Archive for July 2010

Governor Mark Carney hiked the Bank of Canada Overnight Rate by 25 basis points to .75% this morning but said the growth outlook is weaker than originally forecast. The debt crisis in Europe and slow recovery in the US will both affect Canadian economic growth for the balance of the year.

Economic activity in Canada is unfolding largely as expected, led by government and consumer spending. Housing activity is declining markedly from high levels, consistent with the Bank’s view that policy stimulus resulted in household expenditures being brought forward into late 2009 and early 2010. While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession.

The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.

Inflation in Canada has been broadly in line with the Bank’s April projection. While the Bank now expects the economy to return to full capacity at the end of 2011, two quarters later than had been anticipated in April, the underlying dynamics for inflation are little changed. Both total CPI and core inflation are expected to remain near 2 per cent throughout the projection period. The Bank will look through the transitory effects on inflation of changes to provincial indirect taxes.

Reflecting all of these factors, the Bank has decided to raise the target for the overnight rate to 3/4 per cent. This decision leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.

The Bank of Canada may pause on its rate increases to assess the effects of the 2 increases already implemented before announcing any further rate increases.

After years of paying down your mortgage, you’ve built up a significant amount of equity in your home. Instead of using costly credit cards or high-interest bank lines of credit, you can use that equity to your advantage with a home equity loan or line of credit. And, you’ll save a considerable amount of money in the process.

 Home equity loan: This is a traditional loan in which a borrower uses built-up home equity as collateral. Following approval, the homeowner receives a lump-sum payment and makes fixed monthly payments over a predetermined period of time.

 Home equity line of credit (HELOC): Like a line of credit, homeowners can draw funds as needed, up to a set limit. Once funds are drawn, the borrower must pay a minimum monthly payment and can repay the entire amount owing at any time. Unlike a traditional home equity loan, interest is only paid on funds that have already been withdrawn.

 Two major uses of home equity-related financing are home renovations and debt consolidation. Renovations that can potentially boost the value of a home can offset the up-front borrowing costs. Similarly, using home equity to shift debt from high-interest credit cards to a much lower-interest loan can significantly reduce interest payouts and improve overall cash flow.

 As with all forms of debt, however, homeowners should always borrow conservatively by staying well within their overall debt limits and should always try to pay more than the minimum payment to maximize credit ratings and reduce long-term interest payments.

 A mortgage professional can review your home equity options and compare this borrowing method to other financing alternatives.

For more information, contact me today!