There's more to a mortage ...

Than a low Interest Rate

Homeowners and buyers are in a rather enviable position these days. Interest rates are at historic lows and the cost of borrowing for a home is about as low as it can get.
That's great news. But it's not the only thing homeowners and purchasers need to think about their mortgage.
There are a number of other features to consider before signing up for a mortgage and what is probably the largest debt that most Canadians will ever take on in their lives.
"When it comes to choosing a mortgage, getting a good rate is just the tip of the iceberg," says Mary Gronkowski, regional sales director with Mortgage Intelligence Inc., a national mortgage brokerage company. "You have to be aware of all the other features that may lie below the surface. All features of a mortgage should fit a homebuyer's personal goals, both now and down the road."
One type of mortgage to consider is an assumable mortgage.
An assumable mortgage means it can be transferred to another borrower. It allows a purchaser to take on your mortgage's terms and payments as part of the sale of your home. With extremely low interest rates today, that could be a big selling feature to a potential buyer in the future.
Given the low rates today, many homeowners are thinking about refinancing their mortgage.
Whether you should refinance your mortgage in a period of low interest rates depends on how much it will cost you to break your existing mortgage compared to how much you will save in interest payments.
If you break an existing mortgage you will have to pay the greater of three month's interest or the interest rate differential (IRD).
An IRD is a penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. Usually this is calculated as the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term.
For example, if you had a $100,000 mortgage at nine per cent interest rate with 24 months remaining and wanted to renegotiate your mortgage at 6.5 per cent for 24 months, your IRD would be $5,000 ($100,000 x 2.5% $2,500 x 2 years $5,000).
It may only make sense to refinance your mortgage if the interest rate savings over the remaining life of your mortgage exceed the value of the IRD.
Another strategy is to take a variable rate mortgage. If interest rates go down and you keep your mortgage payments the same, you will be paying off more of your principal with each payment and will pay down your mortgage faster.
Many borrowers are taking advantage of low interest rates by accelerating payments on their mortgages. Many lenders will allow you to double up payments periodically or make lump sum payments of up to 20 per cent of the principal once a year.
You should make sure you understand the size and frequency of payments your lender will allow before you sign up.
Some mortgage lenders will have an option to skip a payment without penalty, which may come in handy in today's economy.
Another option that many mortgages have is portability.
This allows you to transfer your existing mortgage over to a new property, another big advantage if you have a mortgage at current low rates.
Not all portability features are the same, however. Some lenders allow up to 120 days to transfer the mortgage while others allow for only a few days or a week.

Monday, September 28, 2009 provided by Talbot Boggs

Interest Rates

No guarantee rates will stay low, Carney warns
Paul Vieira, Financial Post
OTTAWA -- Governments will be required to undertake "concerted" and "sharp" efforts to restore fiscal sustainability once a market-led recovery is assured, Bank of Canada governor Mark Carney said Monday.
This will particularly apply to countries with ageing populations and "unsustainable entitlement programs," he said in a speech to the Victoria Chamber of Commerce.
While Mr. Carney was speaking about the need of governments to get their fiscal houses in order in the post-crisis landscape, the central banker also went to some lengths to reiterate that the central bank's pledge to keep interest rates at 0.25% until the end of June 2010 is "conditional" on meeting inflation targets. He told reporters afterward it would be unwise to assume current rates are "normal."
"It is an expectation, not a promise," Mr. Carney said in his remarks.
In recent weeks, analysts have debated whether the bank may move before that June 2010 deadline to raise rates given the strength in the economic rebound; or whether it may extend its pledge to keep a lid on growth in the Canadian currency, which it identifies as a risk to growth.
His speech touched on familiar ground, such as the risk of the rising loonie, but also attempted to set the landscape for the "hand off" from government-led growth to the private-sector-led expansion. His remarks suggested that stimuli - whether through government spending or low interest rates - should be kept in place "until the recovery is assured."
When that recovery is assured, certain countries have much work to do to clean up their public finances, Mr. Carney indicated. He did not cite specific countries in his remarks, but jurisdictions that fall under this category could include the United States and western Europe.
"Once the recovery is assured, concerted efforts will be necessary in most economies to restore fiscal sustainability," he said, adding it would be "particularly sharp" for some countries. "The fiscal cost of arresting the downfall will need to be first contained and then repaid over many years."
In Canada, the federal government has set out a framework under which it would remain in a deficit position until at least the 2014-15 fiscal year. But, the Conservative government said it would be able to reduce the amount of red ink in the coming years through cost controls and better growth.
More difficult decisions await legislators in Washington, which is recording shortfalls in the trillion-dollar range. Analysts warn of the need for U.S. legislators to cut spending and raise taxes, which could further keep U.S. consumers timid and undermine global growth.
Without aggressive efforts to keep the U.S. debt in check, bond investors will demand fatter yields that, in turn, could drive up inflation and weaken the U.S. currency.
But some governments are indicating they are prepared to take the steps Mr. Carney is calling for. Alistair Darling, Britain's finance minister, said Monday the country will make annual budget deficit reduction a legal commitment in order to bind future governments to getting the national debt down.
"Policy makers will have to act deftly to maintain stimulus long enough for private demand to take up the burden of growth, but not too long to undermine confidence in and the sustainability of that growth," Mr. Carney said. "The aftermath of the crisis will make considerable demands on structural policies in all countries, including Canada."
Among the structural changes in Canada would be the need for businesses to rely more on emerging markets as a source of demand as open access to the U.S. market becomes "less valuable," Mr. Carney said.
Afterward, he told reporters the U.S. economy would not be as "dominant" because that economy is going through a multiyear adjustment.

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Mortgage Rates Dropping, Its Strategy time

It was a little less than a year ago that the global financial crisis began to hit home, which is to say that mortgage rates spiked higher.
Now, the cost of mortgages is coming down. If you're buying a home or renewing a mortgage, it's time to review your options.
Fixed-rate mortgages declined a little last week, but the most dramatic changes can be seen in variable-rate mortgages. For the first time in almost a year, it's possible to get a variable-rate mortgage at the prime rate used by most major financial institutions, which is currently 2.25 per cent.
Pre-crisis, variable-rate mortgages came with discounts that ranged from 0.75 percentage points to as much as 0.9 points off prime. By late last fall, crisis conditions prompted lenders to start charging prime plus a full percentage point or more. Now, some lenders are starting to unwind their crisis-rate premiums.
"Variable-rate mortgages are all over the map right now," said Gary Siegle, regional manager with the mortgage brokerage firm Invis Inc. in Calgary. "We're seeing them right in the area of prime with some lenders."
An example of a variable-rate mortgage at prime: ResMor Trust, a small player that deals through mortgage brokers, is offering four-year variable-rate mortgages at prime in all provinces except Quebec. The catch: You have to have your mortgage approved by Sept. 30 and close the purchase within 45 days.
Can variable-rate mortgages fall back to their pre-crisis lows any time soon?
"Definitely, 100 per cent, no," said Robert McLister, a mortgage broker and author of the Canadian Mortgage Trends blog (canadianmortgagetrends.com). "Could they get a little below prime? Definitely."
Okay, it's strategy time. With prime at 2.25 per cent and fully discounted five-year fixed-rate mortgages going for something in the area of 3.9 to 4.1 per cent, you're got some thinking to do if you're buying a home or renewing a mortgage.
The variable rate looks tempting. Sure, the prime is going to rise in the medium term, but it's expected to stay put until next spring at least. Even when prime does move higher, it will have to increase by roughly 1.75 percentage points to get to where today's five-year mortgages are.
"The risk is obviously that rates go up a lot more," Mr. McLister warned. "Rates went down four percentage points from December, 2007, through April, 2009. They could easily go up four - why not?"
Variable-rate mortgages allow you to lock into a fixed-rate mortgage, so there's no reason why you have to ride interest rates all the way up. Still, you have to recognize that fixed-rate mortgages could be significantly more expensive by the time you decide to lock in.
An academic study of rates between 1950 and 2007 found variable-rate mortgages were the money-saving choice over five-year fixed-rate mortgages 89 per cent of the time. If you're willing to ride rates higher for a while in hopes of longer-term savings on interest costs, then consider a possible approach suggested by Mr. McLister.
Instead of arranging a variable-rate mortgage now, go for a one-year fixed-rate mortgage. Then, when you're renewing in one year's time, you'll move into a variable-rate mortgage that will ideally have a rate that is discounted below prime.
Fully discounted one-year closed mortgages today go for about 2.55 per cent, so you're not paying much of a penalty at all compared with what variable-rate mortgages are pegged at right now.
Another suggestion from Mr. McLister is to consider a three-year mortgage, which offers an attractive blend of low rates and security against interest rate surges. Three-year mortgage typically go for around 3.39 per cent on a fully discounted basis, but he knew of one small lender offering 2.9 per cent through the mortgage broker channel.
The case for going with a five-year fixed rate is that rates are very cheap by historical standards. Rates were a little bit lower last spring, but they're not as high as they were a month or two ago
thanks to a pullback in bond yields that has trickled down to fixed-rate mortgages.
Mr. Siegle said over half of his firm's clients are locking into a fixed-rate mortgage right now. "You can't ever time the bottom of the market, but are these good rates that you can be comfortable with? A lot of people are saying, 'yeah, they are.' "
ROB CARRICK
*****



Source: Bank of Canada, Cannex

CMHC Expects housing Market to rebound strongly this year and next

Canada's housing market will rebound strongly in the second half of this year and into 2010, the federal housing agency said yesterday. Housing starts will reach 141,900 this year and increase to 150,300 for 2010, said Canada

Mortgage and Housing Corp. "Improving activity on the resale market and lower inventory levels in both the new and existing home markets are expected to prompt builders to increase residential construction," CMHC said.

Bob Dugan, CMHC's chief economist, said, "Economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year. In the second half of 2009 and in 2010, we expect housing markets across Canada to strengthen."

Financial Post Published: Friday, September 04, 2009

Bank Of Canada expected to keep rates at record low

OTTAWA -- Analysts appear to be unanimous in believing the Bank of Canada will hold its record-low policy rate steady at its meeting Thursday, and maintain its commitment to keep the rate at 0.25% until June 2010.
The only item to look for in the pending rate statement, they indicate, is any change in nuance or tone, and possibly further concern about the rise of the Canadian dollar.
"The fact that the major economic data has largely evolved in line with the Bank of Canada's forecasts suggests (the central bank) is likely to reiterate its conditional statement to keep the overnight rate at 0.25% until the end of the second quarter of 2010," said Charmaine Buskas, senior economics strategist with TD Securities.
"And with no expected change to the overnight rate, all the focus will be on the nuances in the statement. It is likely to be very similar to the July 21 statement."
For the record, 21 economists in a Bloomberg News survey anticipate no change in the Bank of Canada rate, nor do the 11 members of the C.D. Howe Institute's monetary policy council.
The C.D. Howe said the Bank of Canada should stick to its mid-2010 commitment, adding that growth prospects remain uncertain as council members questioned how sustainable Canadian exports growth abroad will be, with "the dependence of U.S. and Chinese growth on government stimulus being a particular point of concern.

Paul Vieira, Financial Post Published: Tuesday, September 08, 2009