Wednesday, January 22, 2014

No Change to the Bank of Canada Rate!

As expected, the Bank of Canada announced today that it is not changing the benchmark rate.
The announcement noted that although “the fundamental drivers of growth and future inflation appear to be strengthening, inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance. At the same time, risks associated with elevated household imbalances have not materially changed.” With these considerations, the Bank is maintaining its substantial monetary policy stimulus.
Great news if you’ve got a variable-rate mortgage; the prime rate stays at 3%.
The next rate-setting day is March 5. Eight times a year, the Bank of Canada sets the rate that governs each lender’s prime rate. Variable-rate mortgages and lines of credit move in conjunction with the prime lending rate. Fixed rates on the other hand are based on the bond market.
Whether you are looking to purchase, refinance, or renew, we can help you decide whether a fixed or variable-rate mortgage will work best for your situation. Or you may find that a hybrid mortgage, which is part fixed and part variable, is better suited to your needs.
We regularly receive short-term rate promotions that are not posted online, which means our rates change frequently. Please contact me for the unpublished rate specials.

Monday, January 20, 2014

4 ways to become mortgage-free faster

Expert advice on how to pay off your mortgage early

By Ryan Starr, Toronto Star
We consulted mortgage experts for tips to help readers become mortgage-free faster.
Budget for it first.
There are a number of strategies to help homeowners pay off mortgages quicker; all involve ponying up more dough.
Your first step should be to determine if you have the flexibility in your budget to put more money toward your mortgage.
“Make sure you’re balancing everything off,” says Sean Vanzante, a mortgage specialist at National Bank of Canada. “You want to be setting yourself up for a strong financial future, putting money away for things like your retirement and your kids’ education.”
Accelerate your payments.
If you do have the extra budget room, consider adjusting your payment plan.
For example, if you go on a bi-weekly accelerated schedule, making a payment every 14 days, instead of twice a month, you’ll have made the equivalent of 26 payments, by the end of the year.
“Smaller, more frequent payments will reduce your interest costs and get you mortgage-free faster,” says Farhaneh Haque, director of mortgage advice with TD Canada Trust. “And, if you tie it in to your payroll, you don’t even miss it.”
Increase your monthly payments.
Most financial institutions let homeowners make additional mortgage payments alongside their regular monthly payments.
Depending on the lender, a homeowner may be allowed to pay between 10 to 100 per cent of the mortgage payment and have it go directly toward paying down the principal, not the interest.
Make a lump sum payment.
Say you get a bonus at work or receive an inheritance – putting a chunk of that windfall toward your mortgage can make a difference.
Most lenders let clients pay lump sums between 10 to 20 per cent of the original mortgage, or the remaining balance, Vanzante notes. The full amount can be paid in one go or it can be made in instalments.
(Note: the lump sum contribution is over and above the amount you are allowed to contribute in additional bi-weekly payments.)
Reduce your amortization.
The principal-to-interest ratio on a mortgage leans more heavily toward interest in the first part of the mortgage term, Haque explains.
“So if you’re taking a shorter amortization, you’re tipping the scale a little bit so that a bigger portion of your payment is going towards your principal for that portion.”
The strategies outlined earlier – making accelerated, additional and lump sum payments – can effectively reduce your amortization period, while still giving you financial flexibility.

Thursday, January 16, 2014

What you need to know before, and after, buying a condo

Rob Carrick The Globe and Mail  Jan. 13 2014
Your life as a homeowner will likely include some time in a condo. Condos suit young adults, and retirees who want to downsize. As houses rise in price, more people in between those extremes may opt for condos. Given the strong foundations for condo demand, there are surprisingly few resources available to help people make smart buying decisions.
Into this void comes a new book called The Condo Bible For Canadians: Everything You Must Know Before and After Buying a Condo. (Read an excerpt from the book here.) It’s written by Dan Barnabic, a former Realtor, developer and consumer advocate who now runs a paralegal firm in Toronto. Here’s an edited transcript of a recent conversation I had with Mr. Barnabic about condos.
What accounts for the big rise in popularity of the condo as a place to live?
It’s basically hype fuelled by several forces, many of them developers. The buildings themselves were built much nicer – not better – than ordinary apartment buildings, and they had more amenities. You had swimming pools, you had gyms, you had perks that made you say, why not? As a result, things mushroomed to the point of a deluge of condo towers, especially in Toronto.
Don’t you agree that condos serve a need for some people?
Yes. Condo ownership can be very advantageous for some, including older people who are tired of the hassles of maintaining a house.
What’s the main reason for unhappy condo ownership experiences?
The No. 1 reason is the management of the complex. You can hardly find a condo complex in which the tenants are very happy with the way it’s being run.
What’s the role of the condo board, and how can I make sure they know what they’re doing before I buy?
The condo board is supposed to be in charge of the governance of the complex, making sure that money is being spent properly, that management of the condo is performing its job diligently, that the proper bidding takes place for any repair – stuff like that. You have to find out for yourself if the board is doing its job. Talk to the residents and ask them if they’re happy.
When buying a condo, you suggest starting with a low offer, say 75 per cent of asking. Won’t that just insult the seller?
Is it better to try and get a chance of a better price on a condo, or should you worry about insulting the seller? You’ve got nothing to lose. The worst that will happen is that you’ll be rejected.
Can you explain your warning about buying a condo in a building where more than 25 per cent of units are rented?
If you’re an owner, then it is obvious that you will take care of your condo, that you will not abuse the common elements, that you will look after the amenities.
Tenants simply don’t have the same interest, and you don’t expect them to because they’re not owners.
How can I tell if condo fees in a particular building are reasonable – not kept low to suit the short-term interests of residents, or so high as to work against resale?
You have to basically hit the pavement and compare – go around to other buildings and ask how much people pay and how big their units are.
Special assessments in addition to regular condo fees are a recurring horror story of condo ownership – how can you avoid them?
There’s no such thing as avoiding them. In the first 10 years of a condo, not much happens and it’s unlikely you’d face a special assessment.
After that, the roof is usually good for 10 years and then you have to start patching it up. Elevators start coming into play in 10 years if they’re well made. Outside balconies can become a problem.
There have been reports about leaky condos in Vancouver and falling windows in Toronto – how do you protect yourself against buying a poorly built condo?
The idea is to check on the reputation of the builder. Buying a condo really requires two months’ preparation time to do your due diligence on everything. There are reputable builders, and we have to recognize that. But there are also guys doing things in a hurry to make a buck.
Where do you live?
I am actually renting a very nice apartment on the top floor and not worrying about what expenses the building may incur.
Which makes more financial sense – owning a condo or renting an apartment? Read an excerpt here from The Condo Bible for Canadians by Dan Barnabic.

Tuesday, January 14, 2014

Forget house prices and debt, deflation is Canada’s new boogeyman

Bloomberg News | January 3, 2014 |
After spending two years watching house prices and household debt measures, investors may spend 2014 focused on inflation reports when making bets on the Bank of Canada’s interest rate outlook.
The slow pace of consumer price inflation surprised policy makers in 2013, reviving rate-cut bets and prompting the central bank to abandon its bias to raise borrowing costs. Bank of Canada Governor Stephen Poloz said in an interview last month he can’t explain the weak inflation, which is now almost a percentage point below where the bank forecast it would be at the start of last year.
“A lot of people are starting to position for CPI releases,” Mazen Issa, senior macro strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said in a telephone interview. “Inflation is going to be one of the major stories for Canada” this year.
Statistics Canada reported Dec. 20 that annual inflation in November was 0.9%, unexpectedly staying below the central bank’s 1% to 3% target band. The difference between Canadian and U.S. two-year yields narrowed by 4.22 basis points, the largest one-day reaction to Canadian CPI data since September 2011, when inflation was above the target band.
Inflation below 1% gives the Bank of Canada “plenty of reason to be dovish,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia in Toronto. The Dec. 20 report was “a disappointment because the market thought we would go back into to that 1 to 3%” target band.
The Bank of America Merrill Lynch Canada Inflation-Linked Government Index, which tracks six bonds with a face value of about $45 billion, lost 0.3% between the inflation report and Thursday, compared with a 0.2% gain for U.S. linkers.

Inflation has been below the 2% midpoint of the central bank’s target for 19 consecutive months. The bank forecasts it won’t return to that level for another two years. That would mark the longest stretch of inflation below the goal since the country adopted inflation targeting in the early 1990s.
In 2012, policy makers and investors were focusing on rising consumer debt. With near historic low mortgage rates sparking a rally in Canadian house prices and fuelling record debt levels, the central bank singled out household indebtedness as the greatest domestic threat to the economy. It introduced a rate-rise bias in April of that year, making it the only G-7 central bank to hint at higher borrowing costs.
Rate Bets
A year ago today, investors priced in more than 21 basis points of tightening by the end of 2013, trading in overnight index swaps showed. Economists surveyed by Bloomberg last January forecast a rate increase by the end of the year.
Today, swaps trading shows rate-cut bets have increased, meaning investors forecasting a change are roughly balanced between rate cuts and increases during 2014.
The difference in yields between Canadian and U.S. two-year notes — one gauge of relative interest rate expectations — fell from 91.6 basis points at the start of 2013 to 75.5 basis points at 8:14 a.m. in Toronto.
That spread moved sharply after Poloz, who replaced Mark Carney as governor in June, completely abandoned the central bank’s bias at his Oct. 23 rate announcement and began to single out weak inflation as the biggest risk to the economy.
At 1%, Canada’s benchmark rate remains the highest in the G-7.
“Under Carney, there was a shift in terms of focusing on financial stability risks,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc. “Under Poloz, there has certainly been a return in focus towards what the Bank of Canada is mandated to look at, which is inflation.”
Core Inflation
Inflation last year averaged 0.9% through November, the slowest since the 2009 recession, falling to as low as 0.4% and never surpassing 1.3%. Core inflation, which excludes eight volatile components and is monitored closely by the bank as a gauge of inflationary pressures, averaged 1.2% last year and never fell below 1%.
“If core inflation is becoming unhinged, then you start to be concerned with the risk that the Bank of Canada may have to think a little bit more seriously about rate cuts,” Issa said.