Blog
Bank of Canada Keeps Rates Unchanged
2010-03-02 | 10:11:19
Vancouver BC www.brentirving.ca www.mymortgagebc.com — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.
The ongoing global economic recovery is being driven largely by strong domestic demand growth in many emerging-market economies and supported in advanced economies by exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.
The level of economic activity in Canada has been slightly higher than the Bank had projected in its January Monetary Policy Report (MPR). The economy grew at an annual rate of 5 per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports. The underlying factors supporting Canada's recovery are largely unchanged - policy stimulus, increased confidence, improved financial conditions, global growth, and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada.
Core inflation has been slightly firmer than projected, the result of both transitory factors and the higher level of economic activity. The outlook for inflation should continue to reflect the combined influences of stronger domestic demand, slowing wage growth, and overall excess supply.
Conditional on the current outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.
The risks to the outlook for inflation continue to be those outlined in the January MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar. The Bank judges that the main macroeconomic risks to the inflation projection are roughly balanced.
Brent Irving
Your friend in the mortgage business!
604-764-6336
Changes with Canadian Mortgage Lending Rules
2010-02-24 | 10:07:50
Jim Flaherty, Minister of Finance, recently announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians.
"Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."
The Government will therefore adjust the rules for government-backed insured mortgages as follows:
- Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
- Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
- Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.
"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."
These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.
Brent Irving
Mortgage Expert
Your friend in the mortgage businessTel: 604-764-6336
Fax: 604-541-6323
Toll Free: 1-888-665-1344
Email: birving@dominionlending.ca
www.mymortgagebc.com
GST and New Homes
2010-02-01 | 12:43:43
The goods and Services Tax replaced Federal Sales Tax in 1991. Although the tax is collected at a rate of 7% on the sale price of goods and services, it doesn't apply to every type of home or every form of real estate service.
New home purchases are subject to GST but may qualify for a GST rebate. Resale homes are sold exempt from GST.
GST and New Homes
When you buy a newly constructed home, condominium or townhouse, the entire purchase price including land is taxable. If the property is to be rented to tenants, the full 7% GST is charged on the purchase price. However, if the home is gong to be your primary place of residence, it may qualify for a partial GST rebate, depending upon the sale price.
For primary residences costing $350,000 or less, you will receive a rebate of 36% of the GST paid, to a maximum of $8,750. That means you pay approximately 4.5% GST (not 7%) on the purchase price.
Example #1
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You buy a new home for $200,000. The 7% GST is $14,000, less a 36% rebate of $5,040. So, you pay $8,960 in GST
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The maximum rebate is $8,750. The rebate for new homes costing between $350,000 and $450,000 declines to zero on a proportional basis. Here is how it works
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For each $1,000 of purchase price above $350,000 the maximum rebate of $8,750 is reduced by 1%
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Therefore if your purchase price is $370,000 you are $20,000 over and must reduce the maximum rebate by 20%. As such the maximum rebate of $8,750 reduced by 20% equals $7,000.
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For a home priced at $370,000 the GST payable, at 7%, is $25,900
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The adjusted maximum rebate is $7,000 so the GST payable is $18,900.
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Adjusting the maximum rebate continues until the rebate is reduced by 100%, there is no rebate, which occurs at homes priced at or above $450,000. New homes selling for $450,000 or more do not qualify for a GST rebate.
GST and the Resale Home
You don't have to pay GST on the purchase price of a used residential home. In other words, the purchase is "exempt" from GST.
Revenue Canada defines "used residential property" to include an owner-occupied house, condominium, apartment, summer cottage, vacation property or non-commercial hobby farm. They refer to "used" as residential property that has been occupied as a residence before you bought it.
Used property can also mean a recently built house that is substantially complete and has been sold at least once before you buy it. For example, if a new house is purchased and resold before being occupied, the home's resale price will normally be exempt from GST.
GST and the Real Estate Transaction
GST applies to most of the services provided in completing the real estate transaction. For example 7% GST is applied to the commission a Realtor charges for facilitating a sale. The tax is paid by the person responsible for paying the commission- usually the seller.
Realtor commissions are taxable even if the total GST owed is reduced by a rebate, or the sale of the property is exempt from GST. For example, if you sell a used home, the sale price is exempt from GST but the Realtor's commission is still taxable.
GST applies to many other services involved in the real estate transaction. These include legal fees, appraisals, surveys and legal assistance. Again, GST is charged on these fees regardless of whether the house you purchase is exempt from the tax.
GST and Rent
No GST is payable on residential rents. However, if you employ a Realtor or another professional to find and arrange a tenant for your rental property, GST applies to the fees and commissions they charge for providing this service. GST also applies to the fees charged to the landlord for property management, as well as repair and maintenance services. Monthly fees charged by condominium associations are not subject to GST.
Please don't hesitate to contact me should you have any questions.
Kind regards,
Brent Irving
604-764-6336
Mortgage Rate Advice For Home Owners and First-time Buyers
2010-01-21 | 11:32:03
BMO Offers Mortgage Advice For Home Owners and First-time Buyers
Vancouver, Jan. 21 /brentirving.ca/ - The Bank of Canada has signalled that its trend-setting interest rate will likely remain unchanged until at least the middle of this year.
"Recent comments from the Bank of Canada suggest little urgency to raise interest rates, given still weak demand in the U.S. and a strong Canadian dollar," said Sal Guatieri, Senior Economist, BMO Capital Markets. "The central bank's steady hand on the interest rate tiller could keep mortgage rates low well into the usually strong spring home selling season."
BMO Bank of Montreal experts have insights into the housing market given the current market conditions, and are available to answer top-of-mind questions including:
- What should new homeowners be looking for in a mortgage: fixed or
variable?
- What does this mean for prospective home buyers?
- What are the benefits of buying vs. renting?
- What does this mean for mortgage rates - which are near historic lows
today - and Canadians who are contemplating buying ahead of the
busiest part of the real estate season?
Brent Irving Mortgage Expert Your friend in the mortgage business
Tel: 604-764-6336
Fax: 604-541-6323
Toll Free: 1-888-665-1344
Email: birving@dominionlending.ca
Vancity plans to reach out to more mortgage brokers
2010-01-20 | 12:10:09
The director of mobile sales and brokerage at Canada's largest credit union, Vancity, says the company hopes to build its network of mortgage brokers in 2010 and plans to introduce a loyalty program in the next three to six months.
"Our broker division is not as big as it used to be and the goal is to ramp it up," said John Derose, in an interview with CMP. "I think we need to be in all the channels - the branches, our mobile team, and the broker channel."
Vancity sold the retail mortgage and loan business of its subsidiary, Citizens Bank, to TD Bank last August, which has meant several changes for the company. Derose said he is focusing on building up service levels before taking on more volume and added a loyalty program for mortgage brokers is in the works.
"We want to work with mortgage brokers, but we want to work with them beyond just that one deal or beyond just being an approval," he said. "We also want to put an emphasis on efficiency ratios because when closing ratios are low, it hurts our service."
Vancity lends in the lower mainland and interior B.C. as well as Vancouver Island.
Brent Irving
Mortgage Expert
Your friend in the mortgage business
Tel: 604-764-6336
Fax: 604-541-6323
Toll Free: 1-888-665-1344
Email: birving@dominionlending.ca
Will longer amortizations be nipped in the bud?
2010-01-19 | 11:41:25
Garry Marr, Financial Post
Shannon Puddister figured he would probably need some flexibility when he took on his first mortgage, with an 18-month-old daughter already in tow and another child on the way.
The 32-year-old Toronto-based commercial litigation lawyer with Lerners LLP, bought his first home last year with his wife Deanna Webb. To deal with the financial strain of two children, they chose to amortize their mortgage payments over 30 years.
His payback plan should come as no surprise. For generations, Canadians have gone for 25-year amortizations but according to the Canadian Association of Accredited Mortgage Professionals, almost half of new borrowers now opt for a longer amortization.
"When we put together our budget, we looked at it as a cash flow issue. A longer amortization rate means a lower payment. I know that means you are paying more interest but from our perspective, entry level buyers with a kid, our plan was to get ourselves settled, push through with a first mortgage and, when we renewed our mortgage, shoot for a lower amortization," said Mr. Puddister, whose wife gave birth to their second child this month.
Just 15 months ago, he could have opted for a 40-year amortization but Ottawa cracked down on those lengths and set the limit at 35 years. The government also demanded consumers have a 5% downpayment.
Last month Finance Minister Jim Flaherty seemed to renew debate on the subject, when questioned by reporters about the booming housing market that has rebounded sharply from lows reached in January.
"Well, we have to watch and we are watching and monitoring. As you know, we took steps a year or two ago to require at least a 5% down payment and to restrict the amortization period for insured mortgages but we're watching that. Low interest rates obviously are having an effect on the strength of the housing market in Canada," he said, warning "people have to make sure that the mortgages they take out today either have a fixed rate or they know that they'll be able to handle increases in that mortgage rate later on."
In his case, Mr. Puddister says there is no question a larger downpayment or shorter amortization requirement would have changed his buying decision dramatically. The other problem is today's rates are so low, he can't see himself trying to pay down his mortgage principal any faster.
"I'd rather dump it into an investment," says Mr. Puddister, who is borrowing at about 2.25% based on today's rates.
While Mr. Puddister may have the financial discipline to save and invest the money he is saving from low interest rates, mortgage broker Vince Gaetano says he is the exception.
"Only abut 5% of people take advantage of pre-payment privileges," says Mr. Gaetano, adding once a consumer gets used to low monthly rate, they are loath to increase the payment even if it means knocking down principal faster.
"You get a mortgage for five years and then don't think about it. Are you going to start making payments or are you going to take your vacation? I don't think it would be so bad to take the maximum amortization down to 25 years because that way you would have some buffer room for making sure people qualify."
CIBC World Markets senior economist Benjamin Tal says the bigger issue for consumers would probably be an increase in downpayment as opposed to a change to amortization schedules. Even though half of mortgage origination is said to be going for a longer amortization, Mr. Tal issued his own report that shows 40% of Canadians opt to make an extra month's worth of payments each year.
Called accelerated bi-weekly payments, consumer make payments every two weeks instead of twice a month and the impact is considerable. "On a $250,00 mortgage with 5% rate amortized over 30 years, that works out to a de facto shortening of the amortization period by five years," says Mr. Tal, adding if rates rose by 75 basis points, consumers could absorb the increase by simply stopping the accelerated payments.
Mortgage credit was up about 7% year over year when Mr. Tal wrote his report but he thinks dramatic changes to downpayment levels and amortization are not necessary at this point. "Be careful you don't kill a fly with a hammer. You could derail the housing market for no good reason," says Mr. Tal.
In real estate circles, many privately grouse about Mr. Flaherty's overreaction to an improved housing market that still fell well short of records set in 2007. "You don't want to see anything that affects the ability to purchase," says Gary Friend, president of Canadian Home Builders' Association. "You make changes and in a place like Vancouver where I am, it could have a significant effect. At the same time we respect the need for prudent credit conditions and smart borrowing."
Low rates, low downpayments and long amortizations have made it easy for just about anybody to buy a home, says Ron Cirotto, who runs the website amortization.com. He sometimes wonders why everybody feels they must buy.
"What they've done with mortgages, it's almost like the concept we had when I was coaching hockey. At one point it seemed like everybody got a trophy. The finalist, the semi-finalist. Everybody has to be winner, everybody has to have house even if they can't afford it."
Read more: http://www.financialpost.com/most-popular/story.html?id=2428687#ixzz0d5OtEtDx
Brent Irving
Mortgage Expert
Your friend in the mortgage business
Tel: 604-764-6336
Fax: 604-541-6323
Toll Free: 1-888-665-1344
Email: birving@dominionlending.ca
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