MY BLOG

It doesn’t make much sense, but a skimpy down payment on a home might actually get you a better mortgage rate in today’s market.
Blame the government subsidy known as mortgage default insurance, which ultimately makes it less risky to lend money to someone who has only 5% down compared to someone with 20%.
Consumers with less than 20% down must get mortgage default insurance in Canada if they are borrowing from a federally regulated bank. The cost is up to 2.75% of the mortgage amount upfront on a 25-year amortization but that fee comes with 100% backing from the federal government if the insurance is provided by Crown corporation
The crackdown on mortgage insurance announced by Jim Flaherty, the federal Finance Minister, could exacerbate the situation. Mr. Flaherty, who mused to the Financial Post editorial board last week about getting CMHC out of the mortgage insurance business, has placed the agency under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions.

Mr. Flaherty also put in new rules on bulk or portfolio insurance. The banks had been paying the insurance premium on low-ratio mortgages — loans with more than 20% down — because it was easier to securitize them.
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However, Mr. Flaherty says those loans will no longer be allowed in the government’s covered bond program.

“Long story short, it is going to tick up rates to some degree,” Mr. McLister says. “You are seeing an interesting phenomenon where if you go to get a mortgage today, you are oftentimes quoted a higher rate on a conventional mortgage. Presumably you have less risk because you have more equity.”

It all depends on the lender. For now, the Big Six banks have kept consistent pricing between low-ratio and high-ratio mortgages.

“There is a question on whether they will continue doing that or raise rates overall to compensate for higher conventional mortgage costs,” Mr. McLister says.

Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, says competition among the Big Six banks is keeping rates down and stopping any of them from raising rates for conventional mortgages.

“When we can’t securitize a deal, there is a different cost of funds but the bank continues to offer the same rate,” said Ms. Haque, adding her bank did charge a premium for stated income deals, which usually means self-employed people, but removed the difference last week. The premium was 20 basis points.

“Looking at the competitive landscape, it was a disadvantage,” she says. “We were aiming to target pricing that was specific and for the risk appetite for that deal itself. We didn’t want one [deal] compensating for the other.”

But the banks have bigger fish to fry than just your mortgage. Those with the larger equity position in their homes may be a costlier mortgage to fund, but they also could be a future line-of-credit customers. There’s also the potential for other business such as RRSPs and TFSA, so losing a few basis points might make more sense in the long run.

Peter Routledge, an analyst at National Bank Financial, says he wouldn’t want to be an investor in a bank that approached its business any other way, though he did acknowledge there is a cost to keeping those conventional mortgages. “It’s in effect a subsidy,” Mr. Routledge says.

While banks may be eating some of the costs for people who are not eligible for a subsidy, if they continue down that road they might not be able to match the rates some of the secondary lenders are able to offer with insured mortgages.

It doesn’t sound like much, but the difference between, say, 3.14% and 3.29% on a $500,000 mortgage amortized over 25 years would be about $3,500 extra in interest on a five-year term.

It’s true that those people getting the better rate pay a hefty fee up front in insurance premiums, but they also represent a greater risk to the taxpayer. Do they deserve a better rate?

I sold my property last week and I’m in a mad scramble to find a new home. With my wish list in hand and a pre-approved mortgage under my belt, I’m confident I’ll eventually find what I’m looking for.

Much to the chagrin of my financial planner, a bank employee, I’ve decided to use an independent mortgage broker rather than getting my mortgage from the bank. Based on my research, mortgage brokers often have access to better rates and more flexible repayment terms.

Mike, my broker and an old pal from university, walked me through the pre-approved application process and reviewed my commitments to the bank where my existing mortgage resides. He then shopped my application around to multiple vendors and came back less than 24 hours later with a rock-bottom rate.

An independent mortgage broker isn’t tied to any financial institution and instead works on your behalf, rather than the lender.

Because they are not employees of a lending institution, mortgage brokers are not limited in the products they can offer you.

They can seek out the best mortgage options to suit your specific situation, from a multitude of lenders — banks, trusts, private companies and insurance firms. Their primary role is to provide unbiased mortgage options and advice to clients.

In most cases, mortgage brokers are free. When the broker matches a lender with a buyer and a mortgage is placed, the broker is paid by the lender based on size of the mortgage, not the rate.

If you’re thinking of using a mortgage broker, choose wisely. Get referrals from trusted friends or family members. Do your research in advance of meeting with them; know about current rates and structures. That way you’ll have some idea of what you’re hoping to achieve and can clearly communicate it.

I love saving money, and based on my recent first-hand experience, using a mortgage broker will save me tens of thousands of dollars.

The decade’s most ignorable piece of financial advice:
You’ve heard this warning a hundred times, you ignored it and rates held steady at historic lows. Now, the Bank of Canada is signalling that borrowing costs could rise if economic conditions keeps improving. Here are 10 reasons not to tune out this time around:

1. Rates will eventually rise – it’s inevitable
Financial stress now seems a permanent feature of the global economy. Will China’s economy stall? Will Europe’s debt problems worsen? Can the United States address its debt problems and get its economy going again? These are all open-ended questions that suggest there’s a chance interest rates will need to stay low for longer. Not forever, though. It could be years until stability rules, but it could also be months.
2. Borrowing means you can’t afford the stuff you’re buying
Borrowing is okay when buying houses and cars because few of us can pay cash for such large expenses. But using a line of credit to finance your lifestyle is like living on other people’s money. Exception: If you use your credit line strategically to acquire things that are paid off quickly without immediately running up your debt again. Question for you: How often are you using your line of credit? If it’s more than a few times a year, you’re likely overspending.
3. Cutting debt gives you a buzz
I paid off a five-year car loan three years early in 2011. What a high. Better than buying the car.
4. Less stress
I can tell from reader e-mails that people are stressed about debt and wondering what to do. Try taking your tax refund and using it to pay down your credit card or line of credit balance. Stop contributing to your registered retirement savings plan or tax-free savings account for one year and use the money to lower your debt. Get rid of that second-car loan.
5. Your next mortgage renewal could be scary
People who bought homes in the past couple of years have benefited from historically low mortgage rates. As recently as last month, you could get a fully discounted, five-year, fixed-rate mortgage for about 3 per cent. That compares with an average of roughly 4.5 per cent over the past decade and a high of about 5.5 per cent.
Use this Globeinvestor.com calculator to look at scenarios showing how much more your mortgage will cost if you renew at higher rates: http://tgam.ca/DKA7 (you’ll need to find out what your balance on renewal is).
And don’t tell me that future pay increases will help you afford larger mortgage payments. Big raises are scarce these days and, when you get one, you’re not going to want to see it eaten up by your mortgage.
6. Your kids need help affording university
One of my pet peeves is that parents are not saving enough in registered education savings plans. Cut debt and you have some free cash flow you can put into a regular monthly RESP contribution plan.
7. You get more control over when you retire
Reduce your debts and you can also increase your retirement savings. The more you save for retirement, the less likely it is that you’ll have to continue working in some capacity after you turn 65 to generate income.
8. You won’t retire with debt
People over the age of 45 are among the biggest debt fiends in the country. What are they thinking? That it would be fun to be on a fixed income while trying to cope with rising borrowing costs on lines of credit or mortgages? It’s hard to believe this even needs to be said, but a financially secure retirement starts with zero debt.
9. You’re covered for emergencies
People without debts are better able to afford a health or dental emergency, a basement flood, a leaky roof or a major car-repair bill. If you don’t have an emergency fund, pay off a debt and use the monthly payments you were making to build up your savings.
10. There’s no down side
No one has ever told me: “I really regret paying off my debts.” There’s always a use for the money you save, even if it’s to rack up more debt.
For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (Rob Carrick).

http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/once-again-pay-down-your-debts-before-rates-rise/article2405752/

The Bank of Canada today paints a troubling picture of what has become a vicious circle where consumer debt is concerned, and amid weak underwriting standards on some home equity lines of credit.

The central bank unveiled its Monetary Policy Report, which puts more flesh on the bare bones statement it unveiled yesterday when it held its benchmark overnight rate steady at 1 per cent, but signalled that it’s thinking about hiking interest rates again, given a better outlook for the economy.
As The Globe and Mail’s Jeremy Torobin reports, the report indeed projected better-than-expected economic growth, though it also cited the risks the recovery faces.
It also expanded on Governor Mark Carney’s warnings over household debt, which have climbed in Canada to record levels, citing a low savings rate, “large and persistent increases” in house prices, and strong levels of real estate investment.
“It is not surprising that households would seek to consume some fraction of their increase in housing wealth, either by extracting higher housing equity to spend or by consuming more out of current income because they feel wealthier; either of these would result in a lower measured personal savings rate,” the central bank’s study said.
“Empirical estimates of the total marginal propensity to consume out of housing wealth in Canada range from 6 per cent to 16 per cent over the long run, assuming that the increases in wealth are viewed as permanent. This housing wealth effect on consumption may have increased over time, as financial innovations have made it easier to borrow against increased home equity.”
The report also repeated Mr. Carney’s warning that consumers are expected to add to their already fat debt burden, which remains the biggest threat in Canada.
The Bank of Canada appears most concerned over the tremdendous growth in home equity lines of credit, or HELOCs, and mortgage refinancings, which surged to $64-billion in 2010 from $8-billion in 2001.
About half of that is being used either to spend or pay off other loans. Here’s where the vicious circle comes in:
“Surveys suggest that approximately half of this equity extraction is used either for current consumption or to pay off other debt, much of which will be higher-rate debt, itself used to finance past consumption. Overall, it is estimated that home-equity extraction has funded roughly 3 per cent of aggregate consumer spending in Canada in recent years, up from less than 1 per cent in 2001.”
And note this warning: “Home equity extracted through additional borrowing cannot fund higher consumption indefinitely. Once the proportion of homeowners that access higher housing wealth through HELOCs reaches its peak, the personal savings rate can be expected to rise. This implies a lower level of consumption relative to income. With less equity in their homes, households would also be more exposed to a decline in house prices, which could further dampen consumption.”
Mr. Carney expanded on that at a news conference, saying there’s good and bad where HELOCs are concerned, notably in swapping credit card debt for cheaper loans. The trouble, though, is when that goes too far. And in some cases, he added, some of it has been done “in a context of underwriting standards that are less than optimal,” which Canada’s banking regulator is addressing.
“More broadly, it’s part of the bigger picture of driving Canadian household debt levels to record levels and levels that we see over the course of our projection continuing to rise,” he said.
“There are good aspects of it, but it contributes to a broader issue where some Canadian households are becoming overstretched and Canadian households as a whole are being overstretched, which creates risk for the economy.”
Some economists believe the central bank may address the household debt issue through rate hikes. Finance Minister Jim Flaherty has already tightened mortgage rules, and is loath at this point to do it again.
“To be sure, the case for rate hikes is strong,” said Paul-André Pinsonneault and Krishen Rangasamy of National Bank.
“With the government deciding not to intervene to cool down the hot housing market and curb household leverage, the BoC will have to address on its own the ‘biggest domestic risk.’” And given that fiscal drag isn’t likely to be as large as first feared (based on the recent federal budget), the BoC has flexibility for rate action.”

17 April 2012
Contact: Jeremy Harrison
613 782-8782
Ottawa, Ontario –
The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The profile for global economic growth has improved since the Bank released its January Monetary Policy Report (MPR). Europe is expected to emerge slowly from recession in the second half of 2012, although the risks around this outlook remain high. The profile for U.S. growth is slightly stronger, reflecting the balance of somewhat improved labour markets, financial conditions and confidence on the one hand, and emerging fiscal consolidation and ongoing household deleveraging on the other. Economic activity in emerging-market economies is expected to moderate to a still-robust pace over the projection horizon, supported by an easing of macroeconomic policies. Improved global economic prospects, supply disruptions and geopolitical risks have kept commodity prices elevated. In particular, the international price of oil has risen further and is now considerably higher than that received by Canadian producers. If sustained, these oil price developments could dampen the improvement in economic momentum.
Overall, economic momentum in Canada is slightly firmer than the Bank had expected in January. The external headwinds facing Canada have abated somewhat, with the U.S. recovery more resilient and financial conditions more supportive than previously anticipated. As a result, business and household confidence are improving faster than forecast in January. The Bank projects that private domestic demand will account for almost all of Canada’s economic growth over the projection horizon. Household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk. Business investment is projected to remain robust, reflecting solid balance sheets, very favourable credit conditions, continuing strong terms of trade and heightened competitive pressures. The contribution of government spending to growth is expected to be quite modest over the projection horizon, in line with recent federal and provincial budgets. The recovery in net exports is likely to remain weak in light of modest external demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.
The Bank projects that the economy will grow by 2.4 per cent in both 2012 and 2013 before moderating to 2.2 per cent in 2014. The degree of economic slack has been somewhat smaller than the Bank had anticipated in January, and the economy is now expected to return to full capacity in the first half of 2013.
As a result of this reduced slack and higher gasoline prices, the profile for inflation is expected to be somewhat firmer than anticipated in January. After moderating this quarter, total CPI inflation is expected, along with core inflation, to be around 2 per cent over the balance of the projection horizon as the economy reaches its production potential, the growth of labour compensation remains moderate, and inflation expectations stay well-anchored.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.

Find out more about the federal income tax credit for weekly or longer duration public transit passes and electronic payment cards, and how the Government of Canada is encouraging the use of public transit to reduce air pollution and greenhouse gas emissions. http://www.transitpass.ca/about_e.asp

What is the tax credit for public transit?
On July 1, 2006, the Government of Canada launched its program to offer individual Canadians a non-refundable tax credit to help cover the cost of public transit. Because it is a non-refundable tax credit, anyone who applies does not receive the money in the form of a refund. Instead, the amount claimed is multiplied by the lowest personal income tax rate for the year (15% for 2007, 2008) and then is deducted from the amount of tax owed for that year. Visit the Canada Revenue Agency Web site for additional information about how to qualify and claim the public transit amount.
What does the tax credit for public transit mean for me?
If your monthly transit pass costs $100, the amount you can claim in 2008 would be $1,200, resulting in a tax credit of $180.00 (twelve months multiplied by 15%).
You will be eligible to claim amounts you have paid for travel that occurs during the 2008 calendar year, but you must have proof of purchase. At a minimum you need to keep your expired public transit passes and receipts for electronic payment cards to support your claim. Visit the Canada Revenue Agency Web site for additional information about how to qualify and claim the tax credit for public transit.
Who’s managing this tax credit for public transit?
The tax credit for public transit is being administered by the Canada Revenue Agency. If you would like more information on how to claim your tax credit, visit the Canada Revenue Agency Web site.
Why is the government giving a tax credit for public transit?
Canadians are concerned about traffic congestion and the harmful greenhouse gas emissions that come with it. Increasing the use of public transit, including buses, subways, commuter trains and ferries, will help ease traffic congestion in our urban areas and reduce air pollution that dirties our air and affects our health. The tax credit for public transit makes public transit more affordable for Canadians and provides clean air in our communities.
Encouraging greater use of public transit is one element of the Government of Canada’s environmental agenda to reduce greenhouse gas emissions and promote clean air.

The federal government will make it tougher for many homebuyers to get mortgages this year as it grapples with an overheated property market, according to analysts in a Reuters poll, who also ruled out the prospect that prices could suddenly crash.
Ten of 14 economists and strategists surveyed last week in Reuters’ first poll on the Canadian housing sector answered “yes” when asked if they thought Ottawa would tighten mortgage rules within the next 12 months.
They expect home prices to climb just 0.1 per cent in the year to December 2012, and the same in 2013. That is down from a 0.9-per-cent year-on-year increase in December 2011.
If Finance Minister Jim Flaherty tightens requirements for government-backed insured mortgages it would be his fourth intervention in the real estate market since 2008.
Flaherty could raise the minimum down-payment to buy a home from the current 5 per cent or reduce the maximum amortization period from 30 years.
Any move would likely come before the prime spring real estate season, analysts said. “Sometime between now and the next budget,” said Benoit Durocher, senior economist at Desjardins in Montreal, on the timing of such a move.
The federal budget is expected in late March.
The poll respondents see the housing market as moderately overvalued, particularly in Toronto and Vancouver.
“There is some genuine concern that the housing market and households have been overstretched,” said Mazen Issa, economist at TD Securities.
“But in the absence of several triggers for a housing market decline, which are not likely to be forthcoming until at least the middle of next year, the underlying theme is of gradual moderation,” he said.
Possible triggers would be a rise in mortgage rates or a sharp rise in unemployment.
Canada’s robust housing market helped pull the economy out of the 2008 recession. Prices dipped briefly during the downturn, but quickly resumed the climb that characterized the previous decade.
But that effervescence is now a headache for policy-makers, as historically low interest rates tempt more and more people to take out mortgages for increasingly unaffordable homes.
Household debt levels are approaching those in the United States before the 2008-09 housing meltdown there. Canada’s debt-to-income ratio hit a record 153 per cent last year and is expected to rise.
The Bank of Canada, which has fanned the flames by holding its benchmark lending rate at 1 per cent for an unprecedented 17 months, has made it clear that rates are likely to stay unchanged for at least this year.
Of the nine forecasters who answered a question on how far prices would fall before stabilizing, the median decline was 5 per cent, with four predicting price stabilizing beyond 2013.
The economists see a moderation in housing starts to 190,000 units in the first quarter of 2012 compared with a seasonally-adjusted annualized rate of 197,900 units in January. Housing starts should ease to 181,000 by the second quarter.
Analysts said housing prices have strayed from fundamentals but not in an extreme way, placing them as a “seven” on a scale of one to 10, with five being fairly valued and 10 being extremely overvalued.
But the national average is skewed by extremes in Toronto and Vancouver, where foreign investment has helped push up prices. Excluding these centres, Durocher rated prices as a “five” on the scale.
Doug Porter, deputy chief economist at BMO Capital Markets, agreed. “I would say aside from those two cities, there’s really little evidence whatsoever that the market has got ahead of itself,” Porter said.
“Whatever strength we’ve seen in most cities has simply been the flip side of the decline in borrowing costs. Provided we don’t get hit with an interest rate shock, then I think the market can adjust to a moderate backup in rates over time.”
© Copyright (c) The Vancouver Sun

Read more: http://www.vancouversun.com/business/will+tougher+mortgage+future+survey+economists+predicts/6189269/story.html#ixzz1nbWpsB5S

Analysis suggests Canadians becoming hesitant to take on debt

The latest report of non-mortgage debt in Canada by TransUnion credit shows average credit up 1.4% in th quarter to $25,960.

In the most recently reported data from Statistics Canada, households now carry about 153 per cent more in debt than their annual disposable income, with about 70 per cent of that being mortgage debt.

TransUnion also reports in the past year

– Auto loans up 9.7%

– credit card debt increase in 4th quarter down 1.5%

– Lines of credit up 1.1%

– delinquency levels remain low

Thanks to our friends at Spagnuolo and Company for this important information

THE B.C. FIRST-TIME NEW HOME BUYERS’ BONUS
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THE B.C. FIRST-TIME NEW HOME BUYERS’ BONUS
Subject to approval by the legislature, the B.C. government intends to implement a temporary BC First-Time New Home Buyers’ Bonus. Effective February 21, 2012, to March 31, 2013, the bonus is a one-time refundable personal income tax credit worth up to $10,000.
Requirements to Qualify for the Bonus
ELIGIBLE FIRST-TIME NEW HOME BUYER
You will qualify as a first-time new home buyer if:
You purchase or build an eligible new home located in B.C.;
You, or for couples, you and your spouse or common law partner, have never previously owned a primary residence;
You file a 2011 B.C. resident personal income tax return, or if you move to B.C. after December 31, 2011, you file a 2012 B.C. resident personal income tax return (you will not be eligible for the bonus if you move to B.C. after December 31, 2012);
You are eligible for the B.C. HST New Housing Rebate; and
You intend to live in the home as your primary residence.

ELIGIBLE NEW HOME
An eligible new home includes new homes (i.e., newly constructed and substantially renovated homes) that are purchased from a builder and that are owner-built. The bonus will be available in respect of new homes purchased from a builder where:
A written agreement of purchase and sale is entered into on or after February 21, 2012;
HST is payable on the home (e.g., HST will generally be payable if ownership or possession of the home transfers before April 1, 2013 – see further details below); and
No one else has claimed a bonus in respect of the home.

The bonus will be available in respect of owner-built homes where:
A written agreement of purchase and sale in respect of the land and building is entered into on or after February 21, 2012;
Construction of the home is complete, or the home is occupied, before April 1, 2013; and
No one else has claimed a bonus in respect of the home.

A substantially renovated home is one where all or substantially all of the interior of a building has been removed or replaced. Generally, 90% or more of the interior of the house must be renovated to qualify as a substantially renovated home (90% test).
Amount of the Bonus
MAXIMUM AMOUNT
The bonus is equal to 5% of the purchase price of the home (or in the case of owner-built homes, 5% of the land and construction costs subject to HST) to a maximum of $10,000.
PHASE-OUT FOR HIGHER INCOME EARNERS
The bonus will be reduced based on an individual’s/couple’s net income (line 236 of your income tax return) using the following formula:
For single individuals, the bonus is reduced by 20 cents for every dollar in net income over $150,000 (bonus is reduced to zero at $200,000 net income).
For couples, the bonus is reduced by 10 cents for every dollar in family net income over $150,000 (bonus is reduced to zero at $250,000 family net income).

THE B.C. FIRST-TIME NEW HOME BUYERS’ BONUS
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Additional Information
APPLICATION PROCESS
Individuals must apply for the bonus through the B.C. government. Individuals can apply once application forms have been posted on the B.C. Ministry of Finance website later this year. Applicants will be required to submit documentation demonstrating eligibility for the bonus.
ELIGIBLE NEW HOME
The bonus is available in respect of new homes (i.e., newly constructed and substantially renovated homes) where HST is payable. HST will generally be payable on homes purchased from a builder where ownership or possession transfer before April 1, 2013. Potential buyers should consult with the builder to determine if the home will be subject to the HST.
For owner-built homes, the bonus will be based on land and construction costs subject to the HST. Eligible new homes will include:
Detached Houses, semi-detached houses, duplexes and townhouses,
Residential condominium units,
Mobile homes and floating homes, and
Residential units in a cooperative housing corporation.

For More Information
INCOME TAXATION BRANCH
Ministry of Finance
Province of British Columbia
Telephone: (250) 387-3332 or 1 (877) 387-3332
Email: ITBTaxQuestions@gov.bc.ca

To help support workers and communities in B.C. that depend on residential recreational development, purchasers of new secondary vacation or recreational homes outside the Greater Vancouver and Capital regional districts priced up to $850,000 will now be eligible to claim a provincial grant of up to $42,500 effective April 1, 2012.

B.C.’s portion of the HST will no longer apply to newly built homes where construction begins on or after April 1, 2013. Builders will once again pay seven per cent PST on their building materials. On average, about two per cent of the home’s final price will again be embedded PST.
The temporary housing transition measures will be in place for two years, until March 31, 2015. The tax only applies to homes where construction begins before the transition date and ownership and possession occur after.
The temporary housing transition tax and the temporary housing transition rebates will be administered by the Canada Revenue Agency on behalf of B.C. The Province is administering the grant for new secondary vacation and recreational homes.