Wednesday, October 29, 2008

22% of Canadians intend to purchase a home in the next 2 years

Here's some relatively positive news to contrast against that last posting ... 22% of Canadians intend to purchase a home in the next two years (flat year over year) and renovation intentions are slightly higher than last year at 70%

RBC survey finds homebuying intentions hold steady
Renovation intentions are also up slightly

TORONTO, Oct. 29

A new RBC study conducted during the market turmoil in October finds overall intentions to purchase a home in the next two years remain steady at 22% and have not changed since January 2008. As well, renovation intentions are slightly higher than last year - up four percentage points as 70% of respondents are planning to renovate or make home improvements in the next two years.

"Despite recent economic events, we've noted that Canadians still believe a home is a good investment and many are continuing with their home improvement plans," remarked Catherine Adams, RBC Royal Bank's vice-president, Home Equity Financing.

According to RBC's 5th Annual Renovation Survey, given the choice, most Canadian homeowners would opt for hammers and paint brushes, rather than packing tape and cardboard boxes. Seventy five per cent of Canadian homeowners say that, if their home needed major renovations, they would rather renovate,than sell and move.

While the majority of Canadians (55 per cent) would definitely continue to renovate even if housing prices were to drop, they appear to be a little more hesitant than they were in 2007 (66 per cent). Many Canadians seem to be choosing to renovate rather than relocate, noted Adams.

Renovation Budgets

Most Canadians planning renovations will spend less than$50,000 and indicate they plan to spend $10,801 on average - up about 10 per cent from $9,850 in 2007.

The RBC survey also showed that 63 per cent of homeowners have renovated in the past two years and more are establishing a realistic reno budget. Seven-in-ten had a budget and half (53%) stuck to it. Even those renovators that did go over budget have pulled back significantly. The average budget excess was 24% in 2008 compared to 74% overage in 2007 and 88 per cent in 2006.

To finance their reno expenditures, Canadians will be less likely to tap into cash or savings than they have in the past (47% in 2008, 51% in 2007 and 69% in 2004). Only 28% would consider using the equity in their home, down from 41% who said they would consider it in 2007. More men (32%) than women (24%)would consider borrowing against home equity for their renovation - the lowest cost of all the borrowing options.

"When people are looking for a mortgage they're usually very cost sensitive, and they seek advice about the best possible rate and product combination. We don't always see those same savvy cost comparisons for home renovations, even though many involve sizable expenses," added Adams.

When it comes to top mistakes or renovation disasters, Canadians who have completed a renovation in the past two years, blame going over budget (26 percent); using the wrong contractor or trades people (14 per cent); choosing the wrong products (12 per cent) and doing it myself (11 per cent).

Renovations by the Numbers - Intentions among Regions

Average Spend
BC 69% (down from 70%) $10,064
Alberta 74% (up from 69%) $12,422
Sask/Man 71% (down from 75%) $ 9,742
Ontario 71% (up from 66%) $12,305
Quebec 67% (up from 64%) $ 8,463
Atlantic 73% (up from 67%) $10,042

Renovate or Sell/Move

Region Renovate Sell
BC 75% 19%
Alberta 71% 23%
Sask/Man 75% 17%
Ontario 75% 19%
Quebec 74% 17%
Atlantic 78% 15%

By Age:

18 to 34 - 70% would renovate instead of sell (down from 75%)
35 to 54 - 78% would renovate, not sell (up from 75%)
55 + - 76% would opt for renovations (up from 58%)

These are some of the findings of two RBC polls conducted by Ipsos Reid. The online surveys are based on nationally balanced samples and were weighted according to 2006 Census Data.

The poll conducted between October 9 and 13 included 1,474 Canadians. A random, representative sample of this size would yield results considered accurate to within +/-2.6 percentage points, 19 times out of 20, of what they would have been had the entire adult Canadian population been polled.

The second poll conducted between August 13 and 18, 2008 dealing with renovation intentions included 3,733 Canadian homeowners. A random, representative sample of this size, would yield results considered accurate to within +/-1.6 percentage points, 19 times out of 20, of what they would have been had the entire adult Canadian population been polled.

For full tabular results, please see the Ipsos Reid website at

Downloadable graphics also available at

Monday, October 27, 2008

Real Estate Industry braces for downturn

Globe and Mail October 27, 2008

Tough times lie ahead for Canada's residential real estate market next year, with a brighter picture for 2010, industry officials predicted Monday.

A crowd of more than 1,000 real estate agents and brokers gathered at the Toronto Real Estate Board's (TREB) annual general meeting Monday for a pep talk aimed at worried salespeople, many of whom have yet to live through a downturn.

As things get rocky, agents will drop out, brokerages consolidate and cut costs, and everyone will have to make better use of technology, a panel of eight Canadian real estate company representatives said at the event.

Serious agents who stick out the downturn will have the opportunity to shine, they added, although their optimism appeared lost on some participants.

"They're basically saying that next year is a write-off," one audience member said to colleagues at her table.

The downturn may have a silver lining, causing the industry to "raise the bar" on customer service, said panelist Michael Polzler, regional director at Re/Max.

"There are far too many agents out there who don't specialize, who do just two or three deals a year. Would you use a part-time lawyer or a part-time dentist? We need to raise the bar," Mr. Polzler said.

The average number of housing units sold per agent each year in Canada is just 5.7, reflecting the number of part-timers in the industry, said Phil Soper, chief executive officer of Royal LePage Real Estate Services Inc.

There were 95,000 real estate agents in Canada last year, up from 77,000 in 1987, Mr. Soper said. During that time annual industry revenue rose from $30-billion to $160-billion, he added.

In a downturn, part-timers unwilling to pay fees to brokerages and industry associations are usually first to head for the exits, panelists said.

However, not all of them will be reflected in the numbers when it does happen, since many will "park" their licenses with a broker for a relatively small fee, then come back in a few years when things pick up, said Andrew Cimerman, chief executive officer of HomeLife RealtyServices Inc.

As the real estate pie shrinks over the next year, agents and brokers must listen to customers and become consultants rather than marketers,said panelists Gary Hockey, president of Coldwell Banker Canada, and Kimberly Fleming, regional director at Prudential Real Estate Affiliates.

The meeting came on the heels of a mid-month report from TREB showing sales for the first half of October in the greater Toronto area plummeting 21 per cent from a year ago, and the average resale homeprice dropping by 15 per cent.

Sales and prices in other markets across the country, including Vancouver and Calgary, have also slumped. Depending on the region, the downturns have been blamed on lack of affordability, the economy and taxes.

The negative effect of a land transfer tax, which came into effect in February, will be reflected in Toronto's sales numbers for October,which are due out next week, said TREB spokesman Von Palmer.

In Vancouver, agents with more experience are being asked to mentor those who haven't gone through a downturn before, said Dave Watt, president of the Real Estate Board of Greater Vancouver, in a telephone interview.

"We're also telling our members ... we're well funded. Our biggest concern is that for the 90 per cent of our members that will remain in the business ... all of our services and the products they rely on ....will not be pulled back," Mr. Watt said.

Some other words of advice from the panel included "not reading the papers or watching television," with media headlines being blamed for some of the fear hanging over the housing market.

"This is not the time to panic with the rest of the population," said Stephen Wong, chairman of Living Realty Inc.

Salespeople were also told to "flock to quality" in tough times, and to deal only with qualified buyers whose financing is in place and with sellers who are willing to list their properties appropriately.

In addition to preparing their clients for lower sale prices and longer listing times, real estate agents must also change their own views about how much money they will make next year, the panelists added.

Agents have to stop marketing themselves and become consultants armed with useful data for their clients, Ms. Fleming said.

The U.S. now has sales teams which includes specialists in areas including technology, contracts and client meetings, and Canada may soon follow suit, Ms. Fleming added.

The real estate industry has been slow to adopt new technologies, and use of social networking web sites such as Facebook could help agents appeal to first-time buyers, she added.

The industry is scrambling to adapt to a market that has changed more quickly in the past six weeks than he's ever seen before, said Howard Drukarsh, vice-president at Right at Home Realty Inc.

"It's almost like someone put the pause button on, and realtors and consumers are all asking 'What's next?,'" he said, before offering some encouraging words to the crowd.

"This is a great time to build market share because people will be dropping out," Mr. Drukarsh said.

Friday, October 24, 2008

100% financing is STILL available in Canada - here's how

As of October 16, 2008, the 100% financing and 40 year amortization options were no longer available to customers seeking an insured mortgage as announced by the federal government during the summer. CMHC and GENWORTH cancelled these programs and lenders dropped them (starting well in advance of the deadline) from their product lines.

RMA-Spencer Group Mortgages realizes that some of you may need these features to get through a temporary life event that has limited your financing options. Job loss, income interruption due to maternity leave, illness and bankruptcy or other credit problems are all examples of short-term problems that we can help you overcome.

RMA-Spencer Group Mortgages is happy to announce their clients still have access to one of the few remaining lenders offering these products.

Let RMA-Spencer Group Mortgages help keep all your alternatives for mortgage financing options open. As a reminder, we still offer:

- 100% advance with minimum beacon score requirement *
- up to 40 year amortization with no added *
- financing for beacon scores as low as 540 *
- liberal property guidelines *
- various "Business-For-Self" programs *

Whether you are seeking to purchase, or refinance, contact RMA-Spencer Group Mortgages and let them help secure the financing you need.

To find out more about these programs and how they might benefit you, email or visit RMA-Spencer Group Mortgages on the web.

*Lender qualifications required - offers available on approved credit, programs subject to change or cancellation without notice

"Modest" lessening of credit tightness seen: Flaherty

Courtesy CBC News

The measures are aimed at helping Canadian banks weather the storm during the global financial crisis sparked by the collapse of the credit market in the United States. Flaherty noted that some "modest" lessening of the tightness in the world's credit markets has been seen this week.

"By having the guarantees in place, it means that the costs of funds between banks is under control again, and, therefore, the banks are able to pass the benefit on to us, as borrowers," Glen Hodgson, chief economist with the Conference Board of Canada, told CBC News.

Flaherty insisted Canada's financial institutions are healthy, pointing out again that the country's banking requirements are stringent.

"The government of Canada will never allow Canada's financial system, which has been ranked as the soundest in the world, to be put at risk by global events," he said.

Earlier this month, Flaherty announced the government's $25-billion takeover of bank-held mortgages to ease a growing credit crunch and free up money for financial institutions to lend to Canadians.

Finance MInister announces borrowing assistance for Canadian Banks

Courtesy CBC News

The federal government will provide a "backstop" to the country's banks, offering insurance on their wholesale term borrowing, Finance Minister Jim Flaherty said Thursday.

Flaherty said in Ottawa that the government is making the guarantee available so the country's banks aren't put at a competitive disadvantage amid the global credit squeeze. By doing so, Canada is following similar steps already taken by more than a dozen countries, including the U.S., the U.K., Australia, Spain, Ireland, Germany and Sweden.

"Our actions will help Canadian financial institutions secure access to longer-term funds so that they can continue lending to consumers, homebuyers and businesses in Canada," Flaherty said.

Flaherty said the insurance will be offered to federally regulated deposit-taking institutions on commercial terms, with no expected cost to taxpayers.

He told reporters that the program is only temporary, lasting from November to April. He said it will be up to the financial institutions to decide if they want to pay the premium to insure their debt.

Tuesday, October 21, 2008

Bank of Canada Announces ,25% rate cut

The Bank of Canada announced Tuesday a cut in its key interest rate by a quarter of a percentage point, attempting to give the Canadian economy a boost in the face of what the central bank has labelled a global recession. More to come later in the day as the institutional lenders react.

Friday, October 17, 2008

Banks sell $5-billion of mortgages

BOYD ERMAN Globe and Mail Update October 16, 2008

Canadian banks sold $5-billion of mortgages to Canada Mortgage and Housing Corp. at a price that indicates the government will indeed make a big profit on its program to help banks jump-start lending.

CMHC will earn an average yield of 4.24 per cent on the mortgages it bought from banks Thursday. At the same time, the government sold $3-billion of five-year bonds to finance the purchase at a yield of 3.24per cent. The 1 percentage point spread means the government will make $50-million a year in profit from the interest-rate differential on this batch of loans.

The federal government designed the program to help banks raise money for new loans, by taking old home loans off the balance sheet. The government plans more purchases totalling $20-billion, though many bankers would like Ottawa to ratchet up the program.

The loans the federal government is purchasing are insured, meaning the government shouldn't be putting taxpayer money at risk.

For the banks, getting funds at an interest rate of 4.24 per cent will be a big relief, given that interest rates from other methods of raising money are much higher in the credit squeeze.

Wednesday, October 15, 2008

Pay down your mortgage or contribute to your RSP ?

It's never the wrong time to be thinking RSP contribution and of course it's never the wrong time to be thinking about paying down your mortgage either .... so, since we're all fed up with the recent doom and gloom in the press about the stock market melt-down, elections on both sides of the border, the global financial crisis etc I thought a little change of subject would be in order.

The age old question ... paydown my mortgage or put extra contributions into my RSP ?

This dilemma never seems to go away for those thinking of getting ahead with their finances.

Well, there is no correct answer other than "do both".

Contribute all year to your RSP through regular deposits. This eases the process so that you aren't scrounging or worse yet, borrowing money at the last minute to make your RSP contribution by the deadline.

Also, if you are contributing regularly and purchasing units of a mutual fund, you can take advantage of dollar cost averaging in your registered investments. If your employer has a matching program then by all means take advantage. The contribution comes right off your paycheque so you don't even miss it after a while and your employer may match a portion of your investment which means you automatically make a return on your contributions.

When the refund comes don't fall into the temptation of taking a quick trip to Las Vegas .... put the money down as a prepayment on your mortgage which will save you interest costs in the long run.

Even if your refund is only $1,000.00 that is $1,000.00 you do not have to pay interest on and since your principal balance is reduced, there is less money from every payment going towards interest and more going to principal.

Think of your mortgage prepayment as an investment. You're investing that $1,000.00 and saving interest on it rather than paying interest on it over the rest of the term of your mortgage.

Friday, October 10, 2008

Ottawa buying up $25-billion in mortgage pools

SHAWN MCCARTHY Globe and Mail October 10, 2008 at 8:30 AM EDT OTTAWA

Ottawa is buying $25-billion in insured mortgage pools, Finance Minister Jim Flaherty announced Friday.
"This is going to make loans and mortgages more available and more affordable for ordinary Canadians and businesses," Mr. Flaherty said at a morning news conference in Ottawa.
The federal government's move is designed to backstop Canadian banks'capacity to lend money - an acknowledgment that not even the country's strong system is immune to the global financial crisis.
Mr. Flaherty is to travel to Washington to attend a meeting with the finance ministers from the Group of Seven rich industrialized countries,as they look for ways to solve the global financial crisis.
Mr. Flaherty stressed that the move is not a bailout of Canadians banks,which have been judged by the World Economic Forum to be the most sound of any G7 country.
"It is important to underline that Canada's banks and other financial institutions are sound, well capitalized and less leveraged than their international peers," he said.
Asked how many Canadian banks are at risk of failure, he said: "None."
At the end of last year, Canadians had $773-billion worth of mortgages outstanding.
Ottawa maintained that the plan will not cost taxpayers any money because the loans were already insured by Canada Mortgage and Housing Corp. The government will be earning an unspecified rate of return on the mortgages.
The move comes as Statistics Canada announced the economy created an unexpected 107,000 jobs in September - and briefly blasted the Canadian dollar up by nearly half a cent against its U.S. counterpart. The loonie quickly rejoined other major currencies in their collective plunge against the greenback.
Canadian banks have been pressuring Ottawa to move as credit markets have grown increasingly tight. The measure, originally reported by the Globe and Mail early Thursday, is intended to address the sharp rise in the cost of borrowing money.
The government move is "substantial" and should help ease liquidity pressures in Canada's money markets, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.
While the $25-billion move does not compare with the hundreds of billions of dollars worth of measures created by U.S. decision makers,Canada's problems are not as big as the U.S. problems either, he noted.
The mortgage-swap move is "a key positive step," said economists at Bank of Nova Scotia.
They stressed that the liquidity move is not a sign of trouble in Canada's real estate markets and is meant instead to keep money flowing in short-term markets.
"The idea is to unblock credit creation channels in Canada, and help improve interbank funding pressures in Canada," the said."While Canada's banking system is well capitalized and much stronger than the banking systems in the U.S. and Europe, frozen business lending since March and recent challenges in the availability of mortgage financing in Canada required policy action.
"The Bank of Canada has also been injecting large amounts of liquidity into money markets in recent weeks, but credit flows have remained gummed up, here as elsewhere in the world. The Canadian government move is meant to supplement the central bank's moves, the Scotiabank economists said.
"This initiative by no means signals problems in Canadian mortgage quality or mortgage market fundamentals," they said. "The policy initiative is strictly designed to address liquidity and funding pressures at Canadian banks that is a by-product of an evolving global credit crisis."

The "Big Five" Banks see little growth

Different from a 'typical recession,' Canadian economists say

By David Frieson
The Canadian Press

Economists from Canada's Big Five banks expect little or no growth in the near future, warning yesterday that the domestic economy's current gloom will deepen into something worse than a recession.
The word "recession'' wouldn't describe the deep structural problems affecting everything from the U.S. housing sector to the Canadian oil industry, said Bank of Nova Scotia chief economist Warren Jestin.
"You have to invent a new word to describe what we're in now,'' he said after the banks presented their perspectives at the Economic Club.
"It's being driven through the financial markets into the real economy.
All of those things suggest that it's entirely different than what you might expect from a typical recession.''In their most recent economics forecast, Scotiabank economists predict recessions for both the U.S. and Canada, economic slides that will require central bankers in both countries to cut interest rates by at least a full percentage point.
All agree that a slide in commodity prices bodes ill for the Canadian economy, which is heavily dependent on the production and export of oil and gas, metals and minerals.
Drops in oil and metals prices have hit the already teetering Toronto Stock Exchange hard.
Yesterday (Monday) it took an agonizing 1,200-point fall before recovering somewhat to sit around 700 points in the red as oil dropped to trade around the $90 US mark.
And Bank of Montreal economist Doug Porter said prices will continue to take a beating over the next year, dragging Western Canada's formerly booming economy in particular down with them.
"You're going to be seeing Western Canada come back down to the rest of us with a thud, especially if commodity prices keep doing what they've done in the last three months,'' he said.
"It's almost as if the markets are pricing in a much harder landing for commodity prices. I think that's reasonable if you don't get some thawing in the credit markets relatively soon.''
Porter said the direction of Canada's economy depends on whether the financial-sector troubles in the United States start to settle down.

Wednesday, October 8, 2008

Lenders grapple with credit crunch

Edited from an article by
Globe and Mail
October 8, 2008

Confusion is spreading through the mortgage market as lenders already grappling with soaring borrowing costs are now figuring out how to deal with a surprise rate cut by the Bank of Canada.
Banks were already been dealing with soaring borrowing costs before the central bank cut its key lending rate. This week Canadian Imperial Bank of Commerce decided to stop offering variable products to new mortgage applicants through its FirstLine Mortgages division until further notice.
CIBC's move comes on the heels of a decision earlier this week by Toronto-Dominion Bank to raise the rate on new variable mortgages to prime plus one percentage point.
Variable mortgage discounts have been eliminated at many other lenders, which are now offering them at prime. So far, only a handful have raised rates by as much as TD.
TD's move is a dramatic shift from the average discount of 0.5 of a percentage point lenders were offering off the prime rate just a month ago, and a reflection of current market conditions. While it may be a short-term phenomenon, people thinking about buying a home right now should lock in at current rates to give themselves a cushion against the current volatility.
Overnight, it seemed, TD made a knee-jerk reaction from prime to prime plus one. That is a big statement. Now FirstLine says we're not even going to price differently, we're just going to discontinue it because we can't figure it out. That in itself is saying things are in turmoil today.
Variable rate mortgages are based on the prime interest rate, the lending rate banks offer their best customers. As the cost of money the banks borrow to fund their loans to customers rises, mortgages are becoming less profitable for them.
The assumption in the past has been that they borrow from the Bank of Canada and make money on the spread in between, and that spread has been pretty juicy. The problem is, they're not borrowing from the Bank of Canada, they're using other instruments in the marketplace which may have saved them money in the past but are costing them money now. It's hard to retool a bank, it's like a freight train. Putting on the brakes and doing something different is not exactly what they're used to.
In the grip of the credit crunch, Canadian banks made the unusual move Wednesday of lowering their prime rates by a quarter of a percentage point, rather than matching the Bank of Canada's unexpected half-point drop on its key lending rate.
What it all means is that the variable rate at TD is now 5.5 per cent, and 4.5 per cent at a number of other lenders. Five-year fixed mortgage rates are posted at around 7.2 per cent, and with a discount many customers can get a rate in the 5.5 per cent range.
TD's higher variable rate will apply to new customers, while the bank will honour discounts existing customers have off the prime rate, said Joan Dal Bianco, vice-president of real estate secured lending at TD Canada Trust.
Recent increases in both fixed and variable rates were sparked by the bank's higher cost of funds, and TD has held off as long as possible before passing some of the costs to the consumer, Ms. Dal Bianco said.
As variable discounts are eliminated, the rates between floating and fixed mortgages are moving closer together. Variable mortgages will likely remain cheaper than fixed ones over the long run, but home buyers should make the decision about what mortgage is right for them based on their personal situation and risk tolerance.
People shopping for new mortgages should definitely not sign on for a long-term variable mortgage at prime plus one, however, since better deals are out there and conditions in the market may be short-term, he added. The good news is that rates remain relatively low. For example, the last time variable rates surpassed fixed rates was in the early 1990s, when mortgage rates were around 14.25 per cent.
Variable and fixed rates also moved close together in the mid-1990s, when they were in the 8 to 9 per cent range.

Bank of Canada lowers overnight rate

OTTAWA, Oct 8 (Reuters) - The Bank of Canada issued the following statement on Wednesday after it cut interest rates by 50 basis points to 2.50 percent.

Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent

The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent.
The intensification of the global financial crisis is having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly.
As a result of these developments, credit conditions in Canada have tightened significantly, despite the relative health of our financial institutions. Weaker growth in the United States and other important trading partners will increase the drag on the Canadian economy coming from net exports.
The deterioration of our terms of trade will act to moderate the growth of domestic demand. While the recent depreciation of the Canadian dollar will help cushion the effects of the weaker global outlook on the domestic economy, it will not completely offset them.
Below-potential growth in aggregate demand through 2009, combined with a lower profile for commodity prices, will significantly ease inflation pressures in Canada.
Inflation expectations remain well anchored. In view of these developments, the Bank of Canada decided to join other major central banks and lower its target for the overnight rate by 50 basis points today. This action will provide timely and significant support to the Canadian economy. The Bank will continue to monitor carefully economic and financial developments, along with the evolution of risks, in judging whether any further action might be required to achieve its 2 per cent inflation target over the medium term.
Information note: The Bank of Canada's next scheduled date for announcing the overnight rate target is 21 October 2008. A full update of the Bank's outlook for growth and inflation, including risks to the projection, will be set out in the Monetary Policy Report, to be published on 23 October 2008.

Central Banks Announce Coordinated Interest Rate Reductions

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets. Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability. Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

Friday, October 3, 2008

5 Proven Strategies to Become Mortgage Free Faster

1) Accelerate your payments by choosing a weekly or biweekly payment frequency and then match the due dates of your mortgage payments with your pay days. It is easier to budget and of course you get the benefit of paying the equivalent of one extra monthly payment per year with no penalty. The bank takes your monthly payment and divides it in half for biweekly payments or in quarters for weekly payments. So since there are 26 biweekly payments or 52 weekly payments in a year you actually pay the same dollar amount as 13 monthly payments over the course of the year which means you pay off your mortgage that much faster and save loads in interest.

2) Look at how much your payment would be based on a 20 year amortization instead of a 25 year amortization. If you can afford the extra then you'll save on interest charges in the long run and be mortgage free faster. This is a great strategy for refinancers or at renewal when your interest rate might actually go down from what you were previously paying. If your rate drops at renewal, consider keeping the monthly payment amount the same ... after all, you are already used to paying that much and the extra will go directly towards reducing your principal.

3) Did you ask about the prepayment privileges on your mortgage when you took it out ? Have you taken advantage of them yet ? I didn't think so. In fact, studies show that only 3% of consumers actually take advantage of that prepayment option. Every extra dollar you pay indirectly goes right back into your pocket. Save interest and be mortgage free faster by prepaying the allowed amount - usually 20% of the original amount you borrowed - once a year. Even if you can't afford to pay the whole 20% ... if you can only afford $1,000 it will save lots of interest in the long term. Increase your principal and interest portion also by that 20% (please check your mortgage document for details of your lender's plan). Most lenders also allow a double up option and of course if you have a life changing event along the way which reduces your income, they should allow you to return to previous levels. Your budget gets the breathing room back by lowering your payments and of course you've locked in some savings already. By taking advantage of this strategy and the accelerated payment option we discussed in point #1 you're well on your way.

4) Get a raise last year ? Instead of just wondering what happened to the extra money why not put it aside into a special account for a lump sum prepayment ? Use that money to pay down the mortgage or maybe you could use it to set up the basement for a rental opportunity to increase your income.

5) Use a mortgage professional. This should be strategy number 1 for every Canadian. Your bank is in business to make money - and lots of it. They will not give you the best deal and even if they "cave in" and shave off a quarter percentage point or offer free chequing for 6 months ... this is not the kind of deal you can get right off the bat by using a mortgage professional. And best of all the services of a mortgage broker are usually free to the consumer (on approved credit) since the bank pays us to bring them your business.

If you have any questions about taking advantage of any of these strategies, please contact our mortgage broker resource at RMA-Spencer Group Mortgages. Their website has a handy glossary and other tips to help you get the most of of your mortgage rather than the bank.

Wednesday, October 1, 2008

What is your best strategy against mortgage rate increases ?

The credit crunch is hitting close to home with more moves by the big banks to increase the cost of borrowing on mortgages.

Many of the big banks and other lenders have stopped offering variable rate mortgages with a discount below the prime rate.

Up to mid-way through 2007, most lenders still offered variable rate mortgages at up to prime minus 1.00% (in today's terms 4.75% minus 1.00% = 3.75%) but recently things have been changing since we are all linked by the problems in the world financial markets.

Since roughly August 2007 (ABC paper crisis started) the discounting of rates has gradually fallen and as of September 29 this year, most lenders were only willing to offer variable rate mortgages at the prime rate ... without any discount.

Since the lenders now pay more in their overnight borrowing rate and overall cost of funds, they pass along those increased costs to their customers. Not limiting things to the variable rate mortgage customers, lenders have also set fixed mortgage rates higher than they would be under normal circumstances.

So, here's the million dollar question ... what is your best strategy as a borrower?

You can still go ahead with a variable-rate mortgage at 4.75% which is still a good rate no matter what you may think. This lower rate means saving money now (you are still lower than the fixed rate products) but means you have to pay attention - through a good mortgage professional - to what the market is doing and be able to react in case of a spike in the prime.

By the way, rumours have been circulating recently that the Bank of Canada may drop their rate by .25% this month as a boost to the marketplace and a way to instil some faith back into borrowers and lenders alike. Even if they don't, you still have 4.75% until the next meeting and are below the fixed rate prices.

My feeling is that the discounting will return at some point in the future so another strategy might be to go ahead with a short term fixed rate mortgage and wait it out, returning to the variable mortgage option in the future on your renewal date.

I don't think rates are going to go up, but many borrowers just don't want to worry about it. With this in mind, your other options include the longer term plans. Posted five-year rates at major lenders are around the 7.20% mark with some banks offering "special" discounted rates of 6.14% per cent on their websites. Remember, using a mortgage professional will get you a five-year mortgage as low as 5.39% today (rate subject to change and lender approval of course).

No matter what you decide, my advice is always the same. Trust a mortgage professional to review your situation and do the shopping around for you. Don't just settle for whatever discount your bank is willing to offer.