Bank of Canada raises interest rate
After more than a year at a record low level, Bank of Canada Governor Mark Carney raised the benchmark interest rate for the first time since 2007 by one-quarter percentage point to 0.5 per cent. This is the first time since 2007 that that rate has increased and the Bank of Canada is the first in the Group of Seven to do so since the financial crisis and recession began in 2008.
In a statement Carney emphasized that the increase should not be interpreted as just the first of more to come. “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,” the central bank said. “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.”
Source: mortgagebrokernews.ca
OTTAWA, May 19, 2010 — Housing starts rebounded in the second half of 2009 and early 2010 and will stabilize over the next two years, according to Canada Mortgage and Housing Corporation’s (CMHC) second quarter Housing Market Outlook, Canada Edition.*
Following a total of 149,081 units in 2009, housing starts are expected to be in the range of 166,900 to 199,600 units in 2010, with a point forecast of 182,000 units. In 2011, housing starts will be in the range of 148,600 to 208,800 units, with a point forecast of 179,600 units.
“Canadian housing markets have recovered from the low levels posted in early 2009,” said Bob Dugan, Chief Economist for CMHC. “Moving forward, housing starts will moderate as activity becomes more in-line with long term demographic fundamentals. New measures for government-backed mortgage insurance introduced by the Government of Canada that took effect on April 19, 2010 will continue to support the long-term stability of Canada’s housing market.”
Mr. Dugan also noted that the existing home market will move toward balanced conditions over the next two years as MLS®1 sales ease and inventory levels increase. In late 2009 and early 2010, sales activity included some pent-up demand from early 2009. Once this demand is exhausted, and as mortgage rates gradually rise, the pace of activity in the resale market will ease. As a result, existing home sales will be in the range of 484,000 to 513,300 units in 2010, with a point forecast of 497,300 units, and then move slightly lower in 2011 to be in the range of 443,500 to 504,900 units, with a point forecast of 473,500 units.
With an improved balance between demand and supply, the average MLS® price is expected to stabilize through the end of 2010 and then rise modestly in 2011.
As Canada’s national housing agency, CMHC draws on more than 60 years of experience to help Canadians access a variety of quality, environmentally sustainable and affordable homes. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making vital decisions.
* The forecasts included in the Housing Market Outlook are based on information available as of April 23, 2010. Where applicable, forecast ranges are also presented in order to reflect economic uncertainty.
Got the following from the newsletter from CAAMP (Canadian Association of Accredited Mortgage Professionals):
“This morning, Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. CAAMP was actively engaged in the discussions around these changes which are as follows:
- All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
- The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one’s home;
- Non-owner occupied properties will require a minimum down payment of 20%.
There were no changes to down payment requirements or length of amortizations for owner-occupied residences.
CAAMP will continue to monitor developments including transition rules.”
More updates later as we follow up on new lending guidelines for borrowers.
Three Reasons Why It’s Important To Do More Than Just Compare Mortgage Rates For Home Purchases
Many people often compare mortgage rates for home purchases thinking that getting the lowest rate is the best way to save money. While this may be true, there are many times when this isn’t enough to guarantee you get the best deal. Here are three reasons why…
Reason 1:
Your long term plan and risk tolerance should determine which mortgage product is right for you. This product may or may not have the lowest rate. For instance, there are cases where lenders will offer lower rates for insured mortgages. However, with insured mortgages, you are charged an insurance premium which is usually added to the mortgage amount. However, if you are not keeping the property for a long enough time to offset that cost, it might be better to take an uninsured mortgage with a slightly higher rate. The cost difference you will pay with the higher interest rate might still be less than what you might pay in insurance premiums.
Another example would be, if you prefer to budget for a consistent payment and cannot handle rate fluctuations, it may be better to go with a higher fixed-rate mortgage. If you think current rates are low enough and you will be living in your property for at least 5-years, it may be wise to also opt for a mortgage with a longer term.
Reason 2:
One of the biggest mistakes people make when they merely compare mortgage rates for home purchase is that they fail to consider important factors like prepayment options to help pay off the mortgage faster, whether secondary financing options are allowed, the pay-out penalties, or what fees are involved. It is not enough to just compare mortgage rates for home purchase because you have to know what “clauses” the mortgage deal comes with. There may be cases where you will find a lender with the lowest rate and willing to pay for your closing costs, or even providing you with cash-backs after closing. Be wary of those types of deals. Be sure to look at the clauses and what is truly involved in signing up with them for that mortgage. If you are not sure, the best thing to do is talk to a knowledgeable mortgage broker or have your lawyer go over the mortgage documents.
Reason 3:
Last but not least, the reason why you shouldn’t just compare mortgage rates for home purchase is because lenders change their rates all the time. Generally speaking, mortgage brokers all have the same rates from each lender. Each of those rates can change at any time. So if you ask one broker on Tuesday for a quote and the next day the rate changes, another broker may give you a different rate but it doesn’t mean the first broker gave you a higher or lower rate. He may actually have the same rate as the second broker at that time.
These are the 3 reasons why it’s not enough to merely compare mortgage rates for home purchases. They are by no means exhaustive as every individual’s situation is unique. The mortgage rate you may qualify for is also highly dependent on your credit score among other things. To get better mortgage deals, you need to have good credit. If you are unsure about your credit, check your credit score and see if you need to improve it to have better mortgage options.
The best thing to do is talk to a knowledgeable mortgage broker. Make sure he/she has access to as many lenders and mortgage products as possible, and has great knowledge and expertise to match you with the right mortgage product for your needs.
As a mortgage professional in the real estate industry, there are a few common things I hear about homes in Canada for sale every day. Things like – “House prices are dropping further,” “Now is a good time to buy with low prices and interest rates,” “Now is a good time to sell before the price drops even further,” etc, etc. But what does this all really mean to the seller and to the buyer?
People who have bought a property at a height of the boom stand more to lose as the prices drop. Several reputable economists have predicted that while prices of homes in Canada for sale has dropped significantly last year, it will get even worse first quarter of this year before it picks up again. Where I notice most disagreements is the time when things will start to go up… Some say late this year, others say not after 2010.
Interest rates may have dropped but with listings increasing as we approach the nicer weather in spring, I think we’re headed the same price route as we saw in 2008 – down… All I can say to that is I wish that if people really do not need to sell, they should take their off listings so the market is less saturated with them. If more of these occur, maybe, just maybe, the market might go up earlier than predicted.
Still, I personally think it is a good time to buy if you are looking at owning the property long term (minimum 5 years). True, the prices of homes in Canada for sale may drop further, but it won’t be dropping forever and with the interest rates so low, now is the best time to buy while lenders are handing out very low fixed-rate mortgages.
