Wednesday, June 29, 2016

How simple changes to your mortgage could mean big savings

OTTAWA -- When shopping for a mortgage, most Canadians focus on the interest and how much they can save with a lower rate.
But paying a few extra dollars every two weeks instead of the usual monthly payment or making an extra lump sum payment once a year can also save borrowers thousands in interest and shorten the time it takes to pay off a mortgage by years.
Wade Stayzer of Meridian Credit Union says homeowners need to understand of how much they can afford to pay and work from there.
"You really need to understand your personal financial situation and what it is you're trying to accomplish," said Stayzer, Meridian's vice-president of sales and service.
The rules governing how much borrowers can increase payments or put down in a lump sum vary depending on the mortgage contract, so it's important to read the fine print.
For those looking to pay off a mortgage faster and can afford it, Stayzer recommends increasing regular payments over saving up and making an annual lump sum payment.
"We all know that we'll find things to do with money if it's just sitting around waiting to do that," he said.
Meanwhile, accelerated bi-weekly payments are calculated by taking what the monthly payment would be and dividing it by two and then making that payment every two weeks.
The effect is that you make the equivalent of an extra monthly payment every year compared with 12 monthly payments. The change could save you thousands in interest costs and shorten the time it takes to repay your mortgage by years.
Extra payments now might also serve as a cushion against future increases in mortgage payments if interest rates rise.
Omar Abouzaher, a regional vice-president at the Bank of Montreal, suggested that windfall gains from things like an increase in income or the end of another regular expense be used on the mortgage.
"If your kids are out of daycare or you get a promotion and you're OK with your lifestyle, you're OK with your cash flow, why not apply this extra money on your mortgage payments," he said.
Abouzaher suggested another tactic could be to use your income tax refund to make an annual lump sum mortgage payment.
"This lump sum goes directly toward the principal and not towards the interest, so will allow you to save a lot of money in terms of interest," he said.
With mortgage interest rates hovering near record lows, Stayzer noted that putting more money into investments rather than making extra mortgage payments may be tempting.
But, he says that choice will depend on your financial plan and risk tolerance.
"What's going to help you sleep at night," he said.
"I know people who are really comfortable with mortgage debt and people that are saying 'I can't wait to get this thing paid off."'

Tuesday, June 21, 2016

Bank of Canada can’t cool hot housing market: BMO

Image result for housing market
Scorching prices in Canada’s top housing markets are unlikely to see declines because the major drivers are beyond the reach of traditional monetary policy, says BMO.
By Natalie Obiko PearsonBloomberg , June 15, 2016
Scorching prices in Canada’s top housing markets are unlikely to see declines because the major drivers are beyond the reach of traditional monetary policy, according to Bank of Montreal’s top economists.
“Monetary policy can’t do anything about the inferno,” according to the draft of a report led by Douglas Porter, the bank’s chief economist. “None of the major drivers of Vancouver and Toronto’s housing market are pointing downward.”
Benchmark Canadian home price rose 12.5 per cent in May — the most in nine years, according to the report.
Here’s why:
Millennials are entering the housing market, and baby boomers aren’t downsizing.
Vancouver and Toronto accounted for all of Canada’s net job growth in the past year, accounting for a one out of four jobs in the nation.
Canada’s economy is shifting away from manufacturing to service-based businesses concentrated in Toronto and Vancouver.
Foreign Money
Proposals to increase minimum down payments on homes will only curb domestic buyers, not foreign investors with excess savings.
You can build new condos but you can’t create many more detached houses on 50-foot lots.
Calls for intervention to try and tame prices are growing. In the past week, the International Monetary Fund, Organization of Economic Cooperation and Development, and Bank of Canada have all flagged the increasing risk of a potential correction in housing.
The sluggishness of Canada’s resource-dependent economy and a jittery global outlook makes it difficult for the Bank of Canada to raise interest rates. Even if borrowing costs rose, it’s not clear they’d dampen lofty home prices, it said.
“Given the limitations on dealing with many of the lead accelerants, we would recommend that government policy action be aimed at those it can affect — foreign investment, speculation and land restrictions, in that order,” the report said, with particular attention paid to investors who are only seeking a haven to park capital.