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Monthly Archives: October 2018

Bank of Canada Announcement

 

Good morning

The leaves are falling, but the sky is not! As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

As predicted, the Bank of Canada has increased their Overnight Rate by 0.25% today. When this happens, it typically means that your Prime Rate is going to increase as well, but not always by the same amount. It can also mean that not every lender will adjust their prime rate the same way. Keep an eye out later today for further updates on your specific lenders’ prime rate.

The recent conclusion of trade talks with the United States has put Canada in a more solid position for the economy. This rate increase is not a surprise as at the beginning of the year the Bank of Canada indicated that there would be a number of increases this year. You have to admit that we have had it good for a long time and we can still continue to benefit from low rates but don’t panic!

Last year we saw two rate increases, each of 0.25%, and this is our third rate increase of 2018. The Bank is attempting to get interest rates back to their traditional average. You might be concerned about your cash flow and budgeting at this point and might be considering moving over to a fixed term mortgage. Fixed term interest rates have increased slightly with a range of X.XX% to X.XX% for a five-year fixed term.  Don’t forget that if you want to lock in you can take a shorter term that will typically have a lower rate attached to it.  If the net interest rate on your current variable is the same as or higher than the current fixed term rates right now, even though the prime rate will still remain low for a while now, it might be time to chat about your options including potentially converting to a fixed term.  Converting to a fixed term isn’t right for everyone as other factors are to be taken into consideration such as payment change, income and future plans such as renovating, moving etc.  Call me so I can calculate what your new payment would look like and also if it is suitable for you.

To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision today:

“The global economic outlook remains solid. The US economy is especially robust and is expected to moderate over the projection horizon. The new US-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment. However, trade conflict, particularly between the United States and China, is weighing on global growth and commodity prices. Financial market volatility has resurfaced, and some emerging markets are under stress but, overall, global financial conditions remain accommodative. The Bank will be monitoring the extent to which the USMCA leads to more confidence and business investment in Canada.

The Canadian economy continues to operate close to its potential and the composition of growth is more balanced. Despite some quarterly fluctuations, growth is expected to average about 2% over the second half of 2018. Real GDP is projected to grow by 2.1% this year and next before slowing to 1.9% in 2020.

Household spending is expected to continue growing at a healthy pace, underpinned by solid employment income growth. Households are adjusting their spending as expected in response to higher interest rates and housing market policies. In this context, household credit growth continues to moderate and housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.”

Based on this outlook, the Bank is optimistic about the future of the Canadian economy now that the new North American Trade Deal has been finalized. Remember, taking advantage of these low rates is a great way to pay down your mortgage faster!

Currently variable rate products are still lower than current fixed term rates, however if concern regarding impending rate increases is going to affect your monthly budget, locking in now might be a good option. Call me to book a pro bono consultation and let’s discuss your current financial situation. I’ll be in touch again for the next announcement on December 5, 2018.

I wonder if I can ask a favour, going with my theme of “Let the sun set and the leaves fall along with Canadian consumer debt with our help”if you hear a friend or family member talk about going thru a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them.  In either of these cases, would you mind passing my contact information on to them – this is very much appreciated.

Yours truly,

Eva Neufeld
Accredited Mortgage Professional
Mortgage Tailors
Phone:  780-244-0505
Email:  eva@mortgagetailors.com
Web:  www. Mortgagetailors.com

 

 

Are You Self Employed? Looking to Buy a Home!

Self- employed and looking to buy a home?  Qualifying rules have changed!

 

 

With more than 410,000 Albertans who are self- employed, times have changed when it comes to qualifying for a mortgage.  With the B 20 Stress test in place having Albertans to qualifying at the Bank posted rate (currently 5.34%) many can qualify for less than they thought. With accountants doing their jobs to save business owners tax money, it doesn’t help them when it comes to qualifying for a mortgage. What you draw personally is currently what you get to use as your income to help buy that home.  But we do have options:

 

Insured Stated Income Program: Insured Purchase with 10% down payment.

This program is designed for self-employed borrowers who are unable to provide traditional income verification but have a proven 2-year history of managing their credit and finances responsibly. Eligible borrowers typically own a small size business for a minimum of two years, which can be confirmed via a third-party arm’s length document. In addition, the borrower is required to declare their annual income and annual business revenue, which should be reasonable based on the industry, length of operation and type of business.

 

Stated Income with 20% down payment

This program is designed for self- employed borrowers who cannot prove traditional income.  They can verify they own a business however may not be in business for the required 2 years. We look at a more common sense approach to this by acquiring 6 months bank statements to determine what income we can actually use. The interest rates generally float around normal conventional rates however do have a small lender fee involved.

 

The latest self- employed program released is for those who either recently purchased a business and do not have 2 years history or for those who may be in a trade with proven income and recently went self- employed.  This is a fairly new program so we will expect a few hiccups as lenders and insurers truly understand what they can do with the insurer’s guidelines.

 

OSFI has said there is new rules coming down the pipe for self- employed borrowers which many mortgage approvals rely on the equity in the property, “OSFI will be taking steps to ensure this sort of equity lending ceases.”

 

Should you have any questions, please do not hesitate to reach out to your Top 3 Edmonton Mortgage Broker by calling (780) 244-0505 or email to eva@mortgagetailors.com