Should you lock in to the 10-year rate?
Thursday, March 29, 2012
Canadian mortgage holders and new home buyers have enjoyed a long period of low interest rates. Those rates are now rumoured to be going to go up - perhaps not in a dramatic way, but in small increments. Naturally, homeowners with variable-rate mortgages want to know if they should lock into a fixed rate. The most common question, historically, is whether to go fixed or variable, however, the even bigger question today is whether to lock into the 10 year rate below 4%. The simple answer is: It all depends. Most homeowners choose a fixed rate because they know exactly how much principal and interest they pay on each regular mortgage payment throughout the term. However, when interest rates go down, they can't take advantage of that to save money on interest. Variable rates were the most popular choice among homeowners between the ages of 35 and 44 according to a report from Canadian Association of Accredited Mortgage Professional (CAAMP). The report said 10-year mortgages are about 1% of the marketplace. That may change as rates for the decade-long term have dropped to an all-time low, with some lenders said to be offering an interest rates below 3.99%. The much-beloved variable rate option has slumped in popularity as discounts off of the 3% prime rate have disappeared. At the same time, some financial institutions dropped rates to as low as 2.99% for terms as long as four or five years. Those promotions have now been discontinued with 5 year rates now hovering around 3.39% to 3.59% In a recent Financial Post article a few insiders weighed in. Ted Rechtshaffen, a certified financial planner, said that locking in to a 10-year rate makes sense if you think rates are going to be higher than 4.7% in five years. He thinks the odds are good that the mortgage rate in five years will be at least 5%. John S. Andrew, adjunct assistant professor at Queen's University's School of Urban & Regional Planning & School of Business also likes the 10-year rate because he believes rates will go up considerably over the next five years. However,  if a mortgage holder plans to pay down their mortgage in less than 10 years, take another term, he added. Carolann Young, a TMG agent working in Atlantic Canada says many of her clients opt for the 10-year rate. It's an area that brokers and agents need to talk more about when offering their clients the options. "We tend to put our clients in 5-year mortgages without talking about other terms," she said. "I like to make sure my clients are making an informed decision." The 10-year product is ideal for clients who are on fixed or have limited incomes or even seasonal income because it gives them stability, Young explained. "At the end of the day, you've done your job well because you gave your clients the information and they make the decision." The choice is ultimately a personal decision. The 10-year represents the ultimate in security. One key factor about the 10-year is that under Canadian law, after five years, the penalty to break the mortgage reverts to three months interest, similar to the penalty for a variable rate. That's a much lower penalty than the interest rate differential which can be in the tens of thousands of dollars. Moshe Milvesky, professor at York University, says consumers should make their decision based on on their overall financial picture. "In these extraordinary economic times, I believe that history is less relevant for the purpose of forecasting or projecting future interest rates. I believe Canadians should first and foremost take a comprehensive approach to what I like to call 'debt allocation.' The type of debt you take, its maturity, quantity and flexibility should be determined in conjunction with the rest of your personal balance sheet. Period."

Protect Yourself Against Mortgage Fraud

Mortgage fraud is a serious issue that can have a devastating impact on unsuspecting buyers who are new to the home buying process. Participating in a scheme that requires you to provide false or misleading information to a mortgage lender is fraud. Fraud is an offence under the criminal code of canada.
there are two prominent kinds of mortgage fraud today: one involves scams that attempt to illegally acquire property—‘fraud for property’—and one wherein schemes are designed to squeeze money out of transactions involved when a property is exchanged between buyers — ‘fraud for profit’.
the No. 1 rule to remember when it comes to real estate investments or any investments; if it sounds too good to be true, then it probably is.
Mortgage fraud Processes
Straw Buyers: People who are offered money to lend their identity and are considered phoney loan applicants. They are often offered several thousands of dollars for the use of their name and good credit information. Straw buyers can also sign documents that contain false information or information they cannot prove. For example, stating residency where you do not reside is considered fraud.
Property Flipping: Involves a dishonest seller who artificially inflates the value of a property. This involves fraudulent appraisals, false loan documentation and exaggerated incomes in order to secure loans. The seller inflates the price using a phoney appraisal and arranges for a buyer who can qualify for a large mortgage. Once the mortgage is delivered, the home is sold and another buyer assumes the mortgage. The phoney appraisal remains with the property through multiple transactions, making it difficult to determine the property’s true worth.
The Alberta Mortgage Brokers Association (AMBA) takes mortgage fraud very seriously. AMBA is committed to ensuring its members follow the highest standards of professionalism and the AMBA code of ethics. It is important that you take a proactive approach, as a consumer and a person on the front line, to prevent
yourself from becoming a victim.

Follow the suggestions below the next time you are thinking about investing in real estate.
Invest Wisely
Do your homework! Make sure you are using a licensed mortgage broker who is registered under the Real Estate Act in Alberta. Licensed mortgage brokers are required to conform to a code of conduct enforced by the Real Estate Council of Alberta (RECA). Contact RECA at 403.228.2954 to ensure your broker is licensed. Even better choices are AMBA members, they’re all licensed, because they truly believe in helping their clients and adhere to AMBA’s best business practices.
Before you buy, have a REALTOR® show you the listing history on the property. Check the number of sales, price ranges, and community prices.
Get your own REALTOR® or independent representation for your purchase (if the seller objects, something is wrong).
Make sure your REALTOR® is a licensed associate with RECA.
Ask for a copy of the land title search.
In the offer to purchase, include the option to have the property appraised by a designated or accredited member of the Appraisal Institute of Canada. Who is also authorized by RECA.
Make sure your deposit is being held in a trust account.
AMBA is committed to providing you with helpful information regarding the real estate and mortgage markets.
to learn more about mortgage fraud and the red flags, visit: www.amba.ca and www.servicealberta.gov.ab.ca/895.cfm.

Bank of Canada Maintains Overnite Rate Target at 1%

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 heightened uncertainty around the global economic outlook has decreased in the weeks since the Bank released its January Monetary Policy Report (MPR). With tentative signs of stabilisation in European bank funding and sovereign debt markets, conditions in global financial markets have improved and risk aversion has decreased. However, the global economy is still expected to grow below its trend rate as the deleveraging process in advanced economies proceeds.  The U.S. expansion is proceeding at a modest pace, reinforced by recent improvements in the labour market.  Growth in China is moderating to a still-high rate as expected, in response to past policy tightening and weaker external demand. Commodity prices are higher than anticipated, supported by improved global economic conditions and a geo-political risk premium on oil.  If sustained, the latter could ultimately dampen the improvement in global economic momentum.
Recent developments suggest that the outlook for the Canadian economy is marginally improved from the January MPR.  Although the economy will likely grow faster than forecast in the first quarter due to temporary factors, underlying economic momentum remains around trend, balancing domestic strength and external weakness.  Private demand is now expected to be slightly stronger than projected, owing to improved sentiment and highly-supportive financial conditions.  Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk.  Net exports have been supported by stronger-than-anticipated U.S. activity but are expected to contribute little to growth, reflecting still-moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.
The profile for core and total CPI inflation is somewhat firmer than previously anticipated as a result of reduced economic slack and higher oil prices.  After moderating in the second quarter, total inflation is expected, along with core inflation, to be around 2 per cent over the forecast horizon, reflecting the combination of modest growth of labour compensation, an economy operating around its potential over time, and well-anchored inflation expectations.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.

Information note:

The next scheduled date for announcing the overnight rate target is 17 April 2012. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 18 April 2012.

 \

Canada getting ready to grow

Canada getting ready to grow

Two interesting updates to Canada’s economy show that the country is growing again, with consumer confidence improving. And along with climbing household debt, net worth is also climbing. However, the more interesting stat  we should be looking at is the employment number.

Improving global conditions have resulted in a few economists, including those at Royal Bank of Canada, Toronto-Dominion Bank, UBS Securities Canada and the University of Toronto, to up their economic growth forecasts for this year. These economists see an improvement in consumer confidence as well as a business community ready to grow. According to Statistics Canada’s investment intentions survey, which was released last month, Canadian businesses plan to boost investment by 6.2 per cent to $306.3-billion this year – that investment would be at a record level.

As for net worth climbing, deputy chief economist at BMO Nesbitt Burns Douglas Porter said in an interview with the Globe and Mail that we should perhaps look at the rising-debt-income ratio in new terms. Although that ratio is set to rise even more – from approx. 151% to about 160% -- net worth now stands at 596% of disposable income.

"The most frequent comeback is that the value of assets can come and go,” Porter said. “But debt endures. But even comparing financial assets to household debt still shows Canadian households overall have a big cushion."

At the end of last year, financial assets in Canada were worth $4.3-trillion, or more than 400 per cent of disposable income and subtracting household debt leaves a net financial asset ratio to income of 255 per cent.

With all the good the news about the economy, there is one number to watch – the employment number. An analysis of the U.S. situation shows that one contributor to the mortgage meltdown was the rapid fall of employment. Even in Canada, during recessionary periods, we see the number of foreclosures up and house prices falling. It happened in Calgary in the early 80s and in Ontario in the early 90s.

So what do we know about Canada’s employment?

Well, employment was unchanged in February. Compared with 12 months earlier, employment was up by 121,000. If we couple that with the recent good news about consumer and business confidence, then we can safely assume that employment numbers are going in the right direction – up.

Another report from Statistics Canada said the economy operated at 80.5 per cent of its production capacity in the fourth quarter, up half a point from the third quarter.  This has been rising steadily since the second quarter of 2009.

The capacity utilization rate is one of the key measures used by the Bank of Canada when it sets its interest rates. If the rate is too high, the central bank gets concerned about inflation. However, the rate of 80.5 per cent in the fourth quarter of 2011 was below that of 83.4 per cent recorded in the first quarter of 2007 before the recession.

Bottom line, Canada is poised to grow.

CMHC funding cap means changes coming

Monday, February 27, 2012

The Canada Mortgage and Housing Corporation (CMHC) recently announced that it was within 10% of reaching its mortgage $600 billion funding cap. A number of lenders immediately reacted by restricting or eliminating their Business for Self and Stated Income programs. A few also tightened their guidelines for New to Canada programs. It's not yet known how this will impact the housing market in general but for now, the private-sector mortgage insurers - namely Genworth and Canada Guaranty may get a boost. These two companies have oft-complained that the government has given CMHC an unfair advantage by guaranteeing a larger proportion of its insurance. CMHC's insurance is backed 100% by the government, while private sector mortgage insurance is only 90% backed. "The result of the CMHC announcement means an increased demand for private mortgage insurance," said Andy Charles, president and CEO of Canada Guaranty in an interview with TMG. "We have not yet reached our cap and I assume that the current private mortgage insurers will realize a greater share of the market." In a conference call with the Globe and Mail on Friday, February 3rd, Genworth CEO Brian Hurley brought up CMHC's limit, and said "I just want to clarify that our business has plenty of capacity for 2012 and beyond. There is plenty of runway for both entities in the private sector to grow with multiple years of production opportunity ahead of us." Homebuyers who put down less than 20% are required to pay for mortgage default insurance either through CMHC, Genworth or Canada Guaranty.  However, the banks may also take out mortgage default insurance for borrowers who have down payments greater than 20%. This allows banks to more easily bundle the mortgages and raise money on the capital markets with covered bonds backed by the mortgages. For Sheila Bianchi, a TMG broker working in Nova Scotia, the recent CMHC announcement is not material. "We're just going back to the way we did business 10 years ago," she said. "CMHC's funding cap is a result of bulk insuring conventional mortgages so now clients have to pay. Business for Self and Stated Income programs are being cut back and perhaps in some cases they should." Morgan Vaughn, Lending Solutions Manager for TMG the Mortgage Group Ontario hasn't seen an increase in declines since the CMHC announcement but says there will definitely be changes coming for certain borrowers. "It's interesting that the biggest contribution to CMHC reaching its cap is bulk insurance so that lenders need to have less on reserve" he said. "So what we're starting to see are lenders putting the onus on borrowers to pay the equivalent to the default insurance fee upfront." Vaughn sees two possible scenarios: the government will increase the cap and/or lenders will get rid of their less risky programs such as Stated Income programs. Ottawa did increase its cap in 2008 from $450 billion to $600 billion as the global financial crisis led banks to increase focus on their cash reserves. Vaughn believes it will cost more for certain types of borrowers. "In addition to paying fees, they may be looking at higher down payments and even higher interest rates. Over the last few years at this time we've had changes to mortgage rules and there are more to come," he said. More worrisome for Vaughn is that any more changes to the mortgage rules will slow the housing market, which could mean job losses, which would have an impact on defaults and the economy.  Boris Bozic, president and CEO at Merix Finanacial shares Vaughn's concern about the potential for slowing the housing market and where that could lead. "The government has to look closely at the impact on employment when it decides to tighten the rules," he said. "The housing industry makes a significant contribution to the GDP and to the country's overall economic health. As well, the spinoffs to other industries such as retailers like Home Depot are enormous." Bozic also believes that there are definite changes coming to the way lenders conduct their businesses. "We were all surprised at CMHC's announcement and we have evidence of lenders pulling certain programs but we don't know for how long. Clearly the Stated Income and Business for Self programs will be impacted, and that's interesting because the Business for Self mortgages is one of the safest portfolios." he said. "The government could raise the ceiling - having a sovereign guarantee is nice - however, that raises questions. How much do we want to fund? Do we price the insurance higher? Do we tighten up the rules? We have to be careful because we don't want to slow the market too much." In the short term, the private insurers will start getting more business however Bozic said they also have ceiling issues. "We have to take a closer look at the funding caps and determine if they are appropriate for today's market and if there is a more equitable way of providing capital relief for lenders." Finance Minister Jim Flaherty has not specifically stated that he won't increase the limit, but he has signalled that he wants CMHC to figure out a way to operate within it for now. More study of the impacts of these decisions is what's needed according to Jane Londerville, Associate Professor at the University of Guelph who teaches real estate financing and has written numerous papers on the subject. She is also an advocate for reexamining the role of CMHC. "Instead of making knee-jerk decisions, we need to look at the whole system of mortgage financing and the role of CMHC needs close examination," she said. "Banks are insuring things they aren't required to insure for capital relief. We don't know what the impact will be with any of the changes. If we studied these issues it may be that nothing needs to be changed or that certain areas just need tweaking." Londerville said that these changes in criteria for lending started as a reaction to the U.S. housing crisis. "Our sub-prime market was not the same, so we don't really know if we needed to tighten our criteria at all."

Canadian home sales edge higher in February

Thursday, March 15, 2012

Following is the text of the national resale housing activity from the Canadian Real Estate Association (CREA). According to statistics released today by The Canadian Real Estate Association (CREA), national resale housing activity improved in February 2012 after having declined in January. Highlights: Home sales rose 1.4% from January to February.  Actual (not seasonally adjusted) activity was up 8.6% from February 2011 levels.   The number of newly listed homes climbed 1.9% from January to February. The national sales-to-new listings ratio was little changed, remaining firmly in balanced territory.   The national average home price advanced 2.0% on a year-over- year basis in February. Sales activity recorded through the MLS Systems of Canadian real estate Boards and Associations edged up 1.4 per cent from January to February 2012, recouping one-third of the monthly decline in activity between December 2011 and January 2012. Activity was up on a month-over-month basis in half of all local markets in February, led by Calgary, Toronto, Barrie, Montreal, Quebec City, Saint John, and Halifax-Dartmouth. Actual (not seasonally adjusted) activity was up 8.6 per cent on a year-over-year basis in February. A total of 61,772 homes traded hands in the first two months of 2012, up 6.7 per cent from the same period in 2011. The number of newly listed homes also rebounded 1.9 per cent on a month-over-month basis in February, reaching the highest level since May 2010. A rebound in new listings in Toronto and Montreal, Canada's two most active markets, offset a retreat in new listings in Vancouver, Canada's third largest market. With both sales and new listings having risen, the national sales-to-new listings ratio, a measure of market balance, was little changed in February (53.3 per cent) compared to January (53.6 per cent) and remains firmly in balanced market territory. "The national rise in both sales activity and the number of newly listed homes beyond the normal seasonal increase provides clear evidence that Canadians are confident in housing market prospects," said Gary Morse, CREA's President. "Confidence varies by region, as do prospects for housing demand. For that reason, buyers and sellers should talk to their local REALTOR to understand current and prospective trends in their local housing market." "It is important to remember that MLS home sales and purchases are an significant source of economic activity and job creation. Total consumer spin-off spending resulting from MLS® home sales and purchases will add an estimated $19.4B to the economy, and create over 159,000 jobs in 2012," continued Morse. Based on a sales-to-new listings ratio of between 40 to 60 per cent, 60 per cent of local markets were balanced in February. Compared to the previous month, there were more buyers' markets and fewer sellers' markets. The number of months of inventory stood at 5.9 months at the end of February on a national basis, unchanged from levels reported in January. The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and is another measure of the balance between housing supply and demand. The actual (not seasonally adjusted) national average price for homes sold in February 2012 was $372,763, up two per cent from its reading for the same month last year. "In February 2011, the national average price was stretched upward by a spike in high-end home sales in some of Vancouver's priciest neighbourhoods, and a replay of that was not expected this year," said Gregory Klump, CREA's Chief Economist. "February's data bear this out, but other factors are now keeping the national average price aloft. The main one is the housing market in Toronto, where a tight balance between supply and demand continues to drive some of the strongest home price gains in the country, particularly for single detached properties." There has been a preference in recent months, in Toronto and other markets, for single family homes which are typically more expensive. This trend held in February, putting additional upward pressure on the national average home price. PLEASE NOTE: The information contained in this news release combines both major market and national MLS sales information from the previous month. CREA cautions that average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods or account for price differential between geographic areas. Statistical information contained in this report includes all housing types. MLS is a co-operative marketing system used only by Canada's real estate Boards to ensure maximum exposure of properties listed for sale. The Canadian Real Estate Association (CREA) is one of Canada's largest single-industry trade associations, representing more than 100,000 REALTORS® working through more than 100 real estate Boards and Associations. Further information can be found at http://www.crea.ca/public/news_stats/media.htm.

catch up from other blog.....

****Good Morning Bloggers: for this am, I am grabbing the info I have at www.arianaleroux.blogspot.com as I can not get into that account anymore, so we will be using this blog from now on. Hopefully it does not cause any confusion as I am trying to get google to take down the other blog (which is turning into a huge hassle). ****

 

DID you know that real estate commissions are considered negotiable? ....

Real Estate Commissions

Did you know that real estate commissions are considered negotiable? That being said, there is a standard that many real estate professionals use when it comes to what commissions they require based on the services they offer. The general consensus among Edmonton REALTORS® is based on 7% - 3.5% on the first $100,000 and 1.5% on anything over $100,000 for both the buyers agent and  the sellers agent.
What's All The Buzz About "Flat Fee" MLS® System Services? Some companies have started offering "flat-fee" or low fees for listing services from agents, however, we advise to be weary of these "selling tactics" as in many scenarios a lower commission rate can result in less service from your seller agent. Be careful and read through the fine print - as often times, the savings may cost you in the long run.
What Is Included In The Commission Structure? When the Sherri Naslund team lists your Edmonton Home - we pride ourselves on the service and value we provide to you as our client. We work with you to sell your home in a timely manner, for the best price possible through smart marketing initiatives. We will spend the time and energy needed to showcase your home in the right light to potential home buyer's. By requesting a Free Edmonton Home Evaluation from us, we will visit you in person to discuss the service and commission options available to ensure a great sale.
When Do We Discuss The Fees Involved In Selling My Edmonton Home? Prior to assessing a fair commission structure, my team will want to perform an in-person home evaluation. During the home evaluation, we can take the time needed to assess the services that your home will require to ensure selling success. We will also discuss how hands-on or off you would like to be during the entire selling process. Once we determine the services that you will want included, we can determine a fair commission structure and create a win-win situation for everyone involved.  Remember - there is a fine balance between focusing on service value and price. A lower commission structure - may not always result in a "higher" net rate of return.
Can We Negotiate A Buyer Agent's Commission As Well? Typically this is not recommended. Why? In order to be marketable to other agent's buyer's, it is important to remember that an Agent will always try to steer their client to a home that not only will be what the buyer is looking for, but also one were the agent makes their desired income. Imagine if there are two homes on the same block - with virtually the same features. The only difference is that one house is offering the buyer's agent 2.5% on the first $100,000 and 1% on the remainder versus the other home that is offering the standard. If you were that agent, which one would you try to promote more to your clients?

Click to get access to Realtor Website...
www.sherrinaslund.com

Remax Agent

Housing Starts Moved Higher in March!

Housing starts moved higher in March

OTTAWA, April 8, 2011 — The seasonally adjusted annual rate¹ of housing starts was 188,800 units in March, according to Canada Mortgage and Housing Corporation (CMHC). This is up from 183,700 units in February 2011.

“Housing starts moved higher in March mostly because of increases in rural starts,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “Urban starts saw little change as the increase in Ontario’s multiples segment was off-set by a decrease in British Columbia’s multiples and a decrease in single housing starts in the Prairies.”

The seasonally adjusted annual rate of urban starts increased by 0.4 per cent to 163,500 units in March. Urban multiple starts were up by 6.6 per cent in March to 101,400 units, while single urban starts decreased by 8.3 per cent to 62,100 units.

March’s seasonally adjusted annual rate of urban starts decreased by 23.4 per cent in British Columbia and by 19.3 per cent in the Prairies. Urban starts increased by 13.6 per cent in Ontario, by 11.5 per cent in the Atlantic region and by 8.6 per cent in Québec.

Rural starts² were estimated at a seasonally adjusted annual rate of 25,300 units in March.

As Canada's national housing agency, CMHC draws on more than 65 years of experience to help Canadians access a variety of high quality, environmentally sustainable and affordable homes. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making informed decisions.

5N Plus completes acquisition of MCP Group in $317-million cash and stock deal

MONTREAL - 5N Plus Inc. (TSXV:NP) completes acquisition of MCP Group SA, world's leading producer and distributor of bismuth and bismuth chemicals in $317-million cash and stock deal; also completes bought-deal public offering of some 13.6 million common shares at $9.20 per share for total proceeds of $125 million.

More...

Tembec to build $8.4 million pilot plant for

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Copyright © 2010 JAC News Corp. All rights reserved.

CONTACT EDITOR

Sunday, April 10, 2011

Still have some 35 and 40 year amortizations!

Yep, that is right! Some lenders for conventional mortgages, so 80% loan to value or less, are offering the higher amortizations! Some with out an appraisal cost as well. This is good news for some first time home buyers with cash to put down, but they would prefer lower payments, or maybe this is an investment property for a seasoned buyer that would want to take advantage of the lower payments!
For the insured mortgages, the 30 year amortization is now the norm... but having this option if you want to have more down, or have more equity,  is a nice silver lining that is staying around I think for awhile. With rates going up again and the housing marked really picking up steam, options are always a good thing!

1st Time buyers contribute to strong upward momentum in residential housing markets

Driven by the threat of higher interest rates down the road, first-time buyers are contributing to strong upward momentum in residential housing markets across the country, according to a report released yesterday by RE/MAX.

The RE/MAX First-Time Buyers Report, highlighting trends and developments in 19 major Canadian centres, found that low interest rates and balanced market conditions have provided significant impetus in 2011, particularly at lower price points.

Just over 30% of markets are reporting sales in excess of 2010 levels as a result, while almost 70% have experienced an upswing in average price.

Leading the country in terms of percentage increases in the number of homes sold are Western Canadian markets, including Saskatoon (up close to 15%), Greater Vancouver (up close to 12%), and Winnipeg (up just over 11%). With an average price hike of close to 20% year-to-date (February), Greater Vancouver continues to show unprecedented strength, followed by Hamilton-Burlington (8%), Quebec City (7%), Winnipeg (close to 7%), Greater Toronto (5%), and Greater Montreal (5%).

Click this link to see Remax article and video
http://www.remax-oa.com/media-newsroom/article/65/

Difference between debt in Canadian and the US

Last week CIBC Chief Economist Ben Tal appeared on BNN discussing the quality of Canadian debt and the difference between debt in the Canada and the US.

Click here to watch the BNN link: 
http://watch.bnn.ca/#clip441031

IRD PENALITY COMPARISON RATES

IRD Penalty Comparison Rates

The much-unloved Interest rate differential (IRD) penalty is a mystery to most of the natural born population.
People loathe it, largely because they don’t understand it. We continually come across folks who read their entire mortgage contract and are still confused by the IRD calculation.
Fortunately, federal disclosure guidelines are on their way later this year. These guidelines are supposed to standardize the explanations of IRD penalties to make them more comprehensible.
There is one element of the IRD calculation, in particular, that gets people all tied in knots. It’s called the “comparison rate.”

Here’s a real-life example of how the comparison rate can spoil your day:  Customer fee to pay out mortgage doubles (CBC News).
The story features a regular guy (Mohsen Movahed) who learned how to calculate an IRD penalty…the hard way.
It seems Movahed relied on a penalty quote, only to find some months later that his penalty had doubled.
The culprit, says his bank, was the comparison rate used in the IRD calculation.
A comparison rate is the rate a lender compares to your current contract rate in order to calculate the IRD penalty on a fixed-rate mortgage.
The comparison rate is usually the lender’s rate for the term that most closely matches your remaining term.
For example, if you have 22 months remaining on your fixed mortgage, a lender will typically (there are exceptions) use a 2-year term as your comparison rate.

The kicker is that banks often subtract the discount you received at origination from their posted (comparison) rate—which makes the interest rate differential and penalty even worse!
Some lenders use bond yields for their comparison rates (example). This method can sometimes be far more costly depending on yields and mortgage spreads.
Conversely, some non-bank lenders use regular discounted rates for their IRD calculations, which can be more favourable for the customer.

In any case, Mr. Movahed discovered that the comparison rate can drop considerably as time goes by. That drop can boost the interest rate differential and cost you thousands more.
As a sample test, we ran a quick penalty calculation for breaking a hypothetical $250,000 mortgage. Our example was based on actual historical and current bank rates. It assumed the customer had about 2.5 years remaining on their term and had received a 1.50% discount off posted rates.
Depending on the effective date of the penalty calculation, a bank could quote the penalty based on either a 2-year or 3-year comparison rate. That’s relevant because the penalty difference between these two comparison rates (as of today March 24, 2011) is more than $3,700!
In other words, if our hypothetical customer waited until she had slightly less than 2.5 years remaining in her term, the bank could apply the lower 2-year comparison rate (instead of a 3-year) and her penalty would increase 28%.  (A lower comparison rate makes the IRD bigger.)
The moral is that timing matters when calculating an IRD penalty. A good mortgage advisor can help you plan properly to minimize the IRD, if and when you have to pay it.

---

Rob McLister, CMT

Posted by Ariana- Licensed Mortgage Professional at 9:46 PM 0 comments