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Bernadette Laxamana’s Mortgage Update – Tagalog Version
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Jan 18
Bank of Canada Update and New Mortgage Rules
Good day everybody! This is the first edition of our blog for 2011. We have two breaking news items for you today. The first item is good news. Governor Mark Carney of the Bank of Canada did not change its key lending rate this morning, meaning Prime rate remains at 3%. Prime has been stable since September 2010 and there are some talks that it may remain that way until maybe summer or fall of 2011. The next meeting will be on March 1 and you can count on us to give you an update on that day!
What this means is if you have a variable mortgage you can continue to enjoy the benefits of the lower rate but I strongly urge you to pay a higher amount than what’s required to pay down your principal at faster pace. This will allow you to be mortgage free faster!
The second news item is not so good. Yesterday, Finance Minister Jim Flaherty announced new mortgage regulations as follows:
- Maximum mortgage amortization will be reduced from 35 years to 30 years.
- The maximum amount Canadians can refinance their mortgages will be lowered from 90% to 85%. Please note that this applies only to refinances not purchases. For home buyers the downpayment requirement is still 5%.
- The government will withdraw government insurance backing on lines of credit secured on homes.
What does this mean to you?
The first rule will reduce your purchasing power. For example, under the current rule a family with a household income of $60,000 can purchase a home for 440K with 5% downpayment. Under the new rule the same family will only be allowed to purchase a home for a maximum of $410K – a $30K reduction. Also, for every $100,000 mortgage your monthly payment will be $35.00 more. Therefore if your mortgage is $300,000 then you will be paying about $105 more for the same mortgage. That extra payment will go towards principal (we cannot discount that) and yes it is a good thing however, to some families the extra $100 payment is a lot and they would want to use that for something else.
Of course that gap widens when rates increase, I am using a rate of 3.89% in my calculation.
My advice if you are pre-approved is it’s good to purchase sooner rather than later to take advantage of lower monthly payment and get better bang for you buck. A $30K price difference or more for higher income families can give you a much nicer home! It may mean more bedrooms, better location, and a bigger space.
The second rule has a bigger impact for homeowners, especially those who need to take some equity out for renovations, debt consolidation, improve net worth through investments and RRSPs and for those who want to reduce their mortgages into lower rates. Many clients opt to add the penalty to their mortgage and accelerate their payments thereby reducing their principal balance over their term, getting back the penalty they paid, saving thousands of dollars in interest cost and being mortgage free sooner. Imagine paying your mortgage 5-10 years sooner, that’s a lot of money!
If you have been sitting on the fence about whether now is the right time to refinance, it’s time to get off that fence and act now. If your home is worth $400K then instead of being able to borrow $360K then you can only borrow $340K. You have to leave the $20K instead of being able to use that for more urgent and important needs for your household. Imagine if your home is worth $500K then instead of borrowing $450K, you could only borrow $425K which is a $25K reduction in borrowing power! If you are a homeowner, please call me today to discuss your options…don’t delay.
The government said these rules will take into effect in March. In my experience the insurers implement the new rules well before the deadline, so it’s best to act now.
Please call me at 604 436 4600 to discuss your options!
Thanks for reading!
We welcome your questions and feedback.
Bernadette Laxamana’s Mortgage Update – English Version
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Oct 19
Oct 19
Oct.19, 2010 Bank of Canada Update
We predicted the Bank of Canada would not raise rates, and we were right. The BoC has left its key lending rate at 1.00%.
In turn, prime rate will remain at 3.00%, meaning clients with variable rate mortgage will not see any change their rate and their payment will stay the same.
The BoC’s call comes amid languid recent growth and inflation numbers. Here’s a sampling of the Bank’s commentary from its official statement:
- The BoC sees a “weaker-than-projected recovery in the United States.” (No revelations there.)
- The potential exists for “a more protracted and difficult global recovery.”
- “…domestic considerations…are expected to slow consumption and housing activity in Canada.”
- “Inflation in Canada has been slightly below the Bank’s July projection.”
- “The inflation outlook has been revised down and both total CPI and core inflation are now expected to converge to 2% by the end of 2012.” (As long as inflation doesn’t threaten to exceed the Bank’s 2% target for any extended period, that’s generally good news for mortgage rates.)
- The 1% overnight target rate “leaves considerable monetary stimulus in place.”
The Bank also adjusted its growth forecasts as follows:
- 2010 growth cut to 3.0% from 3.5%
- 2011 growth cut to 2.3% from 2.9%
- 2012 growth raised to 2.6% from 2.2%
Translation: Things are worse than the Bank expected.
A key takeaway here is that the BoC sees little inflation threat through 2012. That’s a long ways off. If true, this improves the odds that short-term and variable-rate mortgages will be the lowest-cost options for the next few years. (Remember, however, that the BoC can raise its forecasts just as easily as it lowers them.)
The next and final interest rate meeting of 2010 is on December 7. As of today, most analysts expect no rate move at that meeting either.
Thanks for reading!
We welcome your questions and feedback.
Bernadette Laxamana’s Mortgage Update – English Version
You can comment on this blog here.
Jul 20
