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  • "Prepayment Penalty " A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.
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No housing bubble in Canada: BMO – Mortgage Broker News

There will be no crash to the Canadian housing market, according to a new report by BMO economists out this week. Instead, the report suggests, there will be something like a smooth landing.

While discouraging doom, the report falls short of offering any specific predictions of its own.

“In our view, the housing boom will more likely cool than correct, even in condo-driven Toronto – the target of many scary headlines,” said BMO economists Sherry Cooper and Sal Guatieri.

They add that an “unforeseen shock,” such as a sharp increase in interest rates or severe recession could set off a more severe drop in home prices, but neither scenario is considered likely, according to the report authors.

While a recent ranking by the Economist magazine suggests Canada’s housing market could be overvalued by as much as 63 per cent, the report sought to discredit the method of comparing national house prices to rents. If such a method really could predict housing bubbles, than there’s no explanation as to why data from the 1980s using this price to rent ratio failed to show any sign of the Toronto housing bubble.

Along with Toronto condos, Vancouver was highlighted as a possible exception to an otherwise stable real estate future in Canada, however. The report noted prices have jumped 159 per cent there in the past decade, and the average price to family income ratio has essentially doubled from 5.4 in 2001 to 10.0 in 2011. The national ratio in 2011 was 4.9, compared to 3.2 a decade earlier.

As has been suggested before, the Vancouver jump in prices is linked to a recent surge in Chinese mainland buyers, the BMO economists said.

“This explains why the city is ranked the second priciest, after Hong Kong, of 325 urban centres in Demographia’s annual survey comparison of prices and resident incomes,” said the BMO report. “Both of these cities boast an enormous inflow of capital from non-resident Chinese nationals, a factor that has apparently boosted Toronto’s home prices relative to income as well.”

Statistical evidence of such a powerful influence coming from China remains lacking in Canada thus far, however, despite the continued anecdotal evidence.

Not all cities in Canada have seen such dramatic price increases recently, however. Windsor, for example, remains undervalued, according to BMO, having seen prices gain just 20 per cent in the past decade.




No housing bubble in Canada: BMO – Mortgage Broker News.


BoC could slash rates in a big way next year

BoC could slash rates in a big way next year.

As the nail biter in Europe continues this week, two economists are predicting the Bank of Canada will move to cut rates in a big way next year.

Sheryl King, an economist at Bank of America Merril Lynch, said in a note that the volatility hitting Europe and the risk of damage to the global economy means the Bank of Canada will move to cut its benchmark interest rate to ward off the risk of recession. Her prediction is the cut will be a whopping 0.75% decrease from the current rate of 1%.

“With the Eurozone sovereign debt and banking crisis showing no sign of containment, we think the Bank of Canada will cut rates back to the effective lower bound of 25 basis points (0.25%) early next year,” she said.

Ms. King forecasts that the cut would come in two phases, with a 0.50% trim being announced during the bank’s January 17 meeting, while the second and final 0.25% cut coming during the March 8 meeting.

Also predicting a lower interest rate next year was David Madani, Canada economist at Capital Economics. He is forecasting a more mild cut of 50 basis points, however, saying he expects it to occur in April or June.

Either way, Mr. Madani said he expects interest rates in Canada will remain low for some time.

“The Bank might communicate that its policy rate will remain at 0.50% for a lengthy period of time, conditional on its projected outlook for consumer price inflation,” he said, in reference to the Bank of Canada’s target of 2% annual inflation.

“Even if we are wrong, the broader message remains that interest rates will remain unusually low for a very long time.”

Most economists, however, are still predicting that the Bank of Canada will raise interest rates rather than lower them in 2012. In a recent Reuters survey of 40 economists last month, the consensus was that an interest rate increase will occur in the third quarter of next year.

If rates are cut, it will mark a sharp turnaround for the Bank of Canada, which only last year raised interest rates. Canada became one of the first advanced economies to raise its benchmark interest rates following the recession when the Bank of Canada implemented a 25 basis point hike in September of last year. The benchmark rate has since remained unchanged at 1%.


How Much Do You Know About Your Mortgage Protection Insurance?

If you’ve ever bought a home, you’ve probably been there: you meet with a lender to sign your mortgage documents and he or she offers you mortgage protection insurance. It can be as simple as ticking off a box and signing on the dotted line to accept the premiums and insure you and your family against death, disability or other catastrophic event that might leave you unable to make your mortgage payments.

But are those premiums competitive? How much will you pay annually for what type of coverage; and what is written in the fine print?

Lending institutions ancillary mortgage products are not the only ones on the market. Independent insurance companies also offer varying types of mortgage protection that can save consumers hundreds of dollars annually.

This month, CENTUM announced an arrangement with Benesure Canada Inc., to make its Mortgage Protection Plan coverage available through participating CENTUM mortgage broker offices and franchises. The plan was first made available to clients of Canadian mortgage brokers in 1995 – today it insures more than 160,000 Canadians.

Says Paul Therien, Director of Business Development for CENTUM, “Mortgage protection is an extremely important part of every transaction and warrants an ongoing review of the best products out there. Based on what we think is the best fit for CENTUM and our clients, we chose Mortgage Protection Plan to recommend to our people.”

Whichever mortgage insurance plan you select, it’s good to know that even with mortgage protection insurance, there is competition. There is nothing stopping you from shopping around for the best mortgage protection for you with the most affordable premiums – the same as you would for any product.
MortgageByDarren – Blog.

HST On New Homes in Effect in BC and Ontario

Canadians living in B.C. and Ontario woke up on Canada Day to the inevitable reality of the Harmonized Sales Tax (HST). Homebuyers taking out mortgages for new properties now have to factor in HST on purchases over $400,000 in Ontario and $525,000 in B.C.; however, they can still qualify for rebates.

If you’re looking for a home with that ‘lived-in’ feel – you’re in luck.  The HST does not apply to resale properties, although you will pay more tax on certain real estate transaction fees.

Here’s a brief look at the rebate program in BC and Ontario:

Federal Portion of the HST (5 percent GST)
Regardless of their provinces of residence, Canadian homebuyers must pay GST (Federal portion of the HST) on new home purchases. They can claim up to 36 percent of the GST on the purchase price or cost of building a new house. The claim amount declines on homes above $350,000 and reaches zero on homes priced at $450,000 or more.

According to the Canada Revenue Agency, you cannot claim the new housing rebate if you don’t intend to use the home as your primary place of residence, i.e. you buy it as an investment property.

Ontario HST (8 percent PST / 5 percent GST)
Across all price ranges, homebuyers in Ontario are eligible for a rebate on 75 percent of the provincial portion of the HST on the first $400,000 value of a new home, and pay the full eight percent provincial tax on the amount above $400,000. They can claim up to a combined maximum federal and provincial rebate of $24,000.

British Columbia HST (7 percent PST / 5 percent GST)
The rebate in BC is 71.43 percent of the provincial portion of the HST up to a combined maximum rebate of $26,250. According to the proponents of the tax, buyers of new homes up to a value of $525,000 pay no more provincial sales tax than they did before imposition of the HST.

The most glaring problem with HST in BC and Ontario are the new housing rebate thresholds:  $400,000 and $525,000. Anyone who has shopped for a new home in Vancouver or Toronto lately can tell you that these are far from realistic.

It will be interesting to see how the HST will influence home buying behavior and building starts. Will it be a boon for resale homes, or will we see an increase in new home sales in smaller communities and non-HST provinces like Alberta, where taxes are the lowest in the country? In urban centres, will it influence the already noticeable buyer trend toward micro suites and laneway homes?

If you are qualified for a mortgage under $525,000 in BC and $400,000 in Ontario, or want a resale property, you don’t have to worry. But to get more space, you will likely need to look farther out from the downtown cores to stay under the rebate threshold.

The CENTUM mortgage calculator is a great tool to start planning for your next property purchase.

Canadian Employers Optimistic: Survey Shows

The latest Bank of Canada Business Outlook Survey reveals optimism, despite economic turmoil in Europe and a slow recovery in the U.S. The survey was conducted with senior managers of 100 businesses selected in accordance with the composition of Canada’s gross domestic product.

Survey highlights include:

49 percent of those surveyed say that their firms’ sales volumes are greater than in the previous twelve months, compared to only 22 percent in the first quarter of 2010.

50 percent expect their firms’ levels of employment to be higher in the next twelve months than in the previous year. The last three quarterly survey results have remained consistent, with about half of respondents expecting an increase in employment – the highest since the last half of 2006 and early 2007.

47 percent of survey respondents expect that prices of goods sold will increase at a greater rate in the next twelve months, which is a reflection of opinions that cost of goods purchased will also rise.

As for inflation, the majority still believes that it will remain at one to two percent, although momentum seems to be shifting. More firms (45 percent, up from 40 percent last quarter) now think that the rate of inflation in the coming year will be two to three percent.

What Does This Mean to You?

The Business Outlook Survey shows that while firms are optimistic about the future, they are more cautious in that optimism than they were at the end of 2009.

For potential homebuyers and owners worried about job stability or securing employment, the numbers are promising, with half of business leaders surveyed expecting their employment numbers to rise and only ten percent suggesting they will reduce their workforces.

The Bank of Canada key interest rate is rumoured to rise on these signs of confidence. For those wanting to beat the interest rate heat, the Globe and Mail offers these tips from Investopedia.com:

Five Things To Do Before Interest Rates Go Up.

What might your future mortgage payments be if lending rates rise on or after July 20th? Use the CENTUM mortgage calculator to gauge your monthly or bi-weekly payments.

Sell High, Buy Lower – Market Predictions Say Home Prices Cooling

There is no shortage of media fallout from the Canadian Real Estate Association (CREA) announcement on June 2 that it is revising its forecast for home sales. Some news reports blame inflated prices in BC for precipitating the CREA decision to revise its forecasts.

Whatever the source, word of mouth often leads to realization of predictions as more homebuyers take a wait-and-see attitude. But, according to a National Post report, home prices will continue to creep up in 2010 before they drop slightly in 2011.

While experts argue on the severity of a real estate correction, most agree that prices are moving towards a flat line in the coming months.  Real estate investors might consider selling now, then reinvesting their dollars as buying opportunities become available.

Pre-approved mortgages allow potential home buyers a window of time during which they can ‘shop around’ for affordable properties while holding on to their negotiated rates – usually for a period of two to three months. With interest rates set to rise, and prices heading downward…now might be the time to sell and reinvest your profit, or get pre-approved for a new mortgage.

Central Bank Rate Hike Not Enough to Worry Mortgage Holders

The Bank of Canada raised its target overnight rate by a quarter of a percentage point to 0.5 percent today, making it the first of the G7 countries to do so. The Bank Rate rose correspondingly to 0.75 percent, with the deposit rate kept at 0.25 percent

Housing and consumer spending in Canada fed a robust 6.1 percent growth in the economy in the first quarter of this year. However, in a media statement released today, the Bank of Canada cited continuing global market instability as a reason for remaining cautious on interest rate increases:

This decision still 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.

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.

Canadian banks followed today’s announcement by hiking prime rates. Reaction has been tame, considering that interest rates in Canada remain at historic lows and the move was anticipated for months. A Canadian Business article reports that variable rate mortgage holders remain largely unfazed by the rate increase, believing that they still stand to save by following the rate gradually upward – rather than locking in at a higher fixed rate, for now.

CTV News coverage of the rate increase is more ominous, quoting a Business News Network spokesperson as saying that this is the “Nail in the coffin” for historically low interest rates. Maybe so, but as long as Canadians taking out variable rate mortgages today can control their personal debt loads, they should be able to withstand small increases in their mortgage payments.

As always, opting for a fixed mortgage rate is recommended for buyers who prefer to play it safe and not polish the crystal ball. The Bank of Canada scheduled the next announcement of its overnight rate target for July 20, 2010.