29 May

Bank of Canada Maintains Overnight Rate at 1 3/4%

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Dr. Sherry Cooper

Bank of Canada Maintains Overnight Rate at 1-3/4%

Here are our best rates in Grande Prairie this week! Check out facebook or instagram for a full size view or click to go to our rates page.

In a terse statement, the Bank of Canada maintained its benchmark overnight rate for the fifth consecutive meeting and stated that economy was performing in line with the projections in the Bank’s April Monetary Policy Report (MPR). Following a slowdown in economic activity late last year and in the first quarter of this year, the Bank’s press release said that evidence was mounting that economic growth was rebounding in Q2. “The oil sector is beginning to recover as production increases, and prices remain above recent lows. Meanwhile, housing market indicators point to a more stable national market, albeit with continued weakness in some regions.” The central bank was referring primarily to the weakness in home sales and prices in the Greater Vancouver Area.

The strength in the jobs market is an indicator that businesses see the deceleration in growth as temporary. Recent data show an uptick in consumer spending and exports in the second quarter, and business investment has improved. However, inventories rose sharply in Q1, which could dampen production growth in the next few months.

The recent escalation of trade conflicts between the US and China is heightening uncertainty and economic prospects. Also, “trade restrictions introduced by China are having direct effects on Canadian exports. In contrast, the removal of steel and aluminum tariffs and increasing prospects for the ratification of the new NAFTA agreement (Canada’s acronym for which is CUSMA–Canada-US-Mexican Agreement) will have positive implications for Canadian exports and investment.”

Inflation has edged up to 2% as expected, boosted by the carbon tax on gasoline.

Bottom Line:

Overall, the Governing Council’s optimism that the economy is rebounding has been reinforced, although they acknowledged increasing global risks. The Bank’s future decisions will remain data dependent, and they will be especially attentive to developments in household spending, oil markets and the global trade environment. It is widely expected that the Bank will remain on hold at least until after the October federal election.

The central bank does not share the view of some economists that the economy is headed for recession and rate cuts are necessary. Today’s overnight rate remains below the Bank’s estimate of the neutral rate at about 2.5%, so barring a negative exogenous shock to the Canadian economy, the next rate move could well be to increase overnight rates, but not until after the election

22 May

10 year mortgage terms – do you want one?

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POLOZ SAYS MORTGAGE MARKET SHOULD OFFER MORE OPTIONS

But we already have 10 year rates! Look at this week’s rate update!

Long term mortgage rates, they are available in Grande Prairie, Alberta - but do you plan to stay in your home with no renovations or equity takeouts for the next 10 years.

We offer long term mortgage rates like a 10 year rate

In a speech early this week, Bank of Canada Governor Stephen Poloz said that it is time for some fresh ideas for Canada’s mortgage market. He suggested that changes could include encouraging longer than 5-year duration fixed-rate mortgage loans, the creation of a market for private mortgage-backed securities and the launch of shared-equity mortgages for first-time homebuyers proposed in the March federal budget.

Taking these in turn, only two percent of all fixed-rate loans issued in 2018 had durations longer than five years. For borrowers, this would mean less interest-rate risk if they dealt with fewer renewals; however, this is not the full story.

Firstly, 65% of all 5-year mortgage holders break their mortgage by around month 33. Also, some banks and many mortgage brokers offer fixed-rate loans with durations of 7, 8, or even 10 years. However, the borrower pays dearly for this insurance against rising rates. Since the introduction of mortgage stress tests, many borrowers have trouble qualifying for loans as it is. Most want lower, rather than higher, monthly payments and demand for longer-duration mortgages is so low because they cost a full 100 basis points or more above existing 5-year mortgage loans. Besides, interest rates have been low and even falling over most of the period since 1982. Fear of significant rate spikes has diminished dramatically.

Poloz agrees there is some momentum in Canada towards the creation of a private market for mortgage-backed securities. He said it would provide a more flexible source of long-term funds for mortgages not insured by CMHC. To the extent that enhanced sources of capital would reduce the cost of funding for lenders, it might reduce the rate spread between 5-year and longer-duration mortgages, making them more attractive. But, again, perceived rate risk and the actual less than 5-year duration of most mortgages begs the question of why Poloz is providing an answer to a question no one is asking.

Indeed, data show that Millennials in Canada are buying homes in Canada’s most expensive cities. Royal Bank economists found that “apart from a short-lived slowdown in 2015 resulting from changes in the temporary foreign worker program, the population aged 20-to-34 in Vancouver, Toronto and Montreal has grown solidly over the last dozen years. …The inflow of millennial immigrants is poised to grow in the coming years. Canada will increase its annual immigration target from 330,000 in 2019 to 350,000 in 2021, and our largest cities will likely get the lion’s share of newcomers. In recent years, Vancouver, Toronto and Montreal together welcomed approximately half of all new immigrants aged 20-34.”

Finally, the shared-equity mortgage for first-time homebuyers may well prove to be unpopular. A similar program was offered in British Columbia a few years ago, and there were very few takers.

The BC Home Owner Mortgage and Equity Partnership program, introduced in late 2016, was cancelled effective March 31, 2018, due to lack of interest. The province anticipated that the program would provide 42,000 loans over three years. However, as of January 31, 2018, there were fewer than 3,000 loans approved.

The new federal program will provide a larger downpayment for first-time buyers, but it only applies to homes priced just over $500,000 or less, which might help in some parts of the country, but in higher-cost regions homes that cheap are slim pickings.

Canadians don’t want to share the equity gains in their homes, as most first-time buyers don’t imagine that their home equity could decline. Governor Poloz, himself, forecast in the same speech that he’s confident Canada’s housing market will return to growth later this year. Population and job growth has been rapid pointing to the resumption of growth in depressed housing markets later this year.

Poloz is a champion of the B-20 guidelines, saying they have done what they were intended to do–remove the froth from bubbly housing markets. During the press conference following his speech, reporters asked if the governor would support a reduction in the roughly 200 basis point spread between the qualifying rate and the contract rate to which he responded in essence– a resounding, no.

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

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16 May

Top 5 Thnking Millennials should know when buying Real Estate

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Mortgage Broker Grande Prairie top tips when buying a home

Top Tips Article recommended by your Grande Prairie mortgage brokers ht mortgage group for buying a home in 2019

Top 5 Things Millennials Should Know When Buying Real Estate

There are 9 million Millennials in Canada, representing more than 25 percent of the population. Born between 1980 and 1999, the eldest are in the early stages of their careers, forming households and buying their first homes. Buying a home is a daunting process for anyone, but especially so for the first-time home buyer. This is the largest and most important financial decision you will ever make and it should be done with the appropriate investment in time and energy. Making the effort to be financially literate will save you thousands of dollars and assure you make the right decisions for your longer-term financial security.

1. Don’t rush into the housing market–do your homework: learn the basics of savings, credit and budgeting.

Lifelong savings is a crucial ingredient to financial prosperity. You must spend less than you earn, ideally saving at least 10 percent of your gross income. Put your savings on automatic pilot, having at least 10 percent of every paycheck automatically deducted. Money you don’t see you won’t spend. Contributing to an RRSP, at least enough to gain any matching funds your employer will provide, is essential. The Tax Free Savings Account (TFSA) is an ideal vehicle for saving for a down payment and now you can contribute as much as $10,000 a year.

You also need to establish a good credit record. Lenders want to see a record of your ability to pay your bills. As early as possible, get a credit card and put your name on cable, phone or other utility bills. Pay your bills and your rent in full and on time. Do not run up credit card lines of credit. The interest rates are exorbitant and the only one who benefits is your bank. Keep your credit card balances well below their credit limit.

Do a free credit check with Equifax every six months to learn your credit score and to see if there are any problems. Equifax tracks all of your credit history, which includes school loans, car loans, credit cards and computer loans. Equifax grades you based on your responsible usage and payments.

Budgeting is also essential and it is easier than ever with online apps. You need to know how you spend your money to discover where there is waste and opportunity for savings. The CMHC Household Budget Calculator helps you take a realistic look at your current monthly expenses.

2. Make a realistic projectory of your future household income and lifestyle and understand its implications for choosing the right property for you.

Millennials are likely relatively new to the working world. Lenders want to see stability in employment and you generally need to show at least two years of steady income before you can be considered for a mortgage. This also applies if you have been working for a few years in one career and then decide to change careers to something completely different. Lenders want to see continuous employment in the same field. If you are self-employed, it is more challenging, and you need professional advice on taking the proper steps to qualify for a mortgage.

Assess the stability of your job and the likely trajectory of your income. Millennials will not follow in the footsteps of their parents, working for one employer for forty years. In today’s world, no one has guaranteed job security. Take a realistic view of your future. Will your household income be rising? Will there be one income or two? Are there children in your future? Will you remain in the same city? The answers to these questions help to determine how much space you need, the appropriate type of residence, its location and the best mortgage for you.

Financial planning is key and it is dependent on your goals and expectations.

3. This is not a Do-It-Yourself project: build a team of trusted professionals to guide you along.

You need expert advice. The first person you should talk to is an accredited mortgage professional. There is no out-of-pocket cost for their services. Indeed, they will save you money.

These people are trained financial planners and understand the ever-changing mortgage market. Take some time with them to understand the process before you jump in and find your head spinning with all the decisions you will ultimately have to make. They will give you a realistic idea of your borrowing potential. Before you fall in love with a house or condo, make sure you understand where you stand on the mortgage front. Mortgages are complex and one size does not fit all. You need an expert who will shop for the right mortgage for you. There are more than 200 mortgage lenders in Canada and they will compete for your business.

It is a very good idea to get a pre-approved mortgage amount before you start shopping. This is a more detailed process than just a rate hold (where a particular mortgage rate is guaranteed for a specified period of time). For a pre-approval, the lender will review all of your documentation except for the actual property.

There is far more to the correct mortgage decision than the interest rate you will pay.

While getting the lowest rate is usually the first thing on every buyer’s mind, it shouldn’t be the most important. Six out of ten buyers break a five-year term mortgage by the third year, paying enormous penalties. These penalties vary between lenders. The fine print of your mortgage is key and that’s where an expert can save you money. How the penalty for breaking a mortgage is calculated is key and many monoline lenders have significantly more consumer-friendly calculations than the major banks.[2] A mortgage broker will help you find a mortgage with good prepayment privileges.

The next step is to engage a real estate agent. The seller pays the fee and a qualified realtor with good references will understand the housing market in your location. Make sure the property has lasting value. Once you find the right home, you will need a real estate lawyer, a home inspector, an insurance agent and possibly an appraiser. Make any offer contingent on a home inspection and remediation of significant deficiencies.

4. Down payments, closing costs, moving expenses and basic upgrades need to be understood to avoid nasty surprises.

Mortgage Broker Grande Prairie top tips when buying a home

Top Tips by Grande Prairie mortgage brokers for buying a home 2019

The size of your down payment is key and, obviously, the bigger the better. You need a minimum of 5 percent of the purchase price and anything less than 20 percent will require you to pay a hefty CMHC mortgage loan insurance premium, which is frequently added to the mortgage principal and amortized over the life of the mortgage as part of the regular monthly payment.

Your lender will want to know the source of your down payment. Many Millennials will depend on the largesse of their parents to top up their down payment.

The down payment, however, is only part of the upfront cost. You can expect to pay from 1.5-to-4 percent of the purchase price of your home in closing costs. These costs include legal fees, appraisals, property transfer tax, HST (where applicable) on new properties, home and title insurance, mortgage life insurance and prepaid property tax and utility adjustments. These amount to thousands of dollars.

Don’t forget moving costs and essential upgrades to the property such as draperies or blinds in the bedroom.

5. Test drive your monthly housing payments to learn how much you can truly afford.

Affordability is not about how much credit you can qualify for, but how much you can reasonably tolerate given your current and future income, stability, lifestyle and budget.

Most Millennials underestimate what it costs to run a home, be it a condo or single-family residence.

The formal qualification guidelines used by lenders are two-fold:

  1. your housing costs must be no more than 32 percent of your gross (pre-tax) household income; and,
  2.  your housing costs plus all other debt servicing must be no more than 40 percent of your gross income.

Lenders define housing costs as mortgage payments, property taxes, condo fees (if any) and heating costs.[3] But homes cost more than that. In your planning, you should also other utilities (such as cable, water and air conditioning), ongoing maintenance, home insurance and unexpected repairs. Taking all of these costs into consideration, the 32 percent and 40 percent guidelines might well put an unacceptable crimp in your lifestyle, keeping in mind that future children also add meaningfully to household expenses and two incomes can unexpectedly turn into one.

The best way to know what you can afford is to try it out. Say, for example, you qualify for a mortgage payment of $1400 a month and adding property taxes and condo fees might take your monthly housing expense to $1650. A far cry from the $500 you pay now to split a place with 3 roommates. Start making the full payment before you buy to your savings account and see how it feels. Do you have enough money left over to maintain a tolerable lifestyle without going further into debt?

Keep in mind that this is not a normal interest rate environment. Don’t over-extend because there is a good chance interest rates will be higher when your term is up. Do the math (or better yet have your broker do it for you) on what a doubling of interest rates five years from now would do to your monthly payment. A doubling of rates may be unlikely, but it makes sense to know the implication.

Do Your Calculations Look Discouraging?

If so, here are some things you can do to improve your situation:

  • Pay off some loans before you buy real estate.
  • Save for a larger down payment.
  • Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.
  • Lower your home price — remember that your first home is not necessarily your dream home.

Footnotes:

[1] I would like to acknowledge and thank the many mortgage professionals of Dominion Lending Centres who made contributions to this report.

[2] People break mortgages because of job change, decision to upsize, change neighbourhoods, change in family status or refinancing. The last thing you want to discover is that discharging a $400,000 mortgage 3.5 years into a 5-year term is going to cost you $15,000.

[3] Lenders now also assess your qualification compliance if interest rates were to rise meaningfully, a likely scenario in this low interest rate environment.

Dr. Sherry Cooper

DR. SHERRY COOPER
Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

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6 May

How to improve your credit score

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HOW TO IMPROVE YOUR CREDIT SCORE GRANDE PRAIRIE

We have access to knowledge and products to help you improve your credit score in Alberta, or Peace River, Grande Prairie all over the place! Canada wide really.

Hey Grande Prairie want to know how to improve your credit score?

When applying for any sort of loan,

one of the most important metrics a lender is going to look at is your credit score.

But what really is a credit score, who keeps track of it, and most importantly, how can you improve yours?

“Credit Score Grande Prairie, it’s a catchy line. Truthfully, these tips will apply no matter where you live in Canada. Credit scores and everything that can apply to change them happen at a National level here in Canada.”

There are a few simple ways to keep your credit score in good shape.

First off, prioritize paying your bills on time. Missing payments on your credit cards, lines of credit and so on, can have a very negative impact on your score.

You can spend an entire lifetime building up for good credit. All it takes is one mistake to negatively impact you.”
Second, try to keep your credit cards at no more than 65% of their limit. This is the sweet spot that credit scorers are looking for.

Thirdly, you should avoid the “free credit score” services out there because they’re just looking to sell you credit, or sell your information to someone who does.

When you’re looking for credit, what they’re going to ask you is, ‘What are you looking for credit for?’ And you’re going to say, ‘Well, I’m looking to get a mortgage, or I’m looking to get a car loan.’ And then what they’re going to do is they’re going to sell your information to banks and mortgage brokers and people out there who are able to supply you with credit.

Instead, what you should do

is go directly to the credit scoring companies. They’re required by law to give you your credit information directly, without affecting your score. TransUnion offers an online form, found here. Equifax has multiple types of credit reports you can order here.

You also want to try to limit the number of credit inquiries by different lenders. When you’re shopping around at different banks, the number of inquiries can add up as each bank makes an inquiry to see what they can offer you.

But as a mortgage broker, we have access to multiple lenders all at once.

You could effectively come see a mortgage broker, get one inquiry done, and that inquiry is good for 20 financial institutions, As opposed to having to go directly to every bank. If you have any questions, contact your local Dominion Lending Centres mortgage professional near you at your Grande Prairie branch, 780-513-6611

Terry Kilakos

TERRY KILAKOS

Dominion Lending Centres – Accredited Mortgage Professional
Terry is President of North East Mortgages based in Ville Ste-Laurent, QC.