May 31st Rate Date – No Change for Variable Rate Clients

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 global economic recovery is proceeding broadly as expected in the Bank's April Monetary Policy Report (MPR). The U.S. economy continues to grow at a modest pace, limited by the consolidation of household balance sheets. Growth in Europe is maintaining momentum, although the risks related to peripheral economies have increased. The disasters that struck Japan in March are severely affecting its economic activity and causing temporary supply chain disruptions in advanced economies. Commodity prices have declined recently but are expected to remain at elevated levels, supported by tight global supply and very strong demand from emerging markets. These high prices, combined with persistent excess demand conditions in major emerging-market economies, are contributing to broader global inflationary pressures. Despite the challenges that weigh on the global outlook, financial conditions remain very stimulative.

In Canada, the economic expansion is proceeding largely as expected in the April MPR. The economy grew at an annual rate of 3.9 per cent in the first quarter, reflecting continued strong business investment, smaller contributions from household and government spending, and a modest drag from net exports. Although temporary supply chain disruptions are expected to restrain growth sharply in the current quarter, this is expected to be unwound in subsequent quarters.

While underlying inflation is relatively subdued, the Bank expects that high energy prices and changes in provincial indirect taxes will keep total CPI inflation above 3 per cent in the short term. Total CPI inflation is expected to converge with core inflation at 2 per cent by the middle of 2012 as excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.

The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation. On the other hand, the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.

New Mortgage Rules to Take Effect in March

Mortgage Changes were announced recently that will come into play March 18th, 2011. These are summarized here:

http://www.moneyville.ca/article/923422--roseman-what-mortgage-changes-mean-for-you

There were no changes to minimum down payment or condo debt servicing as was previously rumored.

Potential Change in Mortgage Rules to Affect Condo Buyers

The government is currently discussing whether or not to change mortgage qualifications which would directly affect condo buyers. In short, as mortgage brokers we currently input 50% of the condo fees of a building when a condo is purchased. Therefore, only 50% of the condo fees need to be debt serviced into appropriate ratios established and accepted by banks & lenders, most commonly 32% GDS and 40% TDS. The proposed change would mean 100% of condo fees would need to be entered and the client would need to be able to debt service this higher amount. The government's thought process behind this is that the purchaser will be paying 100% of those fees anyhow so it should be built in to ensure they can afford the condo. Those against the move caution that people who purchase a home do not have to have repair estimates built into their debt servicing for financing.

There are also discussions on raising the minimum down payment from 5% to possibly 6 or 7%. Reports indicate that it would be unlikely to go as high as a minimum of 10%. There is also mention in the article about reducing amortization from the current maximum of 35 years to 30 years, however, they say that the effect here would be minimal so it may not be worthwhile to change.

Read below for the full story!

New Rules Would Hit Condo Buyers

The federal government's efforts to get tough on borrowing are now focused on the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment, the National Post has learned.

Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. Currently, only 50% of the fee is considered. The move has the potential to squeeze thousands of consumers out of the market.

"I know for a fact they are talking about it," said one source close to finance officials who asked not be identified, about the proposal which is part of series of a new rules that the government is described as "seriously considering."

It is almost a guarantee that the government will once again lower the maximum length of amortizations for a mortgage, down to 30 years from 35. Longer amortizations lower monthly mortgage fees making it easier for consumers to borrow more.

The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years, so a considerable percentage of Canadians are taking advantage of the current rules.

About three years ago, amidst a battle for customers between federal Crown agency Canada and Mortgage and Housing Corp and private mortgage default insurers, amortizations lengths rose almost overnight from 25 years to 40 years before Ottawa cracked down. "Going from 35 years to 30 does almost nothing," said the source, adding that's why the government is looking at the changes to condominium qualifications.
Ottawa is also still considering a far more controversial proposal to increase the minimum downpayment required to buy a home but it is unlikely to go from the current 5% to 10%, as some have speculated. A 6% to 7% range seems more likely, said the source.

The proposals only affect those Canadians who require mortgage default insurance. Anyone borrowing from a financial institution covered by the Bank Act must get insurance if they have less than a 20% down payment.

"I'm concerned and disturbed if they are making changes, particularly to condos," said Stephen Dupuis, chief executive of the Toronto-based Building Industry and Land Development Association. "They have already imposed stricter rules and that was plenty."

In April, 2010 new mortgage rules went into affect that forced consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors, as opposed to people who use a home as principle residence, to have a 20% down payment which mostly affected the condo industry.

Mr. Dupuis said he can live with the amortization period being shrunk but any attempt to increase the minimum down payment will only hurt the market. "There seems to be a fatal obsession with real estate and engineering the real estate market which may be an unhealthy obsession."

But Ottawa has coming under increasing pressure from the financial industry to tighten mortgage rules. Ed Clark, chief executive of Toronto-Dominion Bank, has called on the federal government to take steps to curb consumer access to bank loans. The government is said to have looked into imposing new rules on lines of credit but that would be tougher to implement because it would require a change to the Bank Act, said a source.

The condominium proposal would have an immediate impact because the average condominium fee on an existing home is 55¢ a square foot in Toronto, according to research firm Urbanation Inc. which says the average condominium apartment in Toronto is 900 square feet. Currently only half that approximate $500 in monthly condo fees counts toward monthly expenses for qualifying purposes. To qualify for a mortgage only 32% of gross income can go towards housing, which also includes mortgage payments including principle and interest, taxes and utilities.

Vince Gaetano, a vice-president with Monster Mortgage, said he too has heard the discussion of condominium fees being included in debt calculations and figures it makes sense.
"Yeah, condos provide extracurricular activities like swimming pools, gyms tennis courts and all that stuff. But the reality is you are paying the fee so why make it 50% it should be 100%," says Mr. Gaetano. "This is going to put some pressure on people. The rules have not changed in ages and this is way before the proliferation of condos."

Brad Lamb, a real estate broker and developer, said the practice would discriminate against condominium owners. "When you buy a house you don't put any future maintenance costs [in your debt calculation]," says Mr. Lamb.

"All it is is a knee jerk reaction by idiot bankers pressuring idiot politicians that don't understand the nature of the condominium market in Canada. What is driving the condominium market in Ottawa, Vancouver, Toronto and Montreal is investors. This won't affect them. This just attacks the lowly first-time buyer."

Garry Marr, Financial Post · Thursday, Jan. 13, 2011

No Change to Prime Rate

Prime Rate Remains at 3% - Article Below!


Bank of Canada maintains overnight rate target at 1 per cent OTTAWA - 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 global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets. The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports. Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged. Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. Information note:The next scheduled date for announcing the overnight rate target is 18 January 2011. Copyright 2010 TMG The Mortgage Group Canada Inc. All rights reserved.

Canadian Mortgage Broker News – Housing starts expected to decline for 2011

Canadian Mortgage Broker News - Housing starts expected to decline for 2011

An alternative to Variables

Since the latest increase to Prime by 25 basis points on September 8, TD Prime rate now sits at 3%.  For those who have a variable mortgage, this is approximately a $20 increase in interest per month per $100,000.  While most analysts including the latest Quarterly Economic Forecast by TD Economics agree that the latest hike may be the last one for a while, this pause won’t last forever and rates are expected to rise modestly over the next few years. If you are looking for a new mortgage and considering a variable term, let me show you an alternative that can also save you money. Consider taking a 1 year fixed term. Even though this is a short term strategy and may not be suitable for you, this is an excellent alternative for a few reasons.

1) Based on today’s prime rate, taking out a 1 year fixed rate is equivalent to todays Prime-0.5% or better.
2) A 1 year fixed keeps your further protected from interest rate increases for the whole year.
3) You may be able to early renew into a variable  at a potentially better discount than you can get today. Check with your lender for any fees.

No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you’re not sure which option to go with, talk to your mortgage advisor or give me a call and I can show you which options makes most sense for your unique situation. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Sources: Canadian Mortgage Trends, TD Economics

Looking at Amortizations

One of the most common subjects I have been discussing with clients about in the last few weeks is amortization, so today I wanted to clarify the meaning of it, show you the different options available and provide a few examples. A common misperception is that you pay significantly more interest on a monthly basis by choosing a longer amortization, however this is not true. Although your interest cost over the long term is greater because you are increasing the amount of time over which your mortgage will be paid, it’s how much you pay to principal that makes a huge difference. Lets take a look at an example of a $300,000 mortgage with an interest rate of 3.99% over a 5 year term, amortized over 25 years. These are numbers are taken from our TD Mortgage Payment Calculator.

Principal: $300,000
Payment frequency: Monthly
Mortgage type: Fixed rate
Interest Rate: 3.99%
Amortization: 25 years
Total Payment: $1576.43
Total P+I Payment for term: $94,585.80
Total Interest Cost for Term: $55,697.22
Total Principal Repayment for Term: $38,888.58
Mortgage Balance at End of Term: $261,111.42

Now let’s take a look at the same example, but amortized over 35 years.

Principal: $300,000
Payment frequency: Monthly
Mortgage type: Fixed rate
Interest Rate: 3.99%
Amortization: 35 years
Total Payment: $1320.64
Total P+I Payment for term: $79,238.40
Total Interest Cost for Term: $57,290.85
Total Principal Repayment for Term: $21,947.55
Mortgage Balance at End of Term: $278,052.45

So as you can see from the examples above, there’s not a significant difference in interest cost between the two scenarios for the first 5 years. The difference in interest cost is $1593.63. But the difference in paid principal? $16941.03. So why would anyone choose a 35 year amortization over a 25 year amortization? Flexibility. By choosing a maximum amortization of 35 years, it allows you to reduce your monthly payments. Not sure which option to go with? Talk to your mortgage advisor or give me a call and I can help you crunch the numbers, and determine what makes most sense for your unique situation. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Buy New or Existing?

With construction of new homes in Calgary soaring, one major choice that homebuyers often have to consider is whether to buy or build a brand new home or move into a previously owned house. As an existing homeowner, this is a question that will be up for debate before our next move. Buying a brand new home obviously has its advantages but there are also some downsides to it. I came upon an article in the Globe and Mail that goes over the benefits and drawbacks of being a home’s first owner. Here are some things to think about before you decide.

Customization
If you buy brand new, you have the option to customize. This can include the planning and design of every element in your home if you start from scratch or having an input on minor elements such as colors and materials if you buy a pre-planned house. If you buy an existing home, it comes as is and customizing it may involve more work and more money.

Warranty
Builders usually provide a warranty on their brand new homes to cover any defects in the home’s construction. This can offer you peace of mind because you know you won’t have to spend any money on major repairs for the first few years. Having said that, new homes do need time to settle so whether the construction is sound and foundation likely to shift are unknown. Homeowners can also run into issues with builder warranties if the builder goes out of business or if the defect is not covered under the warranty.

Safety and Building Codes
Brand new homes must comply with up to date building codes that apply to the area such as electrical, plumbing, fire safety and natural disaster protection whereas older homes may need to be brought up to date. The one thing that I would have to agree with though is that new homes tend to use less expensive materials that don’t match the quality or lifespan as the materials more likely found in older homes.

Contemporary Style
Newer homes have better layouts because they get with the times but newer homes tend to be farther from the core of the city. If you don’t mind living in the suburbs then this won’t be an issue for you but if want a shorter commute, then you may have to settle for an older home.

Low Maintenance
With a brand new home you can just move right in and not worry about having to get your hands dirty, so if you like something low maintenance, then buying new may appeal to you.

If you decide to buy new, TD can hold your interest rate for up to 12 months from the application date subject to approval of the builder. On single homes, this can be extended to 18 months in the Greater Toronto and Vancouver areas or 24 months on townhomes and condominiums. In a rising interest rate environment, this is a good option to have, especially since it takes a while for new homes to be built. Talk to your lender to see if they have any special programs in place if you decide to buy new or give me a call and I can show you your options. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Article: The Globe and Mail

Buy New or Existing?

With construction of new homes in Calgary soaring, one major choice that homebuyers often have to consider is whether to buy or build a brand new home or move into a previously owned house. As an existing homeowner, this is a question that will be up for debate before our next move. Buying a brand new home obviously has its advantages but there are also some downsides to it. I came upon an article in the Globe and Mail that goes over the benefits and drawbacks of being a home’s first owner. Here are some things to think about before you decide.

Customization
If you buy brand new, you have the option to customize. This can include the planning and design of every element in your home if you start from scratch or having an input on minor elements such as colors and materials if you buy a pre-planned house. If you buy an existing home, it comes as is and customizing it may involve more work and more money.

Warranty
Builders usually provide a warranty on their brand new homes to cover any defects in the home’s construction. This can offer you peace of mind because you know you won’t have to spend any money on major repairs for the first few years. Having said that, new homes do need time to settle so whether the construction is sound and foundation likely to shift are unknown. Homeowners can also run into issues with builder warranties if the builder goes out of business or if the defect is not covered under the warranty.

Safety and Building Codes
Brand new homes must comply with up to date building codes that apply to the area such as electrical, plumbing, fire safety and natural disaster protection whereas older homes may need to be brought up to date. The one thing that I would have to agree with though is that new homes tend to use less expensive materials that don’t match the quality or lifespan as the materials more likely found in older homes.

Contemporary Style
Newer homes have better layouts because they get with the times but newer homes tend to be farther from the core of the city. If you don’t mind living in the suburbs then this won’t be an issue for you but if want a shorter commute, then you may have to settle for an older home.

Low Maintenance
With a brand new home you can just move right in and not worry about having to get your hands dirty, so if you like something low maintenance, then buying new may appeal to you.

If you decide to buy new, TD can hold your interest rate for up to 12 months from the application date subject to approval of the builder. On single homes, this can be extended to 18 months in the Greater Toronto and Vancouver areas or 24 months on townhomes and condominiums. In a rising interest rate environment, this is a good option to have, especially since it takes a while for new homes to be built. Talk to your lender to see if they have any special programs in place if you decide to buy new or give me a call and I can show you your options. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Article: The Globe and Mail

All about VIRM’S (Variable Interest Rate Mortgages)

It seems like the VIRM is the more common mortgage option now adays, especially given the fact that the spread between the discounted 5 year variable closed and 5 year fixed is currently over 2%. Just to put it into perspective, the difference in monthly payments between the two on $100,000 is approximately $113 based on a 35 year amortization. But whether the variable mortgage may be the right option for you shouldn’t be solely dependant on rate. As you know, the interest rate on a variable mortgage fluctuates and more importantly is currently on its way up but not knowing how the product works may leave you with more challenges down the road. Aside from using IDEAS outlined in my blog Fixed or Variable to help you evaluate your situation, I thought I would go over everything you need to know about Variable Interest Rate Mortgages. Keep in mind that the products in my blog are specific to TD so always check with your lender on their mortgage products work.

There are two types of variable mortgages. Open and closed. Both with TD are 5 year terms but the 2 main differences are the rates and prepayment privileges. With the variable closed, the rate is usually priced below bank prime and with the open it’s usually priced above bank prime. In terms of pre-payment priviledges, the closed term does not allow the mortgage to be pre-paid in full without paying 3 months interest compensation. The open term allows pre-payment in full however administration fees apply if the mortgage is paid in full in the first or second year, $500 and $250 respectively. Two important things to note about variable mortgages with TD is that they are NOT assumable nor portable. To learn more about portability, please visit my article on Porting or Replacing your Mortgage.

The interest rate on a variable mortgage is calculated monthly, not in advance and changes when TD Mortgage Prime changes. This is different than a fixed rate mortgage in which the interest is calculated semi-anually and not in advance. The rate is set on the 1st day of each month based on the variable mortgage rate. So if the bank prime changes mid month, your variable rate will not be changed until the first of the following month. Keep in mind your lender’s rate adjustment policy if you choose to go with a variable mortgage. Your payments on our variable mortgage are fixed for the entire 5 year term. I always recommend to those who choose a variable mortgage to set their payments based on a higher rate to pay off the principal faster and to safeguard against interest rate increases. Since interest rate fluctuations can push the outstanding balance beyond the contractual amortization, it is always a good idea to increase the payment frequency and amount. For more information on how to pay off your mortgage faster, please visit my blog on Mortgage Payment Plans and Say Goodbye to your Mortgage Faster. When your interest rate reaches the point where your payments no longer cover the interest charged under the mortgage, this is referred to as the Trigger Rate. If this occurs, you may be asked to pay your mortgage down to the appropriate trigger point, re-evaluate your property, convert your mortgage to a fixed rate, or increase your regular payments.

If you currently have or choose to go with our closed variable mortgage, you have the option to early renew into a fixed rate mortgage with a minimum term equal to the lesser of 3 years or remaining period of the original term. If you have or choose to go with our open variable mortgage, you have the option of renewing into any fixed term mortgage. So as you can see, there is more to variable mortgages than just the rate. Knowing what your options are during your contract period can have an impact on your decision or situation down the road. Going forward, the variable may no longer win according to the Financial Post, but there never seems to be a clear answer on whether to lock in or stay variable. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

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