I think we'll see a sharp up-tick in sales, followed by a massive pullback," said TD Bank economist Millan Mulraine. "We're taking sales from the end of the year and moving them up. Then you should see a market that is more in line with fundamentals."
In the meantime, the number of home sales continued on a tear in February with a 44 per cent year-over-year gain from recessionary lows a year ago, CREA figures showed. The average price of all homes sold on the Multiple Listings Service in February was $335,655, up 18.2 per cent from a year ago. The relentlessly strong price gains since last year's lows have fuelled worry about the formation of an asset bubble. Finance Minister Jim Flaherty is watching the country's mortgage market carefully but does not believe there is a housing bubble, he said in an interview with Bloomberg.
Anything that helps prices stabilize would be a welcome development for policy makers, who are taking steps to make it more difficult to qualify for a mortgage in a bid to cool off the market. While more listings are expected this year, buyers are expected to be out in full force for the foreseeable future. Buyers are expected to rush into the market in the coming months to avoid changes to mortgage application rules in April, anticipated higher interest rates by midsummer and the introduction of harmonized sales taxes in Ontario and British Columbia in July.
Wednesday, March 10, 2010
Consider a 3 or 4 year mortgage term
According to CMHC statistics, the average mortgage in Canada only lasts 38 months, with only 29% of all 5 year terms making it to the full 5 year mark. Due to property appreciation, the need for additional funds, life changes, moves, etc, a 3 or 4 year term just seems to be a better fit for most Canadians.
By taking a 3 or 4 year term, you get a better rate than on the 5 year, and could very well save interest penalty charges by not having to refinance part way through a 5 year term.
Your interest rate will be better than on the 5 year term. Example three years today at 3.5% or four years at 3.79%. Whereas the five year rate is 3.89%
(Note : rates change constantly, but the prinicple should be valid almost all the time)
The industry advertises and competes on the 5 year term, and people always shop and research 5 year rates, but in light of the reality we see above, you should consider a slightly shorter term.
By taking a 3 or 4 year term, you get a better rate than on the 5 year, and could very well save interest penalty charges by not having to refinance part way through a 5 year term.
Your interest rate will be better than on the 5 year term. Example three years today at 3.5% or four years at 3.79%. Whereas the five year rate is 3.89%
(Note : rates change constantly, but the prinicple should be valid almost all the time)
The industry advertises and competes on the 5 year term, and people always shop and research 5 year rates, but in light of the reality we see above, you should consider a slightly shorter term.
Mortgages getting tougher on self employed folks
CMHC is tightening the criteria needed for self-employed borrowers to get mortgage insurance, changes that will come into effect on April 9, according to Canadian Mortgage Trends.
Borrowers who apply under CMHC's self-employed stated income product will need a 10 per cent down payment instead of the five per cent down payment now required. These borrowers will also only be able to refinance up to 85 per cent loan to value instead of 90 per cent.
Debbie Thomas, partner and broker of record at The Mortgage Group, recently told CMP she has noticed a trend of insurance guidelines tightening for self-employed borrowers, who often write off a large portion of their income for tax purposes.
"The whole issue of reasonability has now been forced back and self-employed deals that used to be approved are not even close to being approved today," said Thomas. "It hasn't been an announcement or anything that has come out from the lenders or insurers, but it's something we've definitely noticed."
CMHC has felt for a while that too many people apply for stated income mortgages who shouldn’t.
Therefore, effective April 9, CMHC is adding more restrictions to its Self-Employed stated income product..
For one thing, it’s reducing the maximum allowable loan-to-value.
Self-employed borrowers who choose to apply under this program, and not verify their income using traditional means, will have to put down 10% when purchasing a home (instead of 5% today).
Stated income applicants who wish to refinance will be limited to 85% loan-to-value (instead of 90% today).
CMHC says:
As insurers pull back further from the stated income market, some expect uninsured lenders to eventually fill the void. Self-employed borrowers, with hard-to document income, will then pay notably higher rates and fees as a result of using such programs.
Borrowers who apply under CMHC's self-employed stated income product will need a 10 per cent down payment instead of the five per cent down payment now required. These borrowers will also only be able to refinance up to 85 per cent loan to value instead of 90 per cent.
Debbie Thomas, partner and broker of record at The Mortgage Group, recently told CMP she has noticed a trend of insurance guidelines tightening for self-employed borrowers, who often write off a large portion of their income for tax purposes.
"The whole issue of reasonability has now been forced back and self-employed deals that used to be approved are not even close to being approved today," said Thomas. "It hasn't been an announcement or anything that has come out from the lenders or insurers, but it's something we've definitely noticed."
Insured Stated Income Programs Tighten Up
CMHC has felt for a while that too many people apply for stated income mortgages who shouldn’t.
Therefore, effective April 9, CMHC is adding more restrictions to its Self-Employed stated income product..
For one thing, it’s reducing the maximum allowable loan-to-value.
Self-employed borrowers who choose to apply under this program, and not verify their income using traditional means, will have to put down 10% when purchasing a home (instead of 5% today).
Stated income applicants who wish to refinance will be limited to 85% loan-to-value (instead of 90% today).
CMHC says:
- The Self-Employed program is intended for self-employed borrowers “who have difficulty providing documentation for their current income level.” These are often people who’ve recently begun to work for themselves.
- Self-employed borrowers in the same business for over three years will no longer be eligible for approval without traditional proof of income.
- A business license, GST license, or articles of incorporation will be required to validate the applicant’s length of self-employment.
- Commissioned employees are no longer eligible for approval under the Self-Employed program.
As insurers pull back further from the stated income market, some expect uninsured lenders to eventually fill the void. Self-employed borrowers, with hard-to document income, will then pay notably higher rates and fees as a result of using such programs.
Wednesday, March 3, 2010
How long can interest rates stay so low?
I hate to sound like everyone else – it often pays to be different, but we must recognize most economists and experts are forecasting interest rate increases beginning as early as this Summer.
The Bank of Canada rate was 4.25% in January 2008, and now it is only 0.25%, and has been there for almost a year. This has resulted in the lowest consumer borrowing (and saving) rates ever!
The Central Bank sets its interest rates to keep inflation at around 2%. But the Canadian economy grew at an annual rate of 5% in the last three months of 2009 – a very healthy growth rate – but this is bringing inflation fears into the picture. If inflation sets in, interest rates can only go up.
Historically, economists are never that reliable in predicting where interest rates will be in the future – but they do usually get the direction correct! Most see increases of one to one and half percent by the end of the year. Next year and the year after, who knows?
What does all this mean for us?
If you have invested money in savings accounts and GIC’s, now may not be a good time to lock in for five years (which is traditionally the term offering the highest interest rates.) Keep your holding periods short, in the hope that higher rates are around the corner. The major banks are quoting five year rates at only 2%, and a “high interest” savings account might only be yielding 0.75% right now.
If you have a car loan
Your rate is most likely fixed, so none of this should concern you much.
If you are using your personal or business lines of credit
You can expect to see your minimum monthly payments increase at the same time as interest rates are rising.
If you are buying a home now, or your current mortgage is coming up for renewal,
If you qualify for the best interest rates, that means a five year fixed rate mortgage would be around 3.69%, but a variable rate mortgage might be as low as 1.95%.
Many homebuyers are very attracted to the 1.95% rate and make their buying decisions today based on this low rate with its very low monthly payment.
For my money, I want to sleep at night and not worry about this stuff. I like five years at 3.69% -it’s amazing! But that’s me – I am a bit conservative.
If you already have a mortgage
You may not be able to do anything yet, since penalties to break existing mortgages can be very high. You should ask your mortgage specialist what your penalty would be, and then decide.
Some people have variable rate mortgages from a few years ago, where their rate today is as low as 1.15% . They will be reluctant to do anything different unless they really feel pressure – I don’t blame them.
But remember, the key word is “variable”. It can go up or down. Hard to go lower than 1.95% or even 1.15%, but if rates start going up and up, variable mortgage rates could become very uncomfortable one day.
It’s an individual decision, and depends on many things. Talk to your mortgage specialist if you want an informed second opinion.
The Bank of Canada rate was 4.25% in January 2008, and now it is only 0.25%, and has been there for almost a year. This has resulted in the lowest consumer borrowing (and saving) rates ever!
The Central Bank sets its interest rates to keep inflation at around 2%. But the Canadian economy grew at an annual rate of 5% in the last three months of 2009 – a very healthy growth rate – but this is bringing inflation fears into the picture. If inflation sets in, interest rates can only go up.
Historically, economists are never that reliable in predicting where interest rates will be in the future – but they do usually get the direction correct! Most see increases of one to one and half percent by the end of the year. Next year and the year after, who knows?
What does all this mean for us?
If you have invested money in savings accounts and GIC’s, now may not be a good time to lock in for five years (which is traditionally the term offering the highest interest rates.) Keep your holding periods short, in the hope that higher rates are around the corner. The major banks are quoting five year rates at only 2%, and a “high interest” savings account might only be yielding 0.75% right now.
If you have a car loan
Your rate is most likely fixed, so none of this should concern you much.
If you are using your personal or business lines of credit
You can expect to see your minimum monthly payments increase at the same time as interest rates are rising.
If you are buying a home now, or your current mortgage is coming up for renewal,
If you qualify for the best interest rates, that means a five year fixed rate mortgage would be around 3.69%, but a variable rate mortgage might be as low as 1.95%.
Many homebuyers are very attracted to the 1.95% rate and make their buying decisions today based on this low rate with its very low monthly payment.
For my money, I want to sleep at night and not worry about this stuff. I like five years at 3.69% -it’s amazing! But that’s me – I am a bit conservative.
If you already have a mortgage
You may not be able to do anything yet, since penalties to break existing mortgages can be very high. You should ask your mortgage specialist what your penalty would be, and then decide.
Some people have variable rate mortgages from a few years ago, where their rate today is as low as 1.15% . They will be reluctant to do anything different unless they really feel pressure – I don’t blame them.
But remember, the key word is “variable”. It can go up or down. Hard to go lower than 1.95% or even 1.15%, but if rates start going up and up, variable mortgage rates could become very uncomfortable one day.
It’s an individual decision, and depends on many things. Talk to your mortgage specialist if you want an informed second opinion.
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