Thanks Bank of Canada, but great news –> see inside : )
FOR IMMEDIATE RELEASE
8 September 2010
Bank of Canada increases overnight rate target to 1 per cent
OTTAWA –The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies. In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.
Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields.
The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity. Inflation in Canada has been broadly in line with the Bank’s expectations and its dynamics are essentially unchanged.
Against this backdrop, the Bank decided to increase its target for the overnight rate to 1 per cent. As a result of monetary policy measures taken since April, financial conditions in Canada have tightened modestly but remain exceptionally stimulative. This is consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada.
Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.
Information note:
The next scheduled date for announcing the overnight rate target is 19 October 2010. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 October 2010.
If you renew with a lower rate, keep the monthly payments the same
Choose an “accelerated” option for your mortgage payment
Making lump-sum payments: Prepayments
1. Increase the amount of your payments
One of the ways to pay off your mortgage faster is to increase the amount of your regular payments. Normally, once you increase your payments, you will not be allowed to lower your payments until the end of the term. Check your mortgage agreement or contact your mortgage lender for your payment options.
Example:
John is getting a mortgage of $150,000, amortized over 25 years, with a fixed interest rate of 5.45 % for 5 years.
The mortgage lender tells him that that he must pay at least $911 a month.
He is trying to decide if paying $50 more a month will help him save money.
Assumptions
The interest rate of 5.45% remains the same over the 25-year mortgage.
Monthly payment at $911
Monthly payment at $961
Principal
$150,000
$150,000
Interest payments
$123,368
$108,859
Total amount paid
$273,368
$258,859
Interest savings
-
$14,509
Years to pay off
25
22.5
By paying an extra $50 a month over the life of the mortgage, John would save over $14,000 and pay off the mortgage two and a half years sooner.
2. If you renew with a lower rate, keep the monthly payments the same
At the end of your mortgage term, when you renew or renegotiate your mortgage, you may be able to obtain a lower interest rate. Although you would have the option of reducing the amount of your regular payments, you can take advantage of this situation to pay off your mortgage faster. Simply keeping the amount of your payments the same will make you mortgage-free sooner.
Example:
Stefanie used to pay $1,000 each month on a $150,000 mortgage.
When she renewed her mortgage after five years, the interest rate had decreased by one percent, from 6.45% to 5.45%.
While the lower interest rate would have reduced Stefanie’s monthly payments to $924, Stefanie decided to keep the monthly payment at $1,000 in order to reduce the total amount of interest she will pay over the term of the mortgage.
Details
Stefanie is renewing her mortgage after five years for another five-year term.
The remaining mortgage principal amount is $135,593.
Assumptions
The new interest rate of 5.45% would remain the same for the rest of the mortgage.
Keeping the same payments while renewing at lower interest rates (over the life of 20-year mortgage at 5.45%)
Monthly payments at $924
(new minimum payment)
Monthly payments at $1,000
(maintaining previous payment)
Principal
$135,593
$135,593
Interest payments
$86,228
$73,916
Total amount paid
$221,821
$209,509
Interest savings
-
$12,313
Years to pay off
20
17.5
By keeping the monthly payments at $1,000 per month with the lower interest rate for the rest of her mortgage, Stefanie will save over $12,000 and will pay off the mortgage two and a half years sooner.
3. Choose an “accelerated” option for your mortgage payment
You can spend approximately the same amount of money on your mortgage each month and still save money by choosing an accelerated option for making your payments.
Most financial institutions offer a number of payment frequency options:
Accelerated weekly and accelerated biweekly payments can save you thousands, or even tens of thousands in interest charges, because you’ll pay off your mortgage much faster using these options.
The reason is that you make the equivalent of one extra monthly payment per year.
Standard payment options
The standard payment options are
monthly
semi-monthly
biweekly
weekly.
For these four payment options, there is no difference in the total amount you will pay over a year. This means that there is very little extra savings if you switch from a monthly payment option to one of the other standard payment options.
Example: Impact of changing the payment frequency
The table below shows the payment frequency options offered to John by his lender, their impact on his mortgage payments and how much he can save over the amortization period.
Mortgage details
Mortgage principal of $150,000 amortized over 25 years
Interest rate of 6.45% for the entire amortization period
Payment frequency
Number of payments per year
Payment amount
Total payments per year
Interest saved on mortgage
Less frequent
More frequent
Monthly
12
$1,000
$12,000
-
Semi-monthly
(twice a month)
24
$500
($1,000 ÷ 2)
$12,000
$162
Biweekly
(every two weeks)
26
$462
($1,000 x 12 ÷ 26)
$12,012
$174
Accelerated bi-weekly
26
$500
($1,000 ÷ 2)
$13,000
$29,407
Weekly
52
$231
($1,000 x 12 ÷ 52)
$12,012
$249
Accelerated weekly
52
$250
($1,000 ÷ 4)
$13,000
$29,751
Note: This example assumes a mortgage of $150,000, amortized over 25 years, with a constant interest rate of 6.45%.
By choosing an accelerated payment frequency, John makes the equivalent of one extra monthly payment a year. John will pay off his mortgage over four years sooner and will save over $29,000 in interest over the amortization period.
4. Making lump-sum payments: Prepayments
A prepayment is a lump-sum payment that you make, in addition to your regular mortgage payments, before the end of your mortgage term. The prepayment reduces your outstanding balance and allows you to pay off your mortgage faster.
The sooner you can make the prepayment, the less interest you will pay over the long term, and the sooner you will be mortgage-free.
Key things to remember
Your mortgage agreement will specify whether you can make prepayments, when you can do so and other related terms or conditions. Read it carefully, and ask your mortgage lender to explain anything you don’t understand.
If your mortgage lender is a federally regulated financial institution such as a bank, as of January 2010, it must show your prepayment options in an information box at the beginning of your mortgage agreement.
Your mortgage agreement may specify minimum and maximum amounts that you can prepay each year without paying a fee or penalty.
The prepayment option is generally not cumulative. In other words, if you did not make a prepayment on your mortgage this year, you will not be able to double your prepayment next year.
A closed mortgage agreement may require you to pay a penalty or fee for any prepayment.
Questions to ask
When shopping for a mortgage, make sure that you understand the prepayment options and conditions before you sign the contract. Ask the lender the following questions:
How much can I prepay without paying a fee or penalty?
Is there a minimum amount for a prepayment?
When can I make prepayments?
Are there any conditions?
If there are fees or penalties, how much are they, and how are they calculated?
Example
John received a raise which allowed him to save $15,000.
He decides to use it to make a prepayment on his mortgage at the beginning of the second year of his term.
However, his mortgage lender limits prepayments to a maximum of 10% of the principal.
John wants to know whether he can make that large a prepayment, and if so, how much sooner he will be able to pay off his mortgage as a result.
Details
Mortgage of $150,000, amortized over 25 years
Lump-sum payment limit: 10% of principal allowed once a year
Assumptions
Interest rate will be 5.45% for the entire 25-year mortgage
Calculation of the maximum prepayment allowed
Original mortgage:
$150,000
Limit allowed by John’s mortgage lender:
x 10%
Allowed lump sum payment:
= $15,000
John will be able to use his raise to make a $15,000 in lump-sum payment, since he is allowed to prepay up to $15,000 each year.
Over the mortgage period
No prepayment
Prepayment
(beginning of second year)
Prepayment lump sum
-
$15,000
Principal
$150,000
$150,000
Interest payments
$123,368
$90,168
Total amount paid
$273,368
$240,168
Interest savings
-
$33,200
Years to pay off
25
20.7
Making the prepayment will reduce the amount of interest John will have to pay over the life of the mortgage by over $33,000, and he will be able to pay off the mortgage over four years sooner.
Even Tony Robbins Is Warning That An Economic Collapse Is Coming
An article from www.theeconomiccollapseblog.com
It seems like almost everyone is warning of a coming economic collapse these days. Do you remember Tony Robbins? He is probably the world’s best known “motivational speaker” and his infomercials dominated late night television during the 80s and 90s. He was always urging all of us to “unleash the power within” and to take charge of our lives. Well guess what? Now Tony Robbins is warning that an economic collapse is coming. In fact, he has issued a special video warning about what he believes is about to happen. Considering the incredible connections that he has at the highest levels of the financial world, it makes a lot of sense to consider what he is trying to warn us about. Robbins says that a “major retracement” is coming to financial markets and that the coming collapse is going to be a “painful process” as we go through it. Those familiar with Tony Robbins know that he always goes out of his way to stress the positive, so if even he is openly warning the public about a coming economic nightmare than you know that things are starting to get really, really bad out there.
The video that Tony Robbins published where he gives his economic warning is posted in two parts below. This is unlike any Tony Robbins video that you have ever seen before and it is absolutely jaw dropping….
Part 1:
Part 2:
So is Tony Robbins right about what is coming?
Yup.
An economic collapse is coming.
You need to get prepared.
For those not familiar with my previous articles, let’s review just some of the reasons why America is headed towards an economic nightmare of unprecedented proportions….
The National Debt – The U.S. government has accumulated a national debt that is rapidly approaching the 14 trillion dollar mark. According to Democrat Erskine Bowles, one of the heads of Barack Obama’s national debt commission, if we continue on the path we are on the U.S. government will be spending $2 trillion just for interest on the national debt by 2020.
State And Local Debt – Many of America’s state and local governments may be in even worse financial shape than the federal government is. In fact, some state and local governments are in such a financial mess that they have starting cutting off even the most essential services.
Consumer Debt – The total amount of consumer debt that Americans have accumulated now stands at approximately 11.7 trillion dollars.
The Trade Deficit – The U.S. trade deficit has exploded to nightmarish proportions over the past two decades. Every single month tens of billions more dollars flows out of the country than flows into it. The rest of the world is literally bleeding us dry in slow motion.
No Jobs – Today it takes the average unemployed American over 8 months to find a job. The number of Americans receiving long-term unemployment benefits has risen over 60 percent in just the past year.
The Credit Crunch – The U.S. is experiencing a credit crunch unlike anything it has seen since the Great Depression. Lending has really, really dried up, but without loans our economic system cannot function properly.
The Housing Crisis – Even with mortgage rates at historic lows, a shockingly low number of Americans are buying houses. There has been a total collapse in home sales since the home buyer tax credit expired. At the same time, mortgage defaults, foreclosures and home repossessions by banks continue to set new all-time records.
Rising Bankruptcies – Nationwide, bankruptcy filings rose 20 percent in the 12-month period ending June 30th.
Rising Poverty – One out of every eight Americans and one out of every four American children are now on food stamps. Approximately 50 million Americans couldn’t even afford to buy enough food to stay healthy at some point last year.
The Coming Pension Crisis – America is facing a pension crisis that is so nightmarish that it is almost impossible to adequately describe it. State and local government pension plans are woefully underfunded, dozens of large corporate pension plans either have collapsed or are on the verge of collapsing, Social Security is a complete and total financial disaster and about half of all Americans essentially have nothing saved up for retirement.
The Derivatives Bubble – Our financial system has become a gigantic gambling parlor and we have allowed a horrific derivatives bubble to develop that could destroy the entire world economy if it ever bursts. Nobody knows exactly how big the derivatives bubble is, but low estimates place it at around 600 trillion dollars and high estimates put it at around 1.5 quadrillion dollars. Once that bubble pops there simply will not be enough money in the entire world to fix it.
The Federal Reserve – The Federal Reserve has devalued the U.S. dollar by over 95 percent since 1913 and it has been used to create the biggest mountain of government debt in the history of the world. There are many economists who would argue that the Federal Reserve is at the very core of our economic problems.
As we get even closer to the economic abyss that we are racing towards, even more big names such as Tony Robbins will come forward with warnings.
The truth is that these problems did not develop overnight, and they are not going to be solved overnight either.
Perhaps our economic future is best summed up by this one statement that economist Paul Krugman recently made….
“America is now on the unlit, unpaved road to nowhere.”
It would be great if I could write about America’s bright economic future and the unlimited prosperity that is ahead for all of us, but that would be a lie.
Down Payment – The amount of cash paid towards the purchase transaction by the buyer of a home. This is also known as the purchaser’s initial equity in the property, but is also used by a lender to judge the personal commitment to the property. For example, a lender considers that, if a buyer saved the down payment, or received it as a gift from a loved one, they will be far more committed to maintaining the property value and making the mortgage payments than if they acquired it for no money down. Hence the tighter qualifying rules for a Zero Down Purchase
Lenders must ensure that a borrower is fulfilling the minimum down payment requirements from the applicant’s own resources, and the lender should further verify this amount will be available at the time of closing. Down payment equity from “own resources” is interpreted to mean from… bona fide savings, an outright gift from immediate relatives, borrowing at arms-length from a third party, equity from the sale of another property, and/or duly contracted applicant labour. In addition to confirming the minimum equity requirements, the lender must also be satisfied that the borrower is able to cover expected closing costs. These may include, but are not limited to, legal fees, deposits, appraisal, any land transfer taxes and registration fees, etc.
Applicant’s Savings
Lenders look for a 90 day history on accounts
Sale of Another Property
If down payment equity is to come from the sale of another property, verification of this equity must be obtained. The lender will confirm the previous property’s selling value plus the outstanding balance of any existing financing on that property.
Sale of Stocks/RRSPs
If the down payment is to come from the sale of stocks or bonds, the lender must verify the fair market value of such assets.
Family Gifts
Outright gifts from immediate relatives are normally an acceptable source of down payment. Gifts are to be documented by a formal letter from the donor declaring the amount as a “true gift” and not a loan. Confirmation of deposited funds will also be required.
What is it? How do you qualify & what do I think about it?
As you probably know, property taxes are DUE July 2nd and 2010 is the first year this program is available.
By now you’ve probably received your annual property tax bill in the mail and Inside there was information about the new option to defer your property tax payment.
Please understand, Deferring the taxes doesn’t mean you don’t have to pay it, it means you don’t have to pay it NO.
You will have to pay it back in the future and Interest is charged at Bank Prime.
So let’s talk about the qualifying criteria
#1 You must reside in the property
#2 You MUST be a Canadian citizen or permanent resident who has lived in British Columbia for at least one year immediately prior to applying.
#3 You are financially supporting, at the time of the application, a dependent child who is under the age of 18 at any time in the calendar year in which you apply, and who
• lives with you full time in your home,
• lives with you at least part time under a shared custody agreement, o
• does not live with you, but you pay support for the child, or are responsible for fees and/or living costs if they are attending school
#4 You must have, and maintain, a minimum equity of 15% of the current BC Assessment (NOT APPRAISAL) BIG differenc.
That means all mortgages cannot exceed 85% of the BC ASSESSMENT value and finally
#5 You must have fire insurance
Now let’s talk about what I think about it.
Just like any other debt, I don’t advise incurring it unless you
absolutely MUST
And even then, if finances are tight, you may want to call me to discuss MUCH better options that are available that will put you in a way better financial position.
As you can see, there’s way more to mortgages than just numbers.
I’m not saying you have to use my services, but make sure that whoever you use, gives you
the right advice – at the right time
PS – Deferral of your 2010 taxes will not automatically result in the deferral of your 2011 taxes.
And remember, if you do defer your property taxes and decide at a later date to refinance or switch, most lenders will insist that your property taxes be paid prior to advance anyway.
What’s the difference between Mortgage Insurance and Mortgage Insurance?
Mortgage insurance, does it protect you or does it protect the bank?
It’s a Great question, and it’s one that confuses a lot of people so Today, I want talk briefly about the difference between the two.
I’m basically talking about two types of insurance, and although they are totally different, they do have TWO thing in common
1) YOU pay for both of them.
2) BOTH insure your mortgage
The BIG difference is WHO they protect.
Let me start with High ratio mortgage insurance also referred to as CMHC default insurance.
You get this type of insurance before you actually purchase the home.
It’s required by law on ALL mortgages made in Canada with LESS than 20% down,
This type of insurance protects the BANK, NOT YOU.
It safeguards the bank in case you go into default on your mortgage
Hence the name default insurance!
Now the other type of mortgage insurance you actually get after you purchase your home.
This type of insurance, unlike the first one, actually
PROTECTS YOU.
It basically pays off your mortgage in the event of an unexpected death.
Let me tell you a quick story about something that happened back east a number of years ago -
Husband & wife bought a home,
6 months later, husband is diagnosed with cancer.
A year later he dies.
Now the Wife thinks they had mortgage insurance and requests mortgage to be paid off.
She was told that she didn’t have insurance.
She sued and it went all the way to the Supreme Court of Canada, fortunately she won.
But Since that court decision, if you do decide NOT to take insurance, you must sign a waiver.
As much as it is optional insurance, I highly recommend it.
As you can see, there’s a lot more to a mortgage than just numbers.
Today is day one of the government’s new mortgage rules.
Here’s a quick video rundown on qualifying rate….
QUALIFICATION RATE
The biggest rule change affects borrowers who put down less than 20% and want a variable or 1- to 4-year fixed term.
Yesterday, you might have qualified for a high-ratio $250,000 variable-rate mortgage with a 3.8% qualifying rate.
Today, lenders will demand you qualify with a 6.10% rate.
That means your income needs to be around 25% higher today than it did yesterday to be approved for the same variable or 1- to 4-year fixed rate mortgage!
Nothing changes with 5- to 10-year mortgage terms.
The qualification rate will still be based on the rate you’re quoted.
REFINANCES
Starting today, insured refinances will be limited to 90% loan-to-value.
2ND HOMES
Second homes now qualify for high-ratio insured financing if, and only if, they have no more than one unit.
RENTAL FINANCING
People buying rental properties now have to put down 20% (instead of 5% last week) to get insured financing.
You can put down less than 20%, but you’ll generally need to use an uninsured lender, which means higher interest rates.
In short:
When a subject property or owner-occupied property generates rent:
50% of gross rent is added to the borrower’s income
Property taxes and heat are excluded from Total Debt Service (TDS) calculations.
For non-owner occupied rental properties:
100% of net rental income is added to the borrower’s gross income
The mortgage payment, property taxes, and heat are excluded from TDS calculations.
Net rental income:
A 2-year average of rents is required to establish net rental income (we’re checking on what exceptions may be permitted)
Net rental income is proven via the borrower’s T776 Statement of Real Estate Rentals OR lenders can use their own guidelines to validate rental income. Net rental income can be grossed up 15% if the borrower takes deductions for depreciation or amortization, or rental-related self-employed income.
PS on Investment property
However, the 20-per-cent minimum down payment rule is less likely to make a significant dent in real estate activity as there are no rules as to where those funds can come from. There is nothing in the rules that would prevent homeowners from withdrawing equity from their primary residences to meet the 20 per cent threshold on a second investment property, for example.
Creative financing will become increasingly popular.
Here again, I can’t stress how important it is to get the
RIGHT ADVICE – AT THE RIGHT TIME…
Ultimately, I think home buyers will continue to tap their personal credit lines and family connections to get the money they need to enter the housing market.
Bottom line – If you’re going to invest in real estate, you’ll have to put down a minimum of 20 per cent.
When it comes right down to it you already know that there are many reasons that you are judged by your credit every single time you try to make a financial decision and even for employment. This is why you have to check your credit rating at least twice a year. There are many things that you have to understand about credit and why you have to keep yours under control and check it from time to time. Here are some helpful credit tips for you.
1. Understanding your Report
It would do you very little good to pull your credit report twice a year if you have no idea what it means and how to read it. There are two basic categories that will consume the majority of your report, the paid on time side, and the not paid on time side. The paid on time side will be listed first and it will have all the different debts, credit cards, and loans that you are currently paying on and you are on time with. The not paid on time side will be all the different debts that you have ever paid on late, even if it was just one payment.
2. What to look for when you check your credit rating
Your actual rating is also known as your FICO score. This is what you are judged on and when you check your credit rating you need to be looking to see what is on your report. You need to make sure that your report is correct and all the debts listed are yours. If there are debts on your report that do not belong to you, then you need to contact the credit bureau and get these debts off your report.
3. Changing your Rating
You may want to contact me to set-up a personalized plan Email me
>Mark Fidgett | 604-273-2002
“Your Personal Mortgage Consultant….For Life!”
PS – Please Don’t Keep Me a Secret
A REFERRAL is when you INTRODUCE someone you care about to someone you TRUST!
Borrowing Guidelines for Insured Stated Income Programs in Canada are about to change
The borrowing guidelines for insured Stated Income Programs are about to undergo some major changes and these changes will be implemented effective April 9, 2010.
The changes are being announced by CMHC (also known as Canada Mortgage and Housing Corporation). CMHC’s changes, as well as those announced by Finance Minister Jim Flaherty effective on April 19, 2010 are all attempts to help cool off the heated housing market which is now being driven by record-low interest rates. More importantly, these new measures are required to protect borrowers from taking on more debt than they can afford especially as interest rate hikes are imminent. While Canada still allows Stated Income programs here, they are becoming very rare in the U.S. The massive number of defaults and foreclosures reported by the U.S. after the 2008 credit crisis were attributed mostly to Stated Income programs that were used to place under-qualified borrowers into mortgage loans that they could not afford.
While Canadian lenders continue to use the Stated Income programs here, customized for commissioned and self-employed borrowers, CMHC will now be scrutinizing those same applications using tighter underwriting criteria making the CMHC Self-Employed mortgage insurance program a little harder to access.
What exactly does Stated Income mean?
Stated Income means exactly that. When a mortgage application is created, for a self-employed or commissioned applicant, and the entire income amount is not verifiable in traditional documents, for example a Notice of Assessment, the applicant may apply under the Stated Income program to allow an income adjustment to help qualify them for a home purchase or re-finance.
Most important change is Tenure: those who have been working in the same business for greater than three years, would not be eligible for the Stated Income program and therefore those in this category would have to provide proof of their income, for example, a Notice of Assessment.
