Could Your Mortgage Use a Spring Check-Up?

General Denise Dunkley 20 Feb

Now that spring has sprung, it’s a perfect time for your annual mortgage health check-up. If you make time for a quick review each spring, it may yield you some fruitful financial savings.

 

Your 2016 home loan review will examine the most common potential monthly savings opportunities, including high-interest credit card debt or fixed loan payments. Reviewing your options annually could result in having more money left over at the end of each month.

 

With interest rates at historic lows, now is the time to investigate all your options and perhaps save yourself thousands of dollars per year! Imagine what you could do with the savings – anything from renovating or investing to going on a much-needed vacation or putting money towards your children’s education.

 

Right now, you can lock into a five-year mortgage below 3%. You could have done the same in 2001 but it would have been about 7%. In 1982 it would have been 18%. Even in the low-rate days of 1952, it would have been about 5.5%.

 

Borrowing costs are lower than any time in modern history. If your current rate is above 4%, now may be a good time for a free spring mortgage check-up.

 

Completing a straightforward annual review will keep your home financing as lean and trim as possible. In other words, you will have a clean bill of mortgage health, which is just what the doctor ordered!

 

If you’d like a free mortgage check-up, call or email me today! www.denisedunkley.ca

CHANGES TO DOWN PAYMENT REQUIREMENTS as of Feb 15, 2016:

General Denise Dunkley 11 Dec

Dec 11, 2015:

Today Finance Minister Bill Morneau announced changes to down payment requirements. Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from five per cent to 10 per cent for the portion of the house price above $500,000. We note that the 10% requirement does represent a graduated approach. The five per cent minimum down payment for properties up to $500,000 remains unchanged. 

We will provide further analysis as it becomes available.

Bank of Canada – Reduces Prime Lending Rate

General Denise Dunkley 15 Jul

The Bank of Canada cut its overnight rate target by 25 basis points to an historically low 0.5 percent today. The loonie immediately plunged to 77.5 cents U.S., down a full cent. The disparity between monetary policy in Canada and the U.S. is especially evident today as Janet Yellen, Chair of the Fed, is testifying before Congress this morning stating that she expects to raise interest rates in the U.S. this year. 

The Bank of Canada judges that the underlying trend in inflation is about 1.5 to 1.7 percent, below its 2 percent target. Moreover, they substantially reduced their estimate of economic activity this year and argue that the lower outlook increases the risk of further declines in inflation. Earlier this year, the Bank argued that economic growth would revive from the Q1 contraction in the second quarter. This clearly did not happen. Following a 0.5 percent decline in real GDP growth in the first quarter, the Bank is now estimating a further 0.6 contraction in Q2, bringing their forecast for 2015 growth to a mere 1.1 percent , down from their earlier forecast of 1.9 percent.

The disappointment has been in the energy sector and weaker-than-expected exports of non-commodity and no-energy products in the second quarter despite the decline in the Canadian dollar. The Bank points to a slowing in the global economy to explain the weak trade numbers. The U.S. economy experienced considerable weakness earlier this year owing to transitory factors.

Moreover, despite today’s release of 7 percent growth for China in Q2, the Bank attributes lower commodity prices to the weakness in China. I agree and suggest that the Chinese GDP figures are suspect and are likely closer to 6.8 percent (or lower) as most economists expected. Clearly the economy there has been slowing and recent government intervention in the Chinese stock market shows it will stop at nothing to appear to be in control.

The question in my mind is the effectiveness of a rate cut at this time. The follow-through at the financial institutions will likely be partial, as it was with the last rate cut in January. The prime rate and mortgage rates are likely to fall by no more than 10 to 15 basis points from already very low levels. At the margin, this might boost housing and consumer credit a bit, but these are not the sectors most in need of stimulus. Moreover, the Bank reiterated that household imbalances (debt levels) remain elevated and could edge higher. This is obviously a great time for borrowers to lock-in rates.

It is unfortunate that fiscal stimulus is off the table. Much-needed infrastructure spending should be increased as a proactive counter-cyclical measure that would be far more effective than a rate cut from historically low levels. But, alas, that is not going to happen.

The Bank now forecasts that growth will accelerate to a still modest 1.5 percent in the current quarter and 2.5 percent in Q4. Growth in 2016 is now forecast at 2.3 percent, down from the 2.5 percent forecast in April. Even with this rebound, the economy will not return to full capacity until the second half of 2017.

I think we will be lucky to achieve these moderate growth levels. The biggest risk to the global economy is a continued slowdown in China, the number-one commodity consumer, which would put additional downward pressure on commodity prices. As well, the recent nuclear agreement with Iran will, in time, increase oil supply further depressing energy prices.

The Bank of Canada is running out of room. There are now only 50 basis point between here and the zero interest rate boundary. What’s more, the Bank admits that “financial conditions for households and businesses remain very stimulative.” After the October election, fiscal stimulus will be essential.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

There’s a Hint…

General Denise Dunkley 8 Jul

Today in economic news – there is a hint that Government will lower BoC interest rate by .25 basis points as forecasts indicate Canada is on the margin of recession, partially due to low trade between other countries.

*July 15th is the next scheduled Monetary Policy Report and Interest Rate Announcement.

 

Bank of Canada – Holds Interest Rate

General Denise Dunkley 27 May

As was widely expected, the Bank of Canada left overnight rates unchanged at 0.75 percent and reiterated earlier comments about the likely trajectory of the Canadian economy. The Bank is more optimistic about the economy than private sector forecasters, believing that a rebounding U.S. and global economy will spur Canadian business investment and exports in coming months.

The problem is that business investment growth has declined sharply in the wake of the oil price rout and ensuing collapse in business investment in the oil patch–a situation that is not likely to improve anytime soon.

In addition, a marked further improvement in Canadian net exports likely awaits a further decline in the Canadian dollar, which has strengthened a bit recently with the uptick in oil prices. Although the Bank of Canada would never admit it publicly, they would welcome some slippage in the loonie to help boost trade. 

The Bank continues to aver that “the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy”. They will certainly continue with the current level of monetary accommodation until the economy moves closer to fully employment and inflation moves back to the midpoint of the 1-to-3 percent target band, which is not likely until next year. 

The Federal Reserve, on the other hand, will like raise rates in September. Nevertheless , the Bank will remain on the sidelines as the Fed rate move will no doubt be anticipated and put downward pressure on the Canadian dollar. 

Ironically, the Bank has no direct control over longer-term interest rates, which have risen significantly in the past month or so. Five-year government bond yields, which are closely linked to domestic mortgage rates, are determined by global market forces. These yields have risen in the U.S., Canada and elsewhere from a considerably overbought position, steepening the yield curve. Thus, the Bank will get no help from credit-sensitive spending to meet its forecast for stronger growth for the rest of this year.  
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Insurer’s Increase Premiums – June 1, 2015

General Denise Dunkley 22 May

CMHC to Increase Mortgage Insurance Premiums

OTTAWA, April 2, 2015 — As a result of its annual review of its insurance products and capital requirements, CMHC is increasing its homeowner mortgage loan insurance premiums for homebuyers with less than a 10% down payment. Effective June 1, 2015, the mortgage loan insurance premiums for homebuyers with less than a 10% down payment will increase by approximately 15%.

For the average Canadian homebuyer who has less than a 10% down payment, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on housing markets.

Premiums for homebuyers with a down payment of 10% or more and for CMHC’s portfolio insurance and multi-unit insurance products remain unchanged. The changes do not apply to mortgages currently insured by CMHC.

“CMHC completed a detailed review of its mortgage loan insurance premiums and examined the performance of the various sub-segments of its portfolio,” said Steven Mennill, Senior Vice-President, Insurance. “The premium increase for homebuyers with less than a 10% down payment reflects CMHC’s target capital requirements which were increased in mid-2014.”

CMHC is mandated to operate its mortgage loan insurance business on a commercial basis. The premiums and fees it collects and the investment income it earns cover related claims and other expenses while providing a reasonable rate of return on its capital holding target.

CMHC contributes to the stability of Canada’s housing finance system, including housing markets, by providing qualified Canadians in all parts of the country with access to a range of housing finance options in both good and bad economic times.

Effective June 1st, CMHC Purchase (owner occupied 1 – 4 unit) mortgage loan insurance premiums will be:

Loan-to-Value Ratio Standard Premium
(Current)		 Standard Premium
(Effective June 1st, 2015
Up to and including 65% 0.60% 0.60%
Up to and including 75% 0.75% 0.75%
Up to and including 80% 1.25% 1.25%
Up to and including 85% 1.80% 1.80%
Up to and including 90% 2.40% 2.40%
Up to and including 95% 3.15% 3.60%
90.01% to 95% — Non-Traditional Down Payment 3.35% 3.85%

CMHC reviews its premiums on an annual basis and will announce decisions on premiums following this review.

Canada Mortgage and Housing Corporation (CMHC) has been Canada’s authority on housing for more than 65 years.

CMHC helps Canadians meet their housing needs. As Canada’s authority on housing, we contribute to the stability of the housing market and financial system, provide support for Canadians in housing need, and offer objective housing research and advice to Canadian governments, consumers and the housing industry. Prudent risk management, strong corporate governance and transparency are cornerstones of our operations.

Why Are Bond Yields Rising? Will Mortgage Rates Follow?

General Denise Dunkley 15 May

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Why Are Bond Yields Rising? Will Mortgage Rates Follow?

Bond markets have tanked in the past several weeks, driving yields upward. Hundreds of billions of dollars have been wiped out in global bond markets. Ten-year government bond yields in Canada have risen 50 basis points (bps) in the past month as Treasury yields have jumped 32 bps. The rate increases in sovereign European bonds have been even greater, up roughly 60 bps for core Europe, albeit from extremely low levels. At today’s postings, 10-year Government of Canada bonds (GOCs) yields are at about 1.80% while 10-year Treasuries are at 2.24%. 

Why Are Bond Yields Rising? Will Mortgage Rates Follow?

In contrast, shorter-term yields are little changed. Yields on bonds worldwide coming due in one to three years — those most tied to interest-rate expectations — have remained little changed. Basically, fixed-income investors are signaling that they don’t expect central banks to begin hiking rates anytime soon. Indeed, JPMorgan Chase & Co. added to economic pessimism yesterday by revising down its estimate of U.S. Q2 growth to 2% from an earlier 2.5% on the heels of weaker-than-expected retail  sales data.

This comes a month before the Fed’s next meeting where policy makers will resume their debate over whether the economy is robust enough to warrant the first interest-rate hike since 2008. I don’t expect the Fed to raise rates in June and even a September rate hike is in question. So why are longer-term bond yields rising?

Bond markets were overbought earlier this year with widespread economic pessimism, especially in Europe, and ongoing deflation fears. In recent weeks, however, oil prices have rebounded with West Texas Intermediate (WTI) crude, the U.S. benchmark, climbing more than $17 a barrel from a six-year low of $43.46 on March 17. WTI is currently hovering around $60.00 a barrel. This rise in oil prices has dissipated fears of widespread deflation.

Euro pessimism has also diminished. After spending the end of last year slashing 2015 growth forecasts for the euro zone, economists are raising estimates again. As recently as February economists were calling for the euro zone to grow 1.1% this year. Now they’ve raised their median forecast to 1.4%, according to a Bloomberg survey.

Overbought positions have corrected. Data from the Commodity Futures Trading Commission show investors started 2015 with the biggest bet on U.S. government bonds in seven years. By the end of the first quarter, more than half that position was gone.

Will Higher Bond Yields Lead to Higher Mortgage Rates in Canada?

Probably not, at least for variable mortgage rates, even though interest rate spreads at financial institutions have been further squeezed. This has been one of the most competitive spring mortgage markets in years. Fixed mortgage rates could rise roughly 30 basis points if bond yields rise further. But today’s release of negative producer prices in the U.S. and disappointing retail sales suggest that further rate hikes will be muted. 
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

MEDIA ATTENTION: News Watch Today!

General Denise Dunkley 26 Mar

Dr. Sherry Cooper & DLC
LOTS of media coverage today!

 
Today at 3:15pm MT  (2:15pm PT / 5:15pm ET) the Alberta Government will be releasing their provincial budget and an hour before that, Quebec makes their budget presentation. There is A LOT of attention on these budgets so it makes sense that the media is looking to speak with an expert who can bring clarity to all the numbers. That’s why media all across Canada are asking to speak with DLC’s Chief Economist, Dr. Sherry Cooper.

BoC interest rates remain unchanged –

General Denise Dunkley 4 Mar

For Immediate Release
March 4, 2015
 
Dr. Sherry CooperVancouver, B.C.- Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres (DLC) was expecting the Bank of Canada to leave interest rates unchanged today in the wake of the surprising rate cut in late January. Governor Stephen Poloz signaled this wait-and-see stance last week, following criticism that his surprise move had destabilized financial markets, thwarting the Bank’s efforts to boost economic activity. “The Bank has become increasingly concerned about the dampening impact of the plunge in oil prices on business capital spending and production in the oil sector—a key component of Canadian economic expansion in the past,” said Dr. Cooper. Recent layoff announcements in the oil patch exacerbate this concern.
 
“For now, core inflation in Canada remains quite low, giving the Bank plenty of leeway to maintain a very accommodative policy stance,” said Dr. Cooper. “However, the weakness in the Canadian dollar will increasingly show through in rising import prices, as so many consumer and business products are imported from the U.S.”
 
The Bank of Canada continues to project that the dampening impact of lower oil prices will be felt in the first half of this year, leaving open the possibility of another rate cut in coming months, maybe as soon as its next meeting on April 15. The hope is that the weaker Canadian dollar will offset the oil price shock by boosting non-energy exports and investment. Lower oil prices have been good for consumers and non-energy businesses that are heavy users of energy.
 
Dr. Cooper believes that with “the U.S. economy leading global economic expansion, the Federal Reserve is poised to hike rates for the first time in nearly eight years, probably by the late-June meeting. This alone will put some further downward pressure on the Canadian dollar. Hence, the Bank of Canada’s caution in cutting rates now; but if non-energy exports and business investment do not follow through, the Bank will cut interest rates further, accepting the Canadian dollar fallout”.
 
“My view is that the Canadian economy will grow at about a 2-1/4 percent pace this year with long-term yields edging higher by yearend. In sum, while mortgage rates might fall a bit further in the next couple of months,” said Dr. Cooper. “They are headed higher by yearend. The rise, however, will be muted. Next year, expect the Bank of Canada to begin to tighten, raising overnight rates very gradually. This, of course, is predicated on a near-term bottoming in oil prices, edging to the $60-to-$65 a barrel range in the next year. As always, central bank action will be data dependent.”
 

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