Tuesday, November 16, 2010
Thursday, July 22, 2010
Wednesday, June 2, 2010
Prime Rate up 0.25% to 2.50%
Bank of Canada increases overnight rate target to 1/2 per cent and re-establishes normal functioning of the overnight market
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 1/2 per cent. The Bank Rate is correspondingly
raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal
operating band of 50 basis points for the overnight rate.
The global economic recovery is proceeding but is increasingly uneven across countries, with
strong momentum in emerging market economies, some consolidation of the recovery in the
United States, Japan and other industrialized economies, and the possibility of renewed weakness
in Europe. The required rebalancing of global growth has not yet materialized.
In most advanced economies, the recovery remains heavily dependent on monetary and fiscal
stimulus. In general, broad forces of household, bank, and sovereign deleveraging will add to the
variability, and temper the pace, of global growth. Recent tensions in Europe are likely to result
in higher borrowing costs and more rapid tightening of fiscal policy in some countries - an
important downside risk identified in the April Monetary Policy Report (MPR). Thus far, the
spillover into Canada from events in Europe has been limited to a modest fall in commodity
prices and some tightening of financial conditions.
Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent
in the first quarter, led by housing and consumer spending. Employment growth has resumed.
Going forward, household spending is expected to decelerate to a pace more consistent with
income growth. The anticipated pickup in business investment will be important for a more
balanced recovery.
CPI inflation has been in line with the Bank's April projections. The outlook for inflation reflects
the combined influences of strong domestic demand, slowing wage growth, and overall excess
supply.
In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and
to re-establish the normal functioning of the overnight market. 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.
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.
Information note:
The next scheduled date for announcing the overnight rate target is 20 July 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 22 July 2010.
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 1/2 per cent. The Bank Rate is correspondingly
raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal
operating band of 50 basis points for the overnight rate.
The global economic recovery is proceeding but is increasingly uneven across countries, with
strong momentum in emerging market economies, some consolidation of the recovery in the
United States, Japan and other industrialized economies, and the possibility of renewed weakness
in Europe. The required rebalancing of global growth has not yet materialized.
In most advanced economies, the recovery remains heavily dependent on monetary and fiscal
stimulus. In general, broad forces of household, bank, and sovereign deleveraging will add to the
variability, and temper the pace, of global growth. Recent tensions in Europe are likely to result
in higher borrowing costs and more rapid tightening of fiscal policy in some countries - an
important downside risk identified in the April Monetary Policy Report (MPR). Thus far, the
spillover into Canada from events in Europe has been limited to a modest fall in commodity
prices and some tightening of financial conditions.
Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent
in the first quarter, led by housing and consumer spending. Employment growth has resumed.
Going forward, household spending is expected to decelerate to a pace more consistent with
income growth. The anticipated pickup in business investment will be important for a more
balanced recovery.
CPI inflation has been in line with the Bank's April projections. The outlook for inflation reflects
the combined influences of strong domestic demand, slowing wage growth, and overall excess
supply.
In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and
to re-establish the normal functioning of the overnight market. 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.
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.
Information note:
The next scheduled date for announcing the overnight rate target is 20 July 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 22 July 2010.
Wednesday, May 12, 2010
Should I lock in?
Leah's Bottom Line: If you are debating whether to lock in or not, ask yourself: What was the prime rate at when I chose this product a few years ago? Let's assume it was 2007 and you chose a prime minus 0.6% variable rate mortgage. At that point in time, prime rate was 4.75% (meaning your rate was 4.15%) and you clearly qualified with respect to your financial situation at that point in time.
While most of us have gotten used to incredibly low interest rates, this isn't the norm. Prime rate has been at 2.25% for the last 11 months so when we hear that it will rise, we generally panic. However, you need to ask yourself "are you comfortable in your current financial situation to sustain an increase in prime back to where it normally is?" If prime rate has averaged roughly 4.81% over the last 5 years, and you have a built in discount of say, prime minus 0.6% - that means your rate would be 4.2% on average. Translated into a monthly payment via any mortgage calculator on the web and see if you are comfortable with that figure. This is roughly what your payments would have started out at back in 2007 if we use the above example. If something has changed in your life and you are no longer comfortable with that figure or you feel more secure in a fixed rate, you may want to lock in.
Leah
ARTICLE from Canadian Mortgage Trends:
With people banking on the main interest rate going up in June, it seems like a good time to for homeowners to lock in their fixed-rate mortgages.
While most of us have gotten used to incredibly low interest rates, this isn't the norm. Prime rate has been at 2.25% for the last 11 months so when we hear that it will rise, we generally panic. However, you need to ask yourself "are you comfortable in your current financial situation to sustain an increase in prime back to where it normally is?" If prime rate has averaged roughly 4.81% over the last 5 years, and you have a built in discount of say, prime minus 0.6% - that means your rate would be 4.2% on average. Translated into a monthly payment via any mortgage calculator on the web and see if you are comfortable with that figure. This is roughly what your payments would have started out at back in 2007 if we use the above example. If something has changed in your life and you are no longer comfortable with that figure or you feel more secure in a fixed rate, you may want to lock in.
Leah
ARTICLE from Canadian Mortgage Trends:
With people banking on the main interest rate going up in June, it seems like a good time to for homeowners to lock in their fixed-rate mortgages.
About 12 percent of mortgage holders with fixed-rate mortgages "locked in," or switched from variable rate mortgages, in the past year, , according to a report this month by Will Dunning, chief economist at the CAAMP , and another 10 percent had already switched from variable more than a year ago.
The rate for conventional five-year mortgages was at 6.25 per cent at the end of April, nearing the 5.25 per cent rate at the end of May last year - the lowest since 1973 when the Bank of Canada data began.
"As interest rates rise, expect home buyers to increasingly opt for fixed-rate loans, in turn leaving banks with more fixed-rate assets to hedge in the swap market" said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce in Toronto.
Housing starts rose to a seasonally adjusted annual pace of 201,700 units last month.
Thursday, May 6, 2010
Spring Fever Newsletter
Now that we are into May, Calgary is in full spring fever mode, despite our current weather not being anything spring-like! First time home buyers are abound, seeking deals before their rate holds expire, while variable rates are becoming more enticing with steeper discounts for those ready to take on the added risk.
There have been a multitude of changes over the last several weeks which have come into effect and may affect you in an upcoming purchase. To fully clarify exactly what these changes are, I'll devote this newsletter to explaining the latest changes and how they may affect you.
There have been a multitude of changes over the last several weeks which have come into effect and may affect you in an upcoming purchase. To fully clarify exactly what these changes are, I'll devote this newsletter to explaining the latest changes and how they may affect you.
| |
 | Higher Interest Rate Used to Qualify Clients |
| *These rules affect Hi-Ratio Mortgage Holders (ie: those with less than 20% down payment) Old Rules: Previously, if you signed on for a 3 year fixed rate term at 3.65%, I would have qualified you for the mortgage AT 3.65%. The only difference would have been a variable mortgage; those mortgages have always been qualified on higher rates to protect you again future rate increase and most commonly the 3 year POSTED bank rate would have been used to qualify you. New Rules: In order to eliminate a surplus of clients in the next several years who are no longer able to afford their houses as their renewal rate in 3 years is much higher, the new rule is that all clients are qualified on the "benchmark qualifying rate" unless you are signing on for a 5 year or greater fixed rate term, in which case you are qualified at that rate. For fixed rate mortgages with terms of less than 5 years as well as all variable mortgages, you are qualified based on the benchmark qualifying rate. What is the 'qualifying benchmark rate?' As of today, the rate is 6.10%. CMHC defines the benchmark rate as the Chartered Bank - Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada in the series "V121764" each Monday. Refer to the official link for the most up to date rate information. Leah's BOTTOM LINE: Based on a higher qualifying interest rate, borrowers will need approximately 25% more income in order to qualify for the same home compared to the old rules. | |
| |
| | Rental Properties |
Old Rules: Able to purchase a rental property with 5% down payment. As of April 19th, CMHC will also be implementing changes to the calculation of a borrower's Total Debt Service Ratio where rental income is generated from the subject property. 50% percent of the gross rental income from the subject property may be included into the borrower's gross annual income for the purposes of calculating the borrower's Total Debt Service Ratio.New Rules: Requires 20% down payment for rental properties. Leah's BOTTOM LINE: This is a more complex matter to explain, so I invite you to contact me directly to review your situation or alternatively, please read the CMHC link for more specific information. | |
| |
| | Re-financing Your Home |
| Old Rules: Previously able to re-finance up to 95% of the value of your home. New Rules: May only re-finance up to 90% of the value of your home. Leah's BOTTOM LINE: This will keep an additional 5% worth of equity in the home than before. | |
Tuesday, April 20, 2010
Bank of Canada warns higher rates ahead
From the Canadian Press:
The Canadian dollar rose sharply Tuesday as the Bank of Canada warned that it will be raising interest rates.
The Canadian dollar rose sharply Tuesday as the Bank of Canada warned that it will be raising interest rates.
At midday, the dollar was up 1.63 cents to 100.17 cents US.
The Bank of Canada kept its key lending rate unchanged Tuesday, but warned that its low-rate policy has a limited future.
The bank held the overnight rate at 0.25 per cent, as economists had expected.
But with the economy recovering and inflation running above the bank's two per cent target, the need for rock-bottom lending rates "is now passing," it said in a statement.
The extent and timing of any change in the key rate "will depend on the outlook for economic activity and inflation," the bank said. The bank also noted growth is "proceeding somewhat more rapidly" than it expected earlier this year, increasing the chance of a rate rise in the early summer.
| |
"Simply put, this statement marks a dramatic change in tone by the bank, and doesn't rule out possible 50 basis point moves," said Douglas Porter, deputy chief economist with BMO Capital Markets, in a commentary.
Porter predicted a June rate hike is now "likely," adding that the central bank is clearly much more concerned about inflation than previously indicated.
The bank sets a target level for the overnight rate, which is often called the key interest rate or key policy rate because it indicates the bank's thinking about the economy.
The overnight rate is the interest rate major financial institutions charge each other for one-day loans.
The rate has been at a very low 0.25 per cent since April 2009, when it was cut from 0.50 per cent as the recession worsened. It was at a recent peak of 4.5 per cent in October 2007.
The bank's "extraordinary policy" of ultra-low rates was introduced to boost the recovery, the statement said.
The bank is forecasting growth of 3.7 per cent this year, reflecting stronger global activity, strong housing activity in Canada and the bank's conclusion that policy stimulus advanced some spending into late 2009 and early 2010.
It's forecasting that Canadian economic growth will slow to 3.1 per cent in 2011 and 1.9 per cent in 2012.
Competing pressures
Bank governor Mark Carney is juggling competing pressures: the need to control inflation with a higher rate; the need to keep the cost of loans low to encourage business and consumer borrowing; and the strong dollar.
A bank rate increase could push the dollar even higher, hurting exports and jobs. While recognizing that growth is strong, the bank warned Tuesday about economic negatives: "the persistent strength of the Canadian dollar, Canada's poor relative productivity performance and the low absolute level of U.S. demand."
Although Carney expressed concern about inflation in March, the bank said it is expecting the rate to ease slightly in the second quarter, and remain slightly above the target two per cent rate this year before easing in the second half of 2011.
With files from The Canadian Press
Saturday, April 17, 2010
Overnight Interest Rate to Remain Low - For Now
Group urges BoC to keep rate promise - for now
The Bank of Canada should keep the overnight interest rate as is in April, but aim for a target interest rate of 1.25 per cent by October and 2.50 per cent by April 2011, the C.D. Howe Institute's Monetary Policy Council recommended.
Nine of the ten members of the Council - which provides an independent assessment of the Bank of Canada's strategy to reach a two per cent inflation target - recommended the Bank keep the key interest rate at 0.25 per cent for the time being.
But for the next announcement in June, the council was split on how the central bank should proceed. Six recommended the rate still be held at 0.25 per cent, while the four remaining members were split between wanting a 0.5 per cent and 0.75 per cent target rate. The Council's formal recommendations to the Bank of Canada are based on the group's median votes on rate changes.
In a report, the Council said members who favoured the Bank stay with its commitment tended to "highlight the role of emergency stimulus and inventory swings in recent growth numbers" while noting that the disappearance of one-time factors affecting prices will cause year-over-year inflation to moderate.
In contrast, members who wanted the Bank to raise the policy rate sooner and more steadily said domestic demand and inflation are running ahead of what was expected when the Bank's commitment to keep rates low was made, adding the yield curve and money growth rates are "consistent with continued expansion."
"In general, the strongest sentiment was that credibility in controlling inflation should be the Bank of Canada's paramount consideration," the report said. "There was strong sentiment in favour of the Bank's signaling clearly that monetary policy is likely to become much less accommodative as it exits its emergency stance."
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