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Monthly Archives: July 2013

Bank of Canada Announcement

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and, as promised, here is your personal update form me on the Bank of Canada announcement on changes on their Overnight Rate which in most cases impacts your Prime Rate.

 

At 10:00 am EST, Wednesday July 17, 2013, the Bank of Canada again did what we expected them to do… they continued to maintain their overnight rate.  What this means to you is that once again the prime rate on our mortgage, line of credit or student loan will not change and remains at 3%.  This of course is fabulous news but as always, I like to remind you to make the most of the low payments you still have as the rate will increase in the future.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision:
“Global economic growth remains modest, although the pace of economic activity varies significantly across major economies.  The U.S. economic expansion is proceeding at a moderate pace, with the continued strengthening in private demand being partly offset by the impact of fiscal consolidation.  The global economy is still expected to pick up in 2014 and 2015.

In Canada, economic growth is expected to be choppy in the near term, owing to unusual temporary factors, although the overall outlook is little changed from the Bank’s early projections.  Despite ongoing competitiveness challenges, exports are projected to gather momentum, which should boost confidence and lead to increasingly solid growth in business investment.  The economy will also be supported by continued growth in consumer spending, while further modest declines in residential investment are expected.”

Based on the news and the somewhat stagnant and muted outlook for inflation, the Bank does not expect to increase their rate in the foreseeable future with any change most likely to occur not until maybe early 2014!  Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates have gone up as the bond market has rallied over the last few weeks, at around 3.39% to 3.59% for a five year fixed term.

Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now.  However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you.  The next announcement on any change to the prime rate is September 4th, 2013 at which time I will update you again on any change.

 
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Posted by on July 17, 2013 in Uncategorized

 

Stricter Debt Ratio Standards on the Way

If you are a typical borrower, your debt ratios largely determine if you are approved for a mortgage. For applicants who push the limits of qualification, those approvals have been tougher to come by.  That is a direct result of last years mortgage rule tightening, which imposed stricter debt ratio calculations.  By year end, those calculations will get even more conservative.

CMHC issued new guidelines for calculating debt ratios and confirming income documents.  As of December 31, 2013 these new guidelines shall apply for insured deals.

For variable income:  Lenders must use “an amount not exceeding the average income of the past 2 years.” Variable refers to things like bouses, tips, seasonal employment and investment income.

For rental income:  If a borrower owns other non owner occupied property, the principal, interest, property taxes and heat (P.I.T.H) on these properties must be either:

*deducted from the gross rent revenue to establish net rental income: or

*included in other debt obligations when the Total Debt Service (TDS) ratio is being calculated.

For guarantor income:  A guarantor’s income must not be used in GDS?TDS ratios “unless they occupy the home and is the spouse or common-law partner of the borrower.

Unsecured credit lines & credit card:  For these debts, No less than 3% of the outstanding balance must be included in the monthly debt payments.  Interest only payments are no longer considered on credit lines.

Secured lines of credit:  Lenders must factor in “the equivalent” of a payment that is based on the outstanding balanced amortized over 25 years.  That payment must use either the contract rate of the LOC or the 5 year Benchmark.

Heating costs:  “Actual heating costs records” of a property must be obtained.  When no such history is available, the heat expense used in debt ratio calculations must be reasonable.  Some lenders have already moved to using this heating cost formula, (square footage X $0.75)/ 12 months

 

What all this means for borrowers pushing the envelope is it will be tougher to qualify and you will be able to purchase less of a home.  For those with great credit, income etc., having those secured lines of credit even at zero balance now have to be factored into your ratio’s.

 
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Posted by on July 8, 2013 in Uncategorized