Blog

Bank of Canada may Hold Interest Rates

2010-08-26 | 08:09:58

Continuing weakness in the US economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc. 

“North America’s story is again darkening,” says CIBC’s Chief Economist Avery Shenfeld in the latest Global Positioning Strategy report. “We were looking for a material second-half slowdown for the US but, as it turns out, it’s already happened.”

Economic growth stateside from April to June is being revised downward, Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by US monetary policymakers. 

While Canada is in much better economic shape – it leads the US, Eurozone, UK and Japan in first-half growth and has a record gap over the US in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the US Federal Reserve is still on hold,” Shenfeld contends. http://www.darrenrobinson.ca/about-refinancing

Smith Maneuver on a Vacation Property

2010-08-19 | 12:25:39

I was able to help a client today find a mortgage product that would allow him to use the equity in his cottage to invest in the market.  What made it difficult is that the the cottage has water access-only (which lenders tend not to like!).  In addition, the interest he pays for his mortgage will be tax-deductible, allowing him to use the refund to pay his property tax for the year.  How's that for creative financing!  http://www.darrenrobinson.ca/about-refinancing

Misconceptions About the Harmonized Sales Tax (HST)

2010-08-12 | 09:37:35

A survey conducted by Royal LePage Real Estate Services revealed that Ontarians and British Columbians have misconceptions about how the Harmonized Sales Tax (HST) affects real estate transactions. 

When respondents were asked to provide examples of comments heard from buyers and sellers regarding the HST and its effect on the housing market, almost half of the comments (46.7%) indicated that confusion about HST remains more than one month after its introduction. Among the most common responses to the survey’s open-ended questions were that many homebuyers incorrectly believed HST applies to the sale price of resale properties.

Nearly half (43.9%) of the 765 realtors polled in Ontario and BC said the HST that took effect in both provinces July 1st is having the greatest effect on the cooling residential real estate market, compared to just 28.4% who cited rising interest rates as having the greatest effect. In all, more than 86% of respondents said the HST is affecting their business somewhat.

The HST applies to the purchase price of a newly-built home, and fees for services and commissions associated with any real estate transaction, but it does not apply to the purchase price of resale homes. Resale homes comprise the bulk of transactions in the Canadian housing market, and the majority of agents surveyed by Royal LePage indicated that new home sales account for less than 10% of their business (http://www.darrenrobinson.ca/buying-a-home).

To Pay Down My Mortgage or Not?

2010-08-12 | 09:26:56

The age-old financial dilemma of whether you should use any excess cash to contribute to your RRSP or pay down your mortgage has gained renewed relevance in the aftermath of the financial crises. 

Canadians are learning to save more, invest more conservatively and de-risk their retirement account. So, despite what your personal conclusion might have been last time you thought about the smack-down between RRSPs vs mortgages, the economic equation has recently tilted in favour of paying down debts vs building up assets, but only for those of you with low tolerance for any investment risk. 

As you probably noticed, despite recent moves by Mark Carney and the Bank of Canada to nudge the numbers upward, the interest rate being earned from GICs, term deposits and government bonds remains pathetically low.

For those risk-averse savers who abhor the volatility of the stock market, money is earning 3% – if they are willing to lock in for a few years – and less than 1% on demand deposits and savings accounts. Hey. Did you ever hear of the rule of 72? Guess how long it takes money to double if your retirement’s nest egg is earning 1% per year? Yes. You guessed it. 72 years.

I have a better idea. Do the math. If you are paying 6%, 5% or even 4% on your mortgage – which is on the liability side of your personal balance sheet – but your financial assets are (only) earning 1%, 2% or 3%, then you are effectively destroying wealth. It’s the debt equivalent of constantly buying high and then selling low in the stock market (http://www.darrenrobinson.ca/about-refinancing).

Choosing the Best Mortgage Term

2010-08-03 | 07:36:11

Selecting the mortgage term that is right for you can be a challenging proposition for even the savviest of homebuyers, as terms typically range from six months up to 10 years http://www.darrenrobinson.ca/buying-a-home.

By understanding mortgage terms and what they mean in dollars and sense, you can save the most money and choose the term that is best suited to your specific needs.

The first consideration when comparing various mortgage terms is to understand that a longer term generally means a higher corresponding interest rate. And, a shorter term generally means a lower corresponding interest rate. While this generalization may lead you to believe that a shorter term is always the preferred option, this is not always the case. Sometimes there are other factors – either in the financial markets or in your own life – that you will also have to take into consideration when selecting the length of your mortgage term.

If paying your mortgage each month places you close to the financial edge of your comfort zone, you may want to opt for a longer mortgage term, such as five or 10 years, so that you can ensure that you will be able to afford your mortgage payments should interest rates increase.                           

By the end of a five- or 10-year mortgage term, most buyers are in a better financial situation, have a lower outstanding principal balance and, should interest rates have risen throughout the course of their term, will be able to afford higher mortgage payments.

If you are shopping for a mortgage for an investment property, you will likely want to consider choosing a longer mortgage term – depending, of course, on your overall plan. This will allow you to know that the mortgage payments on the property will be steady for a long time and enable you to more accurately project your future income from the property.

As well, if you know you will not be staying in the same home for the next five or 10 years, opting for a shorter term can save you significant fees when it comes to early payout penalties http://www.darrenrobinson.ca/about-refinancing.

Choosing the right mortgage term is a unique decision for each individual. By understanding your personal financial situation and your tolerance for risk, I can assist you in choosing the mortgage term that will work best for your situation.

As always, if you have any questions about mortgage terms or your mortgage in general, I’m here to help!

Missed Bill Payments

2010-07-22 | 06:52:57

Have you ever forgotten to pay a bill on time, missed the due date or misplaced a bill?  If you have, you are not alone. These are the top three reasons that Canadians give for why they have missed paying their bills, according to the TD Canada Trust Everyday Banking Poll. 

Canadians may be overlooking the implications of missed bill payments. A surprising 43% of respondents think that there is no consequence if they miss a bill payment – that they just pay the overdue amount on their next bill.

“If you routinely miss your bill payments each month, it can impact your credit rating,” says Carrie Russell, Senior Vice President, TD Canada Trust. “Missing payments by more than 30 days could influence your likelihood to secure a future loan or a credit card because credit-granting companies look at past performance on bill payments as an indicator of future behaviour. It is essential to pay your bills on time. Why jeopardize your ability to access credit in the future?”

54% of Canadians report that they miss bill payments but, fortunately, of those who miss payments, 73% of Canadians only miss paying their bills one to three times per year.

“Paying interest and late charges on missed bills, even a few times a year, is like throwing money away,” says Russell. “One of the easiest ways to save money and protect your credit score, is to pay bills on time and online. Make sure you have the right everyday bank account – it should include features and services that help make it easy for you to pay your bills on time, keep your payments organized and avoid interest and late charges. If not, you should consider making a change.”