Monday, June 30, 2008

Refinancing Home Mortgage: Keep Your Home With Home Mortgage

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Thursday, June 26, 2008

Canada's housing market

The real estate market appears poised for a soft landing rather than a crash, in a cooling trend the Bank of Canada says is both “expected and welcome.”

Sheryl Kennedy, the central bank's deputy governor, said Canada's financial prudence has helped it sidestep the sharp home price declines being experienced in countries including the U.S., Britain and Spain.

“The Canadian housing market does not appear to be characterized by excess supply at this time,” she said in the text of a speech delivered yesterday in Banff, Alta. “The proportion of unoccupied, newly built dwellings in most cities remains below historical averages, suggesting that a major widespread reversal in house prices is unlikely in the near term.”

In the past decade, prices of existing homes in Canada have risen by about 55 per cent, while new-home prices have risen by about 27 per cent. As one of the country's largest housing booms loses steam, most economists are forecasting a small increase in prices this year that will keep pace with the central bank's 2-per-cent target for inflation.

It's a much different story in the U.S. market, where home prices dropped by 14.1 per cent year over year in the first quarter of 2008, according Standard & Poor's/Case Shiller national home price index.

That record price decline occurred at a pace five times faster than that of the last U.S. housing recession, according to the index's quarterly report, released last month.

Much of Canada's housing boom was the result of supply catching up with pent-up demand that followed the downturn of the late 1980s and early 1990s, according to Ms. Kennedy.

Canada's conservative mortgage culture has helped protect it from the excesses seen during the U.S. boom, which had a much larger amount of subprime mortgages, she added.

As the housing market cools, the Bank of Canada can worry less about the sector as a driver of inflation, said Michael Gregory, senior economist at BMO Nesbitt Burns Inc.

“This speech would have been a lot different if we still had double-digit price gains on new and existing homes,” he said in an interview.

The central bank now has a more pressing concern on its hands in soaring commodity prices, he said. In the real estate market, the issue has shifted to how much cooling prices could put a damper on consumer confidence, he added.

Despite her fairly positive outlook, Ms. Kennedy cautioned that Canada can't afford to become complacent about the real estate market, noting it took a decade for prices and sales to rebound after the bust of the late 1980s.

To that end, the central bank is keeping an eye on “challenges,” including ensuring that mortgage innovations, including 40-year amortization products and “near-prime” mortgages, don't detract from prudent lending practices.

Ms. Kennedy's comments suggest the “the jury is still out” at the Bank of Canada regarding the value of these innovations compared with their potential risks, Mr. Gregory said.

Saturday, June 21, 2008

Inflation worries

The Toronto Stock Exchanger's main index fell more than 200 points on Friday as financial issues were hurt by inflation fears and worries over more mortgage-related problems, while consumer stocks also weakened.

The S&P/TSX composite index <.GSPTSE> fell 209.48 points, or 1.42 percent, to close at 14,580.67.

Inflation worries weighed on both financials and consumer stocks, after Bank of Canada Governor Mark Carney said late on Thursday that strong energy prices could lead to higher inflation.

"There's some worry that interest rates may not fall any further, and may even start to rise, which in turn would squeeze the banks' margins," said Gavin Graham, chief investment officer at Guardian Group of Funds.

The heavily-weighted financial subgroup fell 2.34 percent, while the consumer discretionary and consumer staples groups fell 2.61 percent and 2.46 percent, respectively.

Also hurting bank shares were rumors that U.S. commercial bank Merrill Lynch may issue a profit warning and take additional writedowns on its mortgage holdings.

Among financials, Canadian Imperial Bank of Commerce fell C$1.87, or 2.9 percent, at C$61.63, while insurer Manulife Financial dropped C$1.12, or 2.9 percent, to C$37.13.

Sunday, June 15, 2008

Mortgage rates rise

The cost of borrowing for a home is going up and, in some cases, by quite a bit.

Several of Canada's biggest banks are raising most of their mortgages, effective Friday, while hikes of up to 85 basis points have already kicked in.

TD Canada Trust (TSX: TD) hiked its residential mortgage rates today by up to 85 basis points, effective today, while Bank of Montreal (TSX: BMO) is hiking its residential mortgage rates by up to 85 basis points for some terms on Friday.

Not all Montreal mortgage rates at all banks are rising by such a jump, but virtually all of them – including Royal Bank (TSX: RY), National Bank (TSX: NA) and CIBC (TSX: CM) – are pushing through increases of at least 25 basis points to their posted rates.

That will add to homeowners' interest payments, with short-term mortgages becoming especially pricey.

For instance, a one-year open mortgage at Royal will rise by 50 basis points to 8.8 per cent, a one-year open at TD rises by 80 basis points to 9.1 per cent and CIBC's one-year open mortgage will cost 9.24 per cent.

In contrast, rates for five-year closed mortgages – the most popular in Canada because of the certainty it provides, especially to first-time buyers – is much lower. CIBC's posted rate for five-year Montreal mortgages was the lowest among the majors, at 6.95 per cent.

The commercial banks' moves follow the Bank of Canada's surprising decision Tuesday to leave its benchmark overnight rate unchanged at three per cent, rather than lowering it by a quarter-point as most bank economists had expected.

The central bank's overnight rate influences the commercial banks' cost of raising short-term funds, which are then used by them in their lending businesses. Longer-term funds tend to be affected more directly by the bond market than by the central bank.

Earlier in the year, central banks were worried about slowing economic growth, but in recent weeks the focus has shifted to inflation, suggested Bank of Montreal economist Doug Porter.

"We have seen some very extreme moves in market interest rates in recent days and recent weeks. Basically the bond market is swinging wildly between a possible U.S. recession and global inflation," Porter said.

Central banks around the world have faced the prospect this week of oil prices hitting sustained record highs.

On Tuesday, the Bank of Canada defied expectations by putting a stop to the downward trend of its key interest rate, while saying that inflation is becoming a threat to the economy.

"The expectation is that rather than (mortgage) rates staying where they are right now or going down, the consensus is rates are going to be back up," said Warren Jestin, chief economist at Scotiabank.

"In our view, we're probably going to see in the next couple of months more concern about inflation, more of a back-up in interest rates, although by the end of the year they're going to come back down again."

In general, bank rates tend to stay relatively in swing with each other, but the sudden change in the outlook for interest rates may have thrown some of the banks for a loop.

But Jestin suggests that eventually the Canadian banks will fall in-line with each other on their mortgage rates.

"The sea change in the market has been so sudden that you may well find that the adjustment in mortgage rates occurs over a period of a few days or perhaps a few weeks," he said.

Saturday, June 14, 2008


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Tuesday, June 10, 2008

Types of Interest on a Mortgage

One of the most confusing parts of getting a mortgage in Montreal and buying your own home can be the interest rates. From the myriad of choices available to how the interest is actually worked our, it can quickly become confusing if you’re not sure what it all means. However, understanding what each type of interest means can help you make the right decision when it comes to choosing the mortgage you want to go with.

Variable Rate

This is one of the most common mortgages in Montreal and probably the one that people relate to the most. It simply means that your monthly payments will be dictated by whatever the current interest rates are – so, if the housing market is good, you’ll probably see your monthly payments rise, whereas if the market’s in a slump, your interest rates and payments will be lower.

Tracker Rate ( just for UK )

Similar to a variable mortgage but with one big difference – the interest rate is tied directly to the Bank of England, so whatever decisions are made there, you’ll find your interest rate is slightly above or slightly below, dependent on current rates.

Fixed Rate

The other most popular type of mortgage, since this keeps your interest rate fixed for a set period of time (usually between 2-5 years). This ensures that you know exactly what you’re paying month in and month out. Of course, the downside to this type of mortgage is that if bank rates fall, you won’t benefit from the
lower mortgage payments that people on variable rates will enjoy. You’re also usually penalised if you decide to switch lenders throughout your mortgage term, often as much as 3-4 months worth of interest.

Capped Mortgage ( mostly UK )

Often seen as a mix of variable and fixed rate, a capped mortgage means that your interest rate will only go so high for a set amount of time. So, if your cap is 10% and the housing market crashes through to 10½% or more, you won’t pay the extra rates. However, there’s the added bonus that if the interest rates fall, you’ll make the savings that a
variable rate mortgage would give you.

Discount Mortgage

Just as it suggests, this will offer you a discount on your variable interest rate for the first couple of years on your mortgage. However, although it helps reduce your early monthly payments, you still pay the same overall amount that you would if you take out a standard mortgage.

Cashback Mortgage

Excellent for the first time buyer especially, this offers you a cash rebate at the start of the mortgage, calculated as a percentage of your overall mortgage. You receive this cash instantly, and simply pay it back at the end of the mortgage. This is an ideal solution for anyone just starting out on the property ladder, or for anyone on a limited budget.

There are other types of mortgage as well as these ones, including current account mortgages and offset mortgages, which a specialist advisor would be able to discuss with you. Just knowing what’s available and whether it’s suitable for you or not can make a big difference in the long run.

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Wednesday, June 4, 2008

Mortgage Crisis

The mortgage crisis has had a negative impact on everyone, not just homeowners. Elected officials are working hard to pass legislation that is designed to prevent future banking debacles. Unfortunately, history has proven that when legislators over-regulate banks that it tightens the reins on lending. This is done by raising the bar on what it takes to qualify for a mortgage or installment loan. Predictably, it’s the middle class that will feel the pinch more than anyone. Specifically, it’s the middle-class, self employed small business owner that be injured the worst.

Most people are aware that you can reduce your taxes by deducting expenses and qualified charitable contributions. What most people don’t realize is that small business owners live and die by those deductions. Tax rates have risen on the self employed more than any other segment in our society. To counter these tax hikes, legislators created more “loop-holes” write off’s and deductions for small business owners to use.

For this reason, small business owners rely on creative CPA’s to maximize their deductions in order to show less income and pay less taxes.There are nearly 23 million small businesses in America and over 35 million sole-proprietors and almost every one of them employ savvy CPA’s to keep them in the black. The draw-back is that by doing this most self employed borrowers are unable to prove enough income on paper when applying for a loan or a mortgage.

Traditional mortgage lending practices of yester-year required that borrower’s prove sufficient income when taking out a loan. Over the years, taxes have risen for small business owners at staggering rates, far above what they have for W2 employees. At the same time the self employed borrower's “provable” income has dwindled proportionately. Under traditional banking rules most of the self-employed people wouldn’t be able to qualify for business loans or mortgages. This would ultimately force small business owners out of business and cripple our would economy.

This new business paradigm literally forced the banking industry to create lending products that catered to small business owners who could not prove all of their income. These products were called “stated” income loans and did not require borrowers who had good credit to prove their income. These products originally required good credit and sufficient assets in order to qualify for them. Responsible guidelines and common sense underwriting kept default rates on these products in line with conventional mortgages. Unfortunately, as competition for this segment of borrowers stiffened between lenders the stringency to qualify for these mortgages softened, thus the mortgage crisis.

It is exactly this type of loan that our law-makers are trying to do away with through legislation. The new mortgage bill being bounced around has specific remedies for irresponsible lending. Meaning, if a bank loans you money and it can be proven in court (attorneys like this law by the way) that the bank was irresponsible in doing so they could be penalized. The definition of “irresponsible” is did the borrower have the capacity to repay the loan, meaning did they prove enough income. This bill will kill stated income loans, period.

So where does this leave the responsible self employed borrowers who needed these loans to live and operate their businesses? This leaves them with higher taxes. Should this bill pass self employed borrowers will be forced to claim more income each year on their tax returns in order to qualify for car loans, mortgages and even business loans. This will negate any of the loop-holes and deductions they were promised in lieu of higher taxes.

This means the government will rake in billions in extra revenue as a result of this bill. For example, let’s assume that a small business owner claimed $40,000 in income last year after deductions and business expenses. If she was in a 40% tax bracket she would pay roughly $16,000 in taxes. Under the new banking guidelines that same business owner may have to claim $80,000 In order to qualify for mortgages, car loans and business loans. Assuming she’s in the same tax bracket, she would now have to pay $32,000 in taxes.

Multiply $32,000 by 23 million business owners and that’s one huge pay-day for Uncle Sam. You can bet that the Senators pushing this bill through congress are well aware of this left handed tax raise. You will never hear them mention it either, I wonder why?. You will hear about the naughty lenders that put good wholesome red blooded Americans in the street through predatory lending practices. You will never hear about the 20 million business owners who paid their mortgages on time and actually need these loans to stay in business.