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Events Shaping the Mortgage
Rate Market in 2009
posted Dec 3, 2009
Bank of Canada Announcement-more good news! October 20/09
Bank of Canada Stays The Course!
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010
OTTAWA - 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.
Recent indicators point to the start of a global recovery from a deep, synchronous recession. Global economic and financial developments have been somewhat more favourable than expected at the time of the July Monetary Policy Report (MPR), although significant fragilities remain.
A recovery in economic activity is also under way in Canada. This resumption of growth is supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence. However, heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.
Given all of these factors, the Bank now projects that, relative to the July MPR, the composition of aggregate demand will shift further towards final domestic demand and away from net exports. Growth is expected to be slightly higher in the second half of this year than previously projected but to average slightly lower over the balance of the projection period. The Canadian economy is projected to grow by 3.0 per cent in 2010 and 3.3 per cent in 2011, after contracting by 2.4 per cent this year. This is a somewhat more modest recovery in Canada than the average of previous economic cycles.
The Bank now expects that the output gap will be closed in the third quarter of 2011, one quarter later than it had projected in July. Correspondingly, inflation is also expected to return to the 2 per cent target in the third quarter of 2011, one quarter later than in July's projection.
While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.
Conditional on the 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. Consistent with this conditional commitment, the Bank will continue to conduct longer-term Purchase and Resale Agreements based on existing terms and conditions and according to the accompanying schedule: Download Schedule (pdf)
In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.
Information note: 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 Thursday, 22 October. The next scheduled date for announcing the overnight rate target is 8 December 2009.
The recent run up in the dollar has impacted the short term view of a quicker recovery. There has been noise in the markets over the last two weeks of anticipated inflationary pressures due to positive economic signals.This caused bond rates to rise in the anticipation of inflation and this rise in yields reduced spreads and did force up the long term rates ,but not by a lot.With the announcement today of no rate increase and the Bank's stand very clear,pressure came off bonds and the dollar retreated somewhat.Note the Bank of Canada's comment about their inflation target returning to 2% in the third quarter of 2011,one quarter later than anticipated. Variable rate mortgages are still in the drivers seat.We have seen some lenders recently dipping into the sub prime area on their variables so now we are seeing rates of 2.15% and up.
On the fixed side we are now in the range of 3.99 to 4.19 for 5 year money.
posted Oct 5, 2009
Bank of Canada-variable rate clients enjoy!
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010
OTTAWA - 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.
Global economic and financial developments have been broadly in line with the Bank's expectations. Following a deep, synchronous recession, recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets. In Canada, economic growth, the output gap, and inflation in the first half of 2009 have evolved largely as expected in the Bank's July Monetary Policy Report (MPR).
Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are supporting domestic demand growth in Canada. Combined with recent information on inventory adjustments and automotive production, this suggests that GDP growth in the second half of 2009 could be stronger than the Bank projected in July. Total CPI inflation is still expected to trough in the current quarter before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance.
Conditional on the 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.
While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside. Persistent strength in the Canadian dollar remains a risk to growth and to the return of inflation to target. In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.
Information note:
The next scheduled date for announcing the overnight rate target is 20 October 2009. 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 October 2009. Bank of Canada leaves nothing to the imagination.On hold until mid 2010 and note the reference to their target inflation rate of 2% not being obtained until 2011.The appreciation in the Canadian dollar is weighing on our recovery on the export front.
Rates on new variable rate mortgages which have been around prime +.75% are now getting closer to Prime at Prime +10-.20.We may expect to seem prime parity soon and maybe even a dip into the discount side.All in all,variable is still a good way to go,especially with long term rates still falling.
Fixed Rate Update
With the global economic recovery moving into place,money markets and money supply have been slowly stabilizing.In the fall of 2008, bond spreads were approaching 3% and now are around 1.57%.This has meant a continuing reduction in long term rates as lender funding costs have decreased and as they fight in a very competitive market for market share
Good news for consumers as 5 year rates have fallen below 4%,once again and we are seeing no signs of any market forces that would cause rates to increase in the near term.The best available rate for new mortgages only closing within 30 days now stands at 3.69 %.
There is also an interesting new product that combines a variable rate with a fixed rate mortgage, that blends both rates together,for those people who do not know whether to to choose fixed or variable .
Mortgage Professionals Marketplace
The summer has been very busy and saw the launch of the Mortgage Professionals Marketplace.The marketplace is a work in progress as it develops and expands based on your suggestions.Last month we had a promotion on our mailed newsletter and my email newsletter that offered a draw for a $100.00 Grizzy Grill gift certificate to the first 25 clients to open an account.Congrats to Nancy Drew,our winner.
Our next contest is for another $100.00 Grizzly Grill certificate.Be one of the first 25 people to list an item on the site and you qualify for the draw. Now that summer is over,I am starting to see more activity on the site.One client is just about to list a bunch of UHaul moving boxes that she bought and used in a recent move and an air conditioner.if you haven't seen the site lately, go to http://mortgagepro.webwoods.com/ and see all the expanded categories available for you to list under.Kijiji is obviously the site of choice for most people to list on but because it is so busy your item quickly gets lost and you have to pay to bring it up to the top of the list.I listed two items on Kijiji this summer and they were always sending me emails on the fact that my item needed to be updated to bring it back into the public's eye and always at a cost.
The marketplace is free to all except commercial advertisers and it's success will be guaged on how many of you use it.I am always open to suggestions for improvement if you have any.
One point-when you set up an account,it will not be active until it is approved.I have done this to monitor activity and maintain the quality of the site.Once approved you will get am email letting you know and in most cases,that is same day.
Canadian First Financial Centre
We are very pleased with the response we are getting from clients who have never gone through a financial planning experience or who have had the need for someone to review where there are in their financial life cycle.We have made some major positive changes in our clients' financial lives.I would urge you to make an appointment with Bruce if you do not have any financial plan in place.If all of these resources had been around 20 years ago,I wouldn't be sitting here still working!I would be retired so don't let your present become your future!Phone Bruce.
We have now added another product to what we can offer through our sister company.Along with RRSP's,RESPs,TFSA's,Mutual Funds,Financial Planning and Budgeting and Wealth management,we now offer life insurance,disability,insurance and critical illness insurance and we can design a comprehensive insurance program that will meet all your current and future needs.If you currently have mortgage insurance in place and you have not reviewed it lately,it would be an opportune time to review what coverage you have versus what you could obtain through an independent policy.
Here is my story.I was sold a policy when I was younger through a friend.I moved around and never heard from him until I was notified that my file was in someone else's hand as he had left the company.I never heard from that person.I didn't make a change in the policy until I was 45 and I got the policy when I was 20.I made the changes myself based on what I had learned myself and changes in my life.
Most people get a policy and forget about it until it is too late or too costly to make changes.Life insurance should be reviewed each year .Just like a car needs a tune up so does your financial profile to make sure you are on track to have the right coverage in place for your circumstances and the right security for your family. If you have mortgage life insurance in place take the time to review it with Bruce to make sure it is the best plan for you.
posted Aug 3, 2009
Bank of Canada Reinforces their position-rates are going to stay down
Variable rate mortgage clients rejoice!
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010
OTTAWA -July 21st- 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 global economy has suffered an intense, synchronous recession and considerable excess supply has opened up. There are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilize the global financial system. However, the recovery is nascent. Effective and resolute policy implementation remains critical to sustained global growth.
The dynamics of the recovery in Canada remain broadly consistent with the Bank's medium-term outlook in its April Monetary Policy Report (MPR). Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth. However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.
Some of the early strength in domestic demand represents a bringing forward of household expenditures, which modestly alters the profile of growth over the projection period relative to the April MPR. The Bank projects that the economy will contract by 2.3 per cent in 2009 and then grow by 3.0 per cent in 2010 and 3.5 per cent in 2011, reaching production capacity in the middle of 2011.
Total CPI inflation declined to -0.3 per cent in June and should trough in the third quarter of this year before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance. Core inflation held up at 1.9 per cent in the second quarter of 2009. The Bank still expects core inflation to diminish in the second half of this year before gradually returning to 2 per cent in the second quarter of 2011.
While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.
Conditional on the 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 Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April MPR.
Information note: 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 23 July 2009. The next scheduled date for announcing the overnight rate target is 10 September 2009.
Mortgage Professionals Marketplace
A lot of changes have been made in the original format to make sure it provides all the necessary areas of interest to you as home owners and to prospective home buyers.
You will receive my newsletter in the mail next week and you will see a flyer in the email about the Marketplace and a promotion to win a restaurant gift certificate.Bookmark http://mortgagepro.webwoods.com/ and check it regularly.The site is now open to the public and anyone can list sale items.Tell your friends and co-workers.All you need to do is open an account.You will find a full description of the areas of the website on the site and it is free! If you know of any charity or fund raising group that needs to promote their event,let them know about our "Charity" page.
I am getting a lot of interest from businesses who wish to list their goods and services on the site as a resource for you.If you know of any business whose products or services would appeal to homeowners and home buyers,tell them to contact me.
I would like to welcome Edwards Ford and Tony Agostino as one of our first advertisers.Tony is new to the car business but is setting sales records with some of the new Ford products available.You will see his listing on the site shortly.I must confess.I have never owned a Ford before and in December I picked up a Ford Flex Limited.I compared it to other manufacturer's cross overs costing thousands more and decided on the Flex.It is without a doubt the best car I have ever driven and loaded with features.It looks pretty neat too!So check out Tony and the Ford line up.
I would also like to welcome Haven Home Comfort and Heating.I have used this company for service and purchased a new gas fireplace from my cottage through them.Marcie McMullen is the lady to talk to.I would recommend them highly.
Look under "Health Services" for "Be Now Natural Food and Supplements" and"Let Go Wellness Centre". They will be placing their ad shortly.
Your Mortgage and a Financial Plan
In our latest newsletter being mailed out,you will see a flyer on Canadian First Financial Centre.I can't begin to tell you the number of compliments we are receiving from clients on how we are incorporating their mortgage into a total new financial plan.
First time buyers especially love the budget approach to buying their first home. We can now reassure someone that they are not going to be"house poor" with their first home and we also make sure that they are looking at the other financial pillars that should be in place for their future all within a manageable budget.
If you haven't talked to Bruce Bark,our financial planner,about your current situation,he would be more than happy to conduct a review with you.
In a recent case,we reviewed the renewal of a mortgage for a client who was trying to pay off their mortgage in 11 years and then start contributing to an RSP ,as he had no retirement pension plan.We showed that client that his strategy would cost him over $200,000 they way he was planning to do it.We devised a new plan that was going to pay his mortgage out in 15 year instead of 11, but he would have over $200,000 in RSPs as a head start by the time he paid out his mortgage and we did it with no extra money out of his pocket!! A plan puts your finances in perspective and helps you realize your goals.A plan is reviewed every year with you to make sure you are on track.How's your plan????
posted July 9, 2009
Are You having a Fund Raising event?-Post it Here
Garage Sales?-Post it here!
Kingston,Ontario June 30th,2009 The Mortgage Professionals Marketplace is now live.Go to www.mortgageprokingston.com and click on the yellow side bar fourth from the top of the page.That will take you to the MPP Marketplace page. I have listed one item to give you an example of what a listing can look like. Click on "Marketplace", then "Household Items",then use drop down menu to "Sell" category. You will only see one item posted under Items to Sell and that is my listing for a Propane Stove to give you an example of what a listing can look like. Browse through the categories available for listing. There are three main categories. Marketplace you find buy,sell,trade,garage sales,servcies available and services wanted. Real Estate-this is where you can list cottage for rent or for sale or property you have for sale or rent.It will also eventually have real estate listings from local realtors. Finally,Charitythis is where you can list fund raising events,school fund raising,basically anything to do with charity events To get started request an account by emailing kim@mtgprof.com under the heading "New Account MPP" She will set up an account for you and email you the details.Then go to the site and start listing.There is a help file on the site.If you have a question or if you would like to see another category added email me at brian@mtgprof.com with your questions and/or suggestions. Are you a member of a charity,church group,sports team?Do you have an upcoming event.You can list it here. Your listing will be seen by hundreds of home owners and home buyers.Looking for appliances?Selling appliances?Need furniture,Selling furniture?The opportunities are endless.
Now the site will only be as good as you make it.Kiiji started someplace and The MPP marketplace has the potential to be a one stop shop for all things to homeowners and prospective home buyers. The service is free of charge to all clients of the Mortgage Professionals and all posts are monitored for content. Based on the survey we sent out in the Spring and your comments,we designed the site in accordance with your feedback and suggestions.If there is anything further that you think of that could enhance the site,we welcome your suggestions. I am offering a Grizzly Grill gift certificate for 100.00 in a draw from among the first 25 accounts opened in the Mortgage Professionals Marketplace so get started today. If you know of a business that could benefit from advertising directly to home buyers and home owners under services offered,have them contact me directly at brian@mtgprof.com.We have a very inexpensive corporate advertising program available.
Bond Market Pushes Long Term Rates Higher-What Up!
I have been telling you that bond market rates were edging higher and the result was that rates on long term mortgages rose from about 3.79% to 4.29-4.49%. Many of you have been emailing wondering what is going on so here is my short synopsis as I see it. Rates have edged higher but not drastically and there is nothing happening on the economic horizon that would make me feel like rates are going to scream off the map. Prime is still at an all time low and still expected to carry through until 2010 so those of you in variables are enjoying the benefit of rates, that are much lower than the current 5 year fixed rate, so enjoy it. I will continue to monitor the economic signals and let you know if there is a change in the wind that could impact you. If you are uncomfortable and feel like you want to review your situation,please call Mitch to book an appointment to meet.He can be reached at 613-384-4000 ext 236.
Your Mortgage and a Financial Plan
MAKING A MORTGAGE FIT Since my June newsletter many of you having been taking advantage of booking an appointment with Bruce,our financial planner,for a budget review. >From the feedback I am getting the response has been very positive and Bruce is able to give you a new perspective on planning for life's events, while incorporating your mortgage into that financial plan.
posted June 16, 2009
Fixed Rates and The Bond Market
Bond Market Jump Prompts Increase in Long Term Rates
Kingston,Ontario June 4,2009
I told you in my last email that bond market rates had risen reducing the spread to lenders,which could impact long term rates. The trend did continue as renewed optimism in the economy and a bull run in the markets left bonds on the sidelines.While rates did go up,it was not that significant, but it will bear watching in the weeks ahead.For the last few years summer has brought on rate increases and this summer maybe no different.
We were seeing quick close specials around 3.54% and those have disappeared and we are back to 3.79 on 30 day money.We are seeing 5 year rates still around 3.89-3.99 with some just over the 4% mark. If you like statistics and/or want to monitor where bond rates go,I have put a link in the sidebar for you to use.When you link to the bond page scroll down to "Government of Canada Benchmark Bond Yield 5 years" The chart there will show you the trend from the last 2 quarters of 2008 to date and the sidebar next to the chart will show you bond yields over the last 5 days.
Lenders have been telling us that bond yields have been less of an indicator of rate trends during the credit crisis, but with that working its way through the economy,lenders are again blaming bond yields for increased rates.
As I have told you in the past the average historic spread over the 5 year bond up until last year was 1.20%.That spread rose to as high as 3% during the credit crisis and now stands at 1.58% on the average 5 year discounted rate of 3.99%.Lenders are looking to achieve a spread of 1.70% to 1.80% over bond.As you can see,rates have come down a long way from where they were last year as yield spreads have decreased and are still historically great.
Bank of Canada Leaves Prime Alone and Sets the Tone
There is no reading between the lines on this announcement.It is pretty clear we are in for interest rate stability on prime right through until the middle of 2010 and maybe beyond.Those of you in variables should be very,very happy and there is a very good case for taking a variable rate mortgage on a refinance or a new purchase.A copy of the announcement follows:
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010
OTTAWA - 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. Information received since the Bank's April Monetary Policy Report (MPR) is broadly consistent with the Bank's medium-term outlook for output and inflation in Canada. The economy is undergoing major restructuring in a number of sectors. The already significant output gap will continue to widen through the third quarter, putting downward pressure on inflation. The Bank continues to expect that the global and Canadian recoveries will be more muted than usual. In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency) proves persistent, it could fully offset these positive factors. The outlook is subject to considerable uncertainty. While the underlying macroeconomic risks are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection remain tilted slightly to the downside. Conditional on the 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 Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April MPR.
Information note: The next scheduled date for announcing the overnight rate target is 21 July 2009. 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 23 July 2009.
Your Mortgage and a Financial Plan
MAKING A MORTGAGE FIT
Thanks to those of you who attended our recent Cost of Procrastination webinar recently.I think we opened a few eyes to what people have been missing and what possibilities exist to improve your financial health.
For years we have been a society where credit has been the staple of every household without a lot of attention paid to how well we were doing in handling our finances. All that is about to change for my clients!
I am not just processing your mortgage now.The logo above speaks to what I am doing now with each and every client I see.I want to make sure you have a sound financial plan in place and I want to make sure your mortgage fits that financial plan. I am amazed at the results we have been able to achieve for people in their financial health by looking at all aspects of the finances.
Some people have found out they were spending more than they were making!Some people had no sense of direction as to where they were going financially and didn't know where to turn.Some people found out that they were paying their mortgage too quickly and losing money in the process!Some people found they had more money than they thought but they were not investing it wisely.Some people found out they were not going to be prepared for the cost of university or college for their children.Others found out their RSP plans were not going to get them where they needed to be when they retired.All of this revolves around how their mortgage was structured and it all starts with a budget.
So where are you in your finances?What is your cost of not taking the time to plan?Those that have taken the time with us so far have found a world of relief in finally having a direction in their financial life. Here is my suggestion to you.If you have any doubt about where you are going financially,make an appointment with Bruce Bark,our planner,to have him develop a budget for you.If there is a weakness,he will find it.He will show you the solution and if it involves your mortgage,he will bring me into the discussion to design the changes that need to be made. Bruce can be reached by calling him at the number shown in the sidebar or emailing him at bbark@canadianfirstfinancial.com
Mortgage Professionals Marketplace is Here!
We are just putting the finishing touches on the webpage and testing it to make sure everything works and it will be live next week.
What does it cost? Nothing! As a Mortgage Professional client, you request a log in name and password and we set up an account for you. Instructions will be on the website. You are then live and ready to go. Once you list an item, it is approved for content and then your listing will appear. You are all homeowners so the possibilities are endless. So start thinking about what you want to advertise so we can get the site up and running with a bang and we will send a special announcement out next week. Our website averages over 3400 visits a month!
posted June 16, 2009
Bond market Jumps on Encouraging Economic Signals
Kingston,Ontario May 11, 2009
Good news is Bad News for Rates May 09, 2009
The Canadian Press TORONTO The Canadian dollar bulked up by more than 1 1/2 cents US yesterday to a six-month high, lifted by brightening economic hopes supported by better-than-expected job data. The currency jumped to 86.91 cents US late in the afternoon, a gain of 1.62 cents from Thursday's close. This was up from below 77 cents in early March. It was the loonies' highest level since it spiked up by more than two cents on Nov. 4 as Americans elected Barack Obama -- a gain the Canadian currency quickly surrendered as it resumed a decline from almost 97 cents last September and from parity a year ago. Yesterday's upward move came after Statistics Canada reported the economy added 35,900 jobs last month -- confounding economist expectations that losses would continue for a sixth month, likely by 50,000. The currency was further bolstered by hopeful signs in Canada's main export market, as the United States shed 539,000 jobs, the fewest in six months and far smaller than market expectations of 620,000 job cuts. The loonie also got support from oil. The near-month crude contract was up $1.92 to US$58.63 a barrel on the New York Mercantile Exchange, continuing an upturn after trolling around the $50 range for more than month. "Oil prices are being driven higher by optimism over economic recovery and in response to soaring equities and associated weakness in the U.S. dollar,'' said British energy consultancy KBC Market Services. The economic numbers support the so-called "green shoots'' thesis that recent data indicate signs of revival. "All in all, we're seeing that growth currencies like Canada are doing very well as commodities are having a good run, and the world is focusing on the potential that global growth comes back,'' said Camilla Sutton at Scotia Capital.
What Does Renewed Optimism Do To Rates?
In times of recession and when everybody is out of the stock market,the bond market starts to shine and yields decrease.
Bond yields have been at historic lows and traditionally fixed rate mortgages were pegged to how yields in the bond market moved up and down.
I have told you in past emails how the bond market impacted rates in the past and how the current credit crisis added a "risk pricing" into bond yields that was not there before.
We have seen 5 year mortgage rates fall below 4% for the first time in history and without the risk factor,our real 5 year rate right now should be around 3.20%.It stands currently around 3.79-3.95 depending on the lender.
The 5 year bond yield has risen about 40 basis points in the last three weeks due to renewed optimism in the financial markets and a move back into stocks.If this trend continues,pressure will be felt on yields and we will see rates go back up.In the depths of a recession there is continued signs of rates falling,but in a recovery the number #1 enemy of rates is inflation.
People always ask me when do I lock in.The obvious answer is when the rate hits the lowest point, but when is that point?It's like trying to time the stock market and buy low and sell high.Impossible to do! It is a personal choice and your guide should be affordability.If you are nervous about rates going up,close to the wire in your finances and you have waited until they have come down to a reasonable level,which is where they are now,it is a good time for you to lock in.
If on the other hand you have a good variable rate,with prime now at 2.25% and not expected to move at all until mid 2010,you may choose to ride it out as your rate average over time would be better than it would have been had you locked in at the outset.
I remember the last time rates bottomed out at around 4.35% for a 5 year term and we thought it would continue.It didn't.This time the reason rates have dropped is totally different from an economic standpoint,compared to previous recessions.There is always one thing that is the same out of every recession. Rates will still go up eventually and it bears watching to see if the good economic signs outweigh the bad ones in the weeks and months ahead.
There is probably no better time in history to make sure your mortgage fits your financial plan,especially when rates are so low.Don't have a plan?Join our webinar.See information below.
If you need an appointment to discuss your individual situation,please feel free to call Mitch to set up an appointment at 613-384-4000 ext 236.Please bear in mind that I am booking appointments currently one week in advance due to the response from many of you who are taking the opportunity to review their current mortgage in light of today's rates.
posted Apr 26, 2009
VARIABLE RATES-Reading Between the Lines
Not much to read between here.They have said it.Assuming we don't get into an inflationary cycle,they expect to keep the Bank rate where it is until the second quarter of 2010.For all of you in variables,it is another round of good news.
Lenders are responding by lowering their rates in lock step with the Bank of Canada dropping their prime to 2.25%.
Last month I said to frame your interest rate update advice on your mortgage as it will probably be the lowest rate you will ever pay.Looks like you can replace it with this month's!!!
Bank of Canada's announcement follows.
Bank of Canada lowers overnight rate target by 1/4 percentage point to 1/4 per cent and, conditional on the inflation outlook, commits to hold current policy rate until the end of the second quarter of 2010
OTTAWA - The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of a percentage point to 1/4 per cent, which the Bank judges to be the effective lower bound for that rate. The Bank Rate is correspondingly lowered to 1/2 per cent. The deposit rate - the rate paid on deposits held by financial institutions at the Bank of Canada - is left unchanged at 1/4 per cent and provides the floor for the overnight rate. Details of the Bank's operating framework at the effective lower bound can be found here.
In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in all major economies. Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels. While more aggressive monetary and fiscal policy actions are underway across the G20, measures to stabilize the global financial system have taken longer than expected to enact. As a result, the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009. The Bank now expects the recovery to be delayed until the fourth quarter and to be more gradual. The economy is projected to grow by 2.5 per cent in 2010 and 4.7 per cent in 2011, and to reach its production capacity in the third quarter of 2011. Given significant restructuring in a number of sectors, potential growth has been revised down. The recovery will be importantly supported by the Bank's accommodative monetary stance.
The Bank expects core inflation to diminish through 2009, gradually returning to the 2 per cent target in the third quarter of 2011 as aggregate supply and demand return to balance. Total CPI inflation is expected to trough at -0.8 per cent in the third quarter of 2009 and return to target in the third quarter of 2011. While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.
With monetary policy now operating at the effective lower bound for the overnight policy rate, it is appropriate to provide more explicit guidance than is usual regarding its future path so as to influence rates at longer maturities. Conditional on the 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 Bank will continue to provide such guidance in its scheduled interest rate announcements as long as the overnight rate is at the effective lower bound.
To reinforce its conditional commitment to maintain the overnight rate at 1/4 per cent, the Bank will roll over a portion of its existing stock of one- and three-month term Purchase and Resale Agreements (PRAs) into six- and twelve-month terms at minimum and maximum bid rates that correspond to the target rate and the Bank Rate, respectively. These longer-term PRAs will be issued according to the schedule released today.
Today's decision to lower the policy rate by 25 basis points brings the cumulative monetary policy easing to 425 basis points since December 2007. It is the Bank's judgment that this cumulative easing, together with the conditional commitment, is the appropriate policy stance to move the economy back to full production capacity and to achieve the 2 per cent inflation target. The Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework to be outlined in the Bank's Monetary Policy Report on 23 April.
Information note:
The next scheduled date for announcing the overnight rate target is 4 June 2009.
FIXED RATES
Wow-who would have ever thought!Mainstream finance rates on 5 year money are running around 3.85%-4.05%,depending on the lender, with 30 day quick close refinance and purchase no frills type product running around 3.69%.Those of you in discounted variables are still in a great position.Those of you in fixed we are talking to everyday.In fact,I must apologize.I am swamped with mortgage inquiries to refinance and I am now running appointments one week ahead.
In many cases,it pays to refinance now ,while rates are low ,to get the benefit of the extension to your mortgage beyond it's expiry, at the reduced rate.
Most penalties being applied are Interest Rate Differential that I explained in my last newsletter.Even with IRD,most people are recouping their cost within the first one or two years of their new mortgage.
We are finding that some lenders are playing games with their penalties.If you know of someone who is considering refinancing,make sure they ask the lender how their penalty is being calculated.We always ask to make sure the client is getting the best deal on payout.I can't say the same for the Banks.
We have one lender coming out with a no fee program to cover all costs except the penalty.Just waiting to find out the rate and the particulars.
If in doubt whether it is worthwhile for you,contact Mitch at 613-384-4000 ext 236 to set up an appointment.
posted Mar 23, 2009
Bank of Canada Down Again!!
For all of you who have been calling about locking in,I have been telling you to hold on until the latest Bank of Canada announcement so you can get a sense of direction as to where the market is heading.I have sent you a copy of the latest Bank of Canada announcement and following that an excellent analysis of where we are from the economists at TD Bank.
Suffice to say,that if you are in a variable you should stay there.From everything we are seeing there is no expected inflation pressure until 2010.
Long term rates still have room to fall and the spread on a discounted variable is still well in your favour compared to 5 year rates or longer terms.I would look at the payment you are currently making .With rates this low,you should adjust your payment to take advantage of the low rates to pay down more principal.
For those of you in fixed rate mortgages,it may be time to review were your mortgage is to see if there is an opportunity to refinance your rate now while rates are low.Call Mitch at 613-384-4000 ext 236 to set up an appointment
Regards
Brian
Bank of Canada lowers overnight rate target by 1/2 percentage point to 1/2 per cent
OTTAWA - The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 3/4 per cent.
The outlook for the global economy has continued to deteriorate since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in major economies. The nature of the U.S. recession, with very weak auto and housing sectors, is particularly challenging for Canada.
Stabilization of the global financial system remains a precondition for the global and Canadian economic recoveries. The timely implementation of ambitious plans in some major countries to address toxic assets and recapitalize financial institutions will be critical in this regard.
National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January. Potential delays in stabilizing the global financial system, along with larger-than-anticipated confidence and wealth effects on domestic demand, could mean that the output gap will not begin to close until early 2010. These factors imply a slightly lower profile for core inflation than was projected in the January MPRU.
The effects of the recent aggressive monetary and fiscal policy actions in Canada and other major economies will begin to be felt in the second half of this year and will build through 2010. Once the global financial system stabilizes and global growth recovers, the underlying strength of the Canadian economy and financial sector should ensure a more rapid recovery in Canada than in most other industrialized economies.
The Bank's decision to lower its policy rate by 50 basis points today brings the cumulative monetary policy easing to 400 basis points since December 2007. Consistent with returning total CPI inflation to 2 per cent, the target for the overnight rate can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.
Given the low level of the target for the overnight rate, the Bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing. In its April Monetary Policy Report, the Bank will outline a framework for the possible use of such measures.
The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 per cent inflation target over the medium term.
Information note:
The next scheduled date for announcing the overnight rate target is 21 April 2009. A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 23 April 2009.
TD Economics
Commentary
March 3, 2009
Bank of Canada signals that the rate will remain
at this level or lower into 2010 and promises a
framework for quantitative easing on April 23rd.
As widely expected, the Bank of Canada delivered a 50 basis point cut, bringing its overnight rate to 0.50%. With the output gap widening, core inflation having tracked below the 2% target, and financial stress persisting, the Bank had every reason to cut. In particular, lending from Canada's core financial institutions perseveres, but wide spreads and tight credit persist on open markets. Recognizing the scarce room for traditional monetary policy to ease, the Bank explicitly cited the possibly of future credit and quantitative easing and promised a framework in its April Monetary Policy Report. Nonetheless, Canada's monetary policy alone cannot cure unresolved systemic risks that continue to plague international financial mar-
kets.
The Bank's communiqué focused attention to our in- ternational linkages and the external drivers of Canada's recession, noting the particular challenge from "the nature of the U.S. recession, with very weak auto and housing sectors" and the prerequisite of stabilization in global fi- nancial markets before Canada can rebound. The Bank endorsed timely and worldwide resolution of the paralyzing uncertainties around troubled banks' toxic assets as the
lynchpin for a return to financial stability. With U.S. consumers dogged by a steep and ongoing contraction, Canada's export sector has drooped behind. The Bank notes the shock to domestic wealth resulting from protracted and deepening financial instability internationally. Going forward, diminished household wealth will weigh down down domestic consumption,further widening the output gap.
The Bank believes that "the output gap will not begin to close until early 2010." The Bank's revised outlook for growth will not be clarified until April, and, as of January, the Bank forecast 3.8% growth for 2010. While this will presumably be revised downward, the Bank's 2010 outlook will likely remain optimistic relative to our projected 1.4% rebound (our Quarterly Economic Forecast will be released March 12). The widening output gap will provide an additional downdraft to core inflation, already having tracked below the Bank's 2% target in January. The Bank's announcements have become increasingly transparent, and this communiqué provided a clear statement of its policy stance, relating that "the overnight rate can be expected to remain at this level or lower until there are clear signs that excess capacity is being taken up." Going forward, facing a widening output gap and disinflationary pressures, we see an increasing tilt towards a further 25 basis point cut. This would place
the overnight rate's ultimate floor at 0.25%, and we expect not to see the overnight rate raised until the latter half of 2010.
Perhaps most important in the communiqué was the statement that quantitative easing is being explicitly examined. Governor Carney has hinted strongly at the Bank's "considerable flexibility" in his recent remarks. The communiqué brought clarity that the Bank was considering such action down the road, but would establish a well considered policy framework before proceeding. Setting an April release date for a framework provides excellent transparency on Bank thinking, but also signals that, if re- quired, less traditional measures will not likely be under- taken until the spring.
Grant Bishop,Economist
posted Jan 29, 2009
The Mortgage Professionals Webinar Learning Series
In February I will be offering two webinar learning events :1)The Tax free Savings Account 2)Introduction to Financial Planning -Planning for Life the Wealthy Way
These webinar events will be about 20 minutes and will be scheduled so you can attend one while at work during the day or at home in the evening.
I can handle up to 24 attendees at the same time.I will send you an email invite and on the day that they are to take place you simply log in and dial a toll free number to access the audio portion of the webinar.
As space is limited,if you are interested in being invited to these events,please email me at brian@mtgprof.com under the heading "Webinar"
In the body put "Please send me an invite.I would like to attend during 1)work day or 2)evening at home
If there is another topic that you would like to see done in a webinar,please also let me know and I will schedule one for you around that topic.
Bank of Canada Announcement
Drops again by .50%
20 January 2009
Bank of Canada lowers overnight rate target by 1/2 percentage point to 1 per cent
OTTAWA - The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 1 1/4 per cent.
The outlook for the global economy has deteriorated since the Bank's December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity. Heightened uncertainty is undermining business and household confidence worldwide and further eroding domestic demand. Major advanced economies, including Canada's, are now in recession and emerging-market economies are increasingly affected. Energy prices have fallen as a result of substantially weaker global demand.
Stabilization of the global financial system is a precondition for economic recovery. To that end, governments and central banks are taking bold and concerted policy actions. There are signs that these extraordinary measures are starting to gain traction, although it will take some time for financial conditions to normalize. In addition, considerable monetary and fiscal policy stimulus is being provided worldwide.
Canadian exports are down sharply, and domestic demand is shrinking as a result of declines in real income, household wealth, and consumer and business confidence. Canada's economy is projected to contract through mid-2009, with real GDP dropping by 1.2 per cent this year on an annual average basis. As policy actions begin to take hold in Canada and globally, and with support from the past depreciation of the Canadian dollar, real GDP is expected to rebound, growing by 3.8 per cent in 2010.
A wider output gap through 2009 and modest decreases in housing prices should cause core CPI inflation to ease, bottoming at 1.1 per cent in the fourth quarter. Total CPI inflation is expected to dip below zero for two quarters in 2009, reflecting year-on-year drops in energy prices. With inflation expectations well-anchored, total and core inflation should return to the 2 per cent target in the first half of 2011 as the economy returns to potential.
Against this background, the Bank today lowered its policy rate by 50 basis points, bringing the cumulative monetary policy easing to 350 basis points since December 2007. Guided by Canada's inflation-targeting framework, the Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent target over the medium term. Low, stable, and predictable inflation is the best contribution monetary policy can make to long-term economic growth and financial stability.
Information note:
A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report Update on 22 January 2009. The next scheduled date for announcing the overnight rate target is 3 March 2009.
Where are Variable Rates Headed?
Last month's rate announcement brought the Bank of Canada's rate down to 3.25%.The Bank's however,lowered only to 3.50%.
We have another .50% drop and it remains to be seen if the bank's drop their rates in line with this rate drop.I would think anything other than a full .50% reduction will cause a full scale public revolt and I think it should.
This is all good news for anyone in a discounted variable and even for those who have recently taken a prime plus variable,especially since fixed rates continue to fall.
The next scheduled announcement from the Bank of Canada is March 3rd.
Where are Long Term Rates?
Last month I told you that when interest rates last bottomed out in 2005,the five year bond rate hit 3.21% and the corresponding 5 year interest rate was 4.39%, a mere 1.17% above the bond rate.
I also told you the 5 year bond rate was 1.85% down from 2.21.Today that rate has reduced further to 1.62 and has been as low as 1.52%
Five year rates are now well below 5% and are now in the range of 4.59-4.79% range, but as can be seen, there is still a huge premium over the 5 year bond rate with still some room to move as liquidity slowly comes back into the market.
We may see 5 year rates approach the lows we reached in 2004.Interestingly, we also have a great one year rate of 3.89%.
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