Archive for the ‘Mortgage Information’ Category

In the midst of the worst financial crisis since the Great Depression, Canada has joined the ranks of governments that in recent weeks stepped up to help banks cope with more fallout from bad U.S. subprime mortgages. In Canada’s case, however, the reason for the assistance is a little different from some of its G-7 partners. Unlike banks in the U.S., Britain and Germany, which needed to be bailed out with hundreds of billions of dollars in new capital, Canada’s major banks are solid and solvent. They don’t need any help to work through their subprime exposure.

So why did Ottawa agree to insure the money they routinely borrow from other banks, a practice that keeps their credit operations liquid? Ironically, the troubled non-Canadian institutions that received capital injections and loan guarantees in other countries now carry a government seal of approval that tilts the playing field in their favor when it comes to borrowing. That leaves Canada’s big banks, including Scotiabank, TD Bank Financial Group, RBC Royal Bank and CIBC, at a competitive disadvantage. So the government acted to level the field, not to aid troubled banks.

Why has Canada withstood the subprime tornado better than other countries, and should the Canadian banking system be a model for G-7 and G-20 leaders when they gather in Washington on Nov. 15? Consider that the Geneva-based World Economic Forum, an influential think tank whose annual conference attracts the likes of Bill Gates and Tony Blair, earlier this month ranked Canada’s banking system as the soundest in the world. The U.S. came in at No. 40, and Germany and Britain ranked 39 and 44, respectively. (Switzerland was No. 16, just ahead of Namibia.) “For Canadian banks, having higher capital ratios than anyone else in the world is a source of pride,” says analyst Mario Mendonca with Toronto-based investment bank Genuity Capital Markets.

The average capital reserves for Canada’s Big Six banks — defined as Tier 1 capital (common shares, retained earnings and non-cumulative preferred shares) to risk-adjusted assets — is 9.8%, several percentage points above the 7% required by Canada’s federal bank regulator. That’s a little better than major U.S. commercial banks like Bank of America, but significantly higher than an average capital ratio of about 4% for U.S. investment banks and 3.3% for European commercial banks.

Another factor that helped make Canada the new gold standard in banking was Ottawa’s decision in the late 1980s to allow commercials banks to acquire investment dealers on Toronto’s Bay Street, the country’s financial hub. As a result, these institutions are subject to the same strict rules as commercial banks, while U.S. investment dealers are subject to only light supervision from the Securities and Exchange Commission. Morgan Stanley and Goldman Sachs, of course, will now be under the U.S. Federal Reserve’s supervision since they have been chartered as bank-holding companies.

Canada’s banks make bad investments on occasion. When Toronto-based CIBC, Canada’s most aggressive big bank, took $3.5 billion in charges against the U.S. subprime debacle, federal regulators quickly arrived on the scene. But here’s the difference: CIBC ended up selling $2.94 billion worth of its own shares in the first quarter of this year to shore up capital reserves. “The relationship between government and banks is a positive one,” says Minister of Finance Jim Flaherty. “We have a lot of discussions and regular meetings. The common goal is a sound financial system.”

There is, of course, a flip side to Canada’s regulatory system. When the global economy was flying high, Canadian banks complained about not being allowed to merge to become more significant international players. “In hindsight, that decision may have saved Canada from having a Royal Bank of Scotland on its hands,” says Lawrence Booth, a finance specialist at the University of Toronto’s Rotman School of Management, referring to the overly ambitious bank’s bailout earlier this month by the British government.

Says FFlaherty: “The credit crisis we’re facing is the result of unbridled greed. We need to bridle greed.” Perhaps when world leaders sit down in Washington to forge a 21st-century New Deal for the global financial system, it may have more than a smattering of Canadian banking know-how.

MBN Mortgage

TIME

Monday November 10, 2008

There is a new normal in the Canadian Mortgage Market.  The old normal was discounted Prime Rates on variable mortgages, and fixed rates more representative of the bond yield. 

Welcome to the “now” …

Last week, CIBC Senior Economist Benjamin Tal said “it will be a while before we see a variable rate discount again…the new normal will be Prime or Prime minus 0.25%”.  This is our reality.

What are rates going to look like in the future?  It’s a question we as Mortgage Specialists are being asked frequently.  All anyone can provide is an educated guess because the mortgage market is changing daily as is the consumer reaction to this news, and ultimately, the government’s reaction.

Most analysts believe that rates should be decreasing, for the short term, some of their commentary being:

“Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half of 2009.”  CMHC

“Some further monetary stimulus (i.e. rate cuts) will likely be required to achieve the 2% inflation target over the medium term.” Bank of Canada

“Credit market traders are pricing in a 100% chance of a 1/4% cut and a 53% chance of a 1/2% cut by year-end. “  CEP

Why are rates coming down?  One reason, according to TD economist Pascal Gauthier, is because the U.S. economy may “record its worst performance in decades, retreating by around 3% in Q4, with the Canadian economy mirroring this performance with a 2.5-3.0% decline, the worst since 1991.”  Moreover, the Bank of Canada’s worst enemy, inflation, is currently no longer a clear and present danger to our economy.

What does this mean for you as a home-buyer? 

If you currently have a variable rate mortgage at Prime Minus, then your monthly mortgage payment amounts should have decreased dramatically due to the large lowering of Prime Rate.  You are in great shape.

If you are a in the process of purchasing a home now, variable rates are typically at Prime Plus One, which is on the high side compared with what we have seen in the past 6 months or so.  Depending on your preference, a variable rate mortgage still offers a lower rate than the current fixed rates being offered.

If you’re in the market for a new mortgage, contact your Calgary and Southern Alberta MBN Mortgage Specialist and we can help you examine your options and arrive at a strategy best suited to your needs.  Good advice in markets like these is imperative when making a choice on rate, term, type of mortgage, and amortization.

MBN Mortgage

Mortgage Trends

The Honourable Jim Flaherty, Minister of Finance, made the following statement: 

“This morning, Statistics Canada reported that real gross domestic product was up slightly in the second quarter.  As expected, the pace of economic activity remains weak as a result of the U.S. slowdown and its impact on our export sector.  For 2008 as a whole, I expect real GDP to increase by about 1 per cent”. 

He went on to say that the expected “growth in income and employment in the second quarter should help support economic activity going forward” thereby putting Canada in a better position that most other countries to withstand the economic uncertainty that we are all affected by.  “Canada’s economic fundamentals remain solid:

·         Our unemployment rate remains near a 33-year low;

·         Our budget is balanced and in fact there was a budgetary surplus of $1.7 billion in the month of June;

·         In addition, real income has increased by more than 4 per cent at an annual rate over the first half of this year. This is income available to Canadians for consumption or investment;

·         Canada’s household, business and financial sectors are strong;

·         Canada’s housing market is sound and interest rates are low; and

·         Core inflation is low and stable.

In addition, the “Actions taken by our government since 2006 will provide $21 billion in incremental tax relief—equivalent to 1.4 per cent of GDP—to Canadians and Canadian businesses this year alone, when it is needed most. This is a permanent structural tax change, unlike the temporary measures in the United States.” 

Canada is well ahead of the game and has implemented strategies to circumvent the fallout of this global financial uncertainty, “in fact, federal personal income tax refunds this year were almost $200 or 14 per cent higher than last year thanks to our tax relief measures. In addition to the stimulus provided by the reductions in personal income tax and business taxes, we have other advantages with respect to the planned business tax reductions through 2012,” which again re-confirms Canada’s financial stability.

This is not to say that we are completely unaffected as “we are facing some significant economic challenges. Canadians understand that Canada is not an island. This is a global phenomenon. The global economy overall is slowing” and “we are feeling the impact of global economic factors—including a struggling U.S. economy, and of course the U.S. is our largest trading partner.”  In saying this, “we recognize that the key to a stronger economy is creating an environment that encourages investment and spurs further job creation” which is why “we have made permanent broad-based tax reductions” and is also why we are investing in priorities: in post-secondary education, infrastructure and worker retraining” and “creating centres of excellence in science and technology.” 

Canada is being responsible and is taking the necessary courses of action by implementing long term strategies to improve competitiveness and productivity and this will ultimately have a positive impact on Canadians and the Canadian economy.

MBN Mortgage

Mortgage Intelligence Inc.

ENTERING THE HOUSING MARKET… OPPORTUNITES YOU MAY NOT BE AWARE OF

With the extensive Economic changes the Unites States is enduring right now, many House Insurers and Lenders have tightened their belts and either modified or completely removed some of their products that were once available to homebuyers.

Government-backed insurers, CMHC and Genworth, have both recalled their 40 year Amortization and Zero Down Mortgage Products, effective October 15, 2008 and many Lending Institutions have already implemented these guidelines despite the fact that these changes have not yet become mandatory.

So where does this leave you as a Home Buyer?

Your Mortgage Professional can not only help you understand the multitude of options available to you, but can also introduce you to alternate lenders that you may not presently be aware of.  Typically these non-confirming or self-insured lenders offer their products almost exclusively through Mortgage Brokers which means that a large number of Canadians have not been informed of the flexible policies they offer which have ultimately made home-ownership for thousands of Canadians a reality. 

By allowing Consumers to take on higher debt loads, extending amortizations, and enabling flexibility with income requirements, these Lenders provide Canadians with the opportunity to enter the housing market.  While these relaxed policies and innovative products offered are fantastic, they often times come with a slightly higher interest rate or less desirable terms.  Lenders base their rates and fees on the perceived risk of not only the borrower (including a client’s credit history, size of down payment, and source of income) but also the property being purchased.  After evaluating the borrower and the property, a lender will determine this perceived risk and apply the terms of the mortgage and applicable interest rates and fees accordingly.

One cannot lose sight of the end goal and ultimate achievement though when looking at the terms and rates being offered.  To enter the market using an alternative lender does not mean you have to remain in the market under those terms for the entirety of your homeownership lifetime.  Often times your Mortgage Professional will provide you with a temporary short term solution that will provide you the opportunity to purchase a home and enter the market.  However, during the term of your mortgage, your Mortgage Professional will work with you to mitigate the concerns a typical big bank might have when considering providing you financing and will guide you on ways to improve your qualifying ability with a typical lender or banking institution.  For example, often times cleaning up your credit and decreasing your debt loads will make a significant difference.

It is important to examine your local market as well – House prices have increased across Alberta at unprecedented rates and consumers are actively searching for a way to take part in the wealth that is created by these increases.  While it may only be possible for a consumer to enter the market under a Zero Down, 40 year Amortization Product, the increase in the value of their purchase over the term of their mortgage might more than make up for the higher rates required to initially complete that purchase.  This increase in value is a huge advantage to individuals once they are in the market as lenders consider this equity a down payment when refinancing or negotiating the terms of your mortgage.

Perhaps your only option today is a “no money down” option but upon the maturity of your mortgage term the equity in your property may help you negotiate a better mortgage.  The larger your down payment or equity position, when applying for a new mortgage, the less perceived risk there is by a lender and ultimately the terms of the mortgage being offered to you should be more favorable. 

There are many options available to you, and numerous mortgage  products that will enable you to enter the housing market.  Work with your Mortgage Specialist and follow their guidance to improve your negotiating position and ultimately, form a partnership with them to not only achieve your Home Ownership goals but to continually improve the terms of your mortgage.

Whether you and your mortgage specialist choose to use a Big Bank or a Non-Confirming Lender, becoming a homeowner is a great step in the right direction for your financial future.

When you signed your mortgage a few years back, you were thrilled with the rate you had negotiated: possibly the lowest in your home-owning memory. That was then. Who would have believed that mortgage rates would have continued that marvelous downward trend? Today, mortgage shoppers are looking at some of the lowest rates in history, and many homeowners with existing fixed-term mortgages are experiencing some “rate envy” about today’s rockbottom mortgage rates.

It might be worth a conversation about your options. Typically, we think of a fixed term mortgage as a non-negotiable contract. And it’s true that there are financial penalties to re-negotiate. But, many homeowners have been asking mortgage brokers for a mortgage analysis – a detailed look at the penalties versus the payoffs — to determine whether it’s worth refinancing. Like many Canadian homeowners, you may find that refinancing makes sense.

There are two approaches to refinancing: you can simply pay out the penalty on your existing mortgage and start fresh with a new mortgage, or you can opt for what is termed a “blend and extend.” Firstly, understand that you won’t reap immediate rewards when you refinance; it will take time to see the savings, since you’ll have some up-front penalties. So if you’re going to be selling the home in the next year, you’re unlikely to benefit from refinancing now, but as with anything in mortgages, it depends on your specific needs and situation.

Your mortgage broker can help you to assess your “payback” period: the length of time required to see any savings, based on the penalties you will incur and the difference between your existing rate and your new one.

Speaking of penalties, what does it cost to get out of your existing mortgage? Generally, you can expect to pay out the greater of either a) three months’ interest, or b) the interest-rate differential. The interest rate differential can be high; in effect, your mortgage lender will expect you to pay them the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates. If you are close to the end of your mortgage, these penalties may not be too severe, but if you are early in your mortgage arrangement, the cost can add up. Don’t be put off by what looks like a big penalty: it’s only one factor in your analysis.

So is it worth it? Only your mortgage professional can tell you for sure, but many homeowners are experiencing significant savings – even with rate differentials of two points (or possibly more). Begin with a visit to a mortgage broker, who has access to rate information from a broad selection of lending institutions – and who can provide you withthe kind of detailed analysis you’ll need to assess your options.