After providing several comments on the potential housing bubble in Canada, ING Direct Canada president Peter Aceto told the Globe and Mail that Ottawa shouldn't tighten mortgage rules.
"High level, one-stroke fixes are too simple, and can have a very large impact," Aceto told the newspaper. "I worry about government-based tightening of the mortgage rules creating a much worse reaction - too fast of a cooling, which is not really good for anyone."
Aceto went on to say that banks can tighten rules themselves and do not need Finance Minister Jim Flaherty to "make the decision for them."
The comments come alongside a warning from Scotia Capital economists Derek Holt and Karen Cordes, who predicted a housing bubble forming in a report released late last year.
"You can't go from 100 km/h to zero in a nanosecond without suffering harsh consequences," they wrote, according to the Globe. "Newton's third law is the best caution that can be served up with respect to abruptly altering Canadian mortgage rules as per some of the whisper talk leading up to the March 4 federal budget after the currently government sharply liberalized the mortgage market in early 2007."
Thursday, February 11, 2010
Ottawa advised to tighten mortgage rules!
February 10, 2010
By Julian Beltrame
OTTAWA — The federal government should avoid major surgery and make only minor adjustments to deal with fears of overheating in Canada’s housing market, a number of leading economists said Wednesday.
Federal Finance Minister Jim Flaherty and the Bank of Canada have expressed concern that Canadians may be assuming too much debt in home purchases, debt that could rebound on them when interest rates rise.
But some solutions being floated in advance of Flaherty’s March 4 budget — doubling the minimum down payment to 10 per cent, or reducing the maximum amortization period from 35 to 30 years — could do more harm than good, the economists said.
“We want some sort of micro-surgery, not (taking) a pickaxe to the problem,” said Avery Shenfeld, chief economist with CIBC World Markets.
Bank of Nova Scotia economist Derek Holt said such radical surgery could cause home prices to crash and shake confidence in the consumer sector, a key driver of the fragile economic recovery.
Interviews with economists at four of Canada’s big banks showed some disparity of views as to the size of the problem, but general agreement that there is good reason for concern.
Most see home prices in Canada as being 10 to 15 per cent too high, largely because construction of new homes ground to a halt during the recession, decreasing available supply, and because of record-low interest rates, which are luring many new entrants into the market.
The Canadian Real Estate Association said this week it expects home prices to gain another five per cent to a record average of $337,500 this year. Sales will also hit record levels this year before tailing off next year, the association said.
It is unclear whether Flaherty is contemplating measures to cool prices and activity. Last weekend, the minister told reporters he was closely watching prices, but did not believe Canada had a housing bubble as yet.
But if one were to develop it could have wider repercussions on the economic recovery, as occurred in the United States, the economists said.
The best approach now is to take baby steps that would help moderate prices and activity and create a so-called soft landing.
One measure, according to TD Bank deputy chief economist Craig Alexander, would be to tighten the “income test” banks use to assess whether a prospective homeowner can meet monthly mortgage payments.
Already, banks build in a cushion in handing out floating mortgages by judging credit worthiness based on the borrower’s ability to make payments on the three-year rate, not the variable rate — about a two percentage point difference. Alexander said that could be increased to the still higher five-year posted rate.
A variation would be for banks to judge ability to meet payments not just on the mortgage but on all outstanding debts of a prospective homebuyer.
Yet another idea would be to deny government-backed insurance on mortgages for investment properties, thereby dampening speculation.
Economists believe such measures could help deflate any housing bubble without bursting it.
“It’s not in the interest of either buyers or lenders to have boom-bust cycles,” said the TD’s Alexander.
“That’s the lesson from the U.S. experience. If you have the wrong incentives and you don’t have regulations, you end up in a place you don’t want to be.”
Bank of Montreal economist Douglas Porter said if Ottawa chooses to raise the down payment requirement, it should do so modestly, perhaps to six or seven per cent.
Porter said, however, that he didn’t think reducing the amortization period to 30 years would be dramatic enough to cause a major disruption in the market.
Economists point out that home affordability is expected to tighten this summer even if Flaherty does not change the rules.
The introduction of the harmonized sales tax starting July 1 in Ontario and British Columbia — two of the hottest home markets — is expected to add a couple of thousand dollars to home purchases in those provinces.
And Bank of Canada governor Mark Carney is widely expected to start raising interest rates as early as July.
The Canadian Press http://news.therecord.com/Business/article/668809
By Julian Beltrame
OTTAWA — The federal government should avoid major surgery and make only minor adjustments to deal with fears of overheating in Canada’s housing market, a number of leading economists said Wednesday.
Federal Finance Minister Jim Flaherty and the Bank of Canada have expressed concern that Canadians may be assuming too much debt in home purchases, debt that could rebound on them when interest rates rise.
But some solutions being floated in advance of Flaherty’s March 4 budget — doubling the minimum down payment to 10 per cent, or reducing the maximum amortization period from 35 to 30 years — could do more harm than good, the economists said.
“We want some sort of micro-surgery, not (taking) a pickaxe to the problem,” said Avery Shenfeld, chief economist with CIBC World Markets.
Bank of Nova Scotia economist Derek Holt said such radical surgery could cause home prices to crash and shake confidence in the consumer sector, a key driver of the fragile economic recovery.
Interviews with economists at four of Canada’s big banks showed some disparity of views as to the size of the problem, but general agreement that there is good reason for concern.
Most see home prices in Canada as being 10 to 15 per cent too high, largely because construction of new homes ground to a halt during the recession, decreasing available supply, and because of record-low interest rates, which are luring many new entrants into the market.
The Canadian Real Estate Association said this week it expects home prices to gain another five per cent to a record average of $337,500 this year. Sales will also hit record levels this year before tailing off next year, the association said.
It is unclear whether Flaherty is contemplating measures to cool prices and activity. Last weekend, the minister told reporters he was closely watching prices, but did not believe Canada had a housing bubble as yet.
But if one were to develop it could have wider repercussions on the economic recovery, as occurred in the United States, the economists said.
The best approach now is to take baby steps that would help moderate prices and activity and create a so-called soft landing.
One measure, according to TD Bank deputy chief economist Craig Alexander, would be to tighten the “income test” banks use to assess whether a prospective homeowner can meet monthly mortgage payments.
Already, banks build in a cushion in handing out floating mortgages by judging credit worthiness based on the borrower’s ability to make payments on the three-year rate, not the variable rate — about a two percentage point difference. Alexander said that could be increased to the still higher five-year posted rate.
A variation would be for banks to judge ability to meet payments not just on the mortgage but on all outstanding debts of a prospective homebuyer.
Yet another idea would be to deny government-backed insurance on mortgages for investment properties, thereby dampening speculation.
Economists believe such measures could help deflate any housing bubble without bursting it.
“It’s not in the interest of either buyers or lenders to have boom-bust cycles,” said the TD’s Alexander.
“That’s the lesson from the U.S. experience. If you have the wrong incentives and you don’t have regulations, you end up in a place you don’t want to be.”
Bank of Montreal economist Douglas Porter said if Ottawa chooses to raise the down payment requirement, it should do so modestly, perhaps to six or seven per cent.
Porter said, however, that he didn’t think reducing the amortization period to 30 years would be dramatic enough to cause a major disruption in the market.
Economists point out that home affordability is expected to tighten this summer even if Flaherty does not change the rules.
The introduction of the harmonized sales tax starting July 1 in Ontario and British Columbia — two of the hottest home markets — is expected to add a couple of thousand dollars to home purchases in those provinces.
And Bank of Canada governor Mark Carney is widely expected to start raising interest rates as early as July.
The Canadian Press http://news.therecord.com/Business/article/668809
Monday, February 8, 2010
Pillar to Post Information Series
The Pillar To Post Information Series is a valuable resource to help buyers and sellers to learn about how their home works and how to keep it functioning properly. From safety tips to energy conservation ideas, the series is educational for both real estate professionals and homeowners. Here are just some of the topics covered:
High Humidity in the Home
High amounts of humidity in a residence can cause and accelerate mold growth, a musty odor, and can potentially cause health problems and property damage. This section in the Pillar To Post Information Series reviews causes, effects, and solutions.
Central Air Conditioning
Central air conditioning systems are a luxury in some areas of North America and a basic necessity in others. Whatever the purpose, it is in a homeowner's best interest to understand how to choose the right system for their home, and how to maintain it for optimal use.
Garage Door Safety
The garage vehicle door is often the largest moving object in a home and can weigh up to 400 pounds. The Information Series offers tips on how to ensure garage door safety, including checking the weight and pulley system, as well as the operability of the springs and the balance of the door itself.
Zero-Clearance Fireplaces
Adding a wood burning fireplace to an existing home is appealing to many homeowners; however, it can be an expensive proposition as it usually involves foundation construction and a masonry chimney. This article details the merits of a zero-clearance wood burning fireplace, which can be installed in almost any home, using existing floor structures and a prefabricated chimney.
Insulating the Basement
The basement is usually the last place people think to insulate, yet it can account for up to 1/3 of heat loss in a home. Adding or upgrading basement insulation can significantly cut down on energy use. A finished basement also creates a comfortable space, which is especially appealing to people looking to affordably extend their recreation and living areas.
High Humidity in the Home
High amounts of humidity in a residence can cause and accelerate mold growth, a musty odor, and can potentially cause health problems and property damage. This section in the Pillar To Post Information Series reviews causes, effects, and solutions.
Central Air Conditioning
Central air conditioning systems are a luxury in some areas of North America and a basic necessity in others. Whatever the purpose, it is in a homeowner's best interest to understand how to choose the right system for their home, and how to maintain it for optimal use.
Garage Door Safety
The garage vehicle door is often the largest moving object in a home and can weigh up to 400 pounds. The Information Series offers tips on how to ensure garage door safety, including checking the weight and pulley system, as well as the operability of the springs and the balance of the door itself.
Zero-Clearance Fireplaces
Adding a wood burning fireplace to an existing home is appealing to many homeowners; however, it can be an expensive proposition as it usually involves foundation construction and a masonry chimney. This article details the merits of a zero-clearance wood burning fireplace, which can be installed in almost any home, using existing floor structures and a prefabricated chimney.
Insulating the Basement
The basement is usually the last place people think to insulate, yet it can account for up to 1/3 of heat loss in a home. Adding or upgrading basement insulation can significantly cut down on energy use. A finished basement also creates a comfortable space, which is especially appealing to people looking to affordably extend their recreation and living areas.
Thursday, February 4, 2010
Is a home a good investment?
Is a home a good investment?
If you are renting right now, you may have spent some time thinking about buying a home. There are some very good reasons to invest in a home, but there are also reasons to think with care about taking this step, especially if this is your only investment.
Why would I want to invest in a home?
*
You are investing in something that has value: When you buy a home, you own it (at least the part that you don’t owe the bank through a mortgage).
*
Your home can go up in value: You may be able to sell your home for more money than you paid for it. You can use that money to spend on a new home, save, invest, or do whatever you like.
*
You get to live in your investment: You have to live somewhere. You can’t live in a Guaranteed Investment Certificate (GIC) or mutual fund.
*
The cost may be about the same as rent: In some cases, your monthly mortgage payment to the bank may be about the same as what you would pay in rent.
*
It forces you to save: With each mortgage payment you make, you own a little more of your home. The more you own of your home when you sell it, the more money that goes into your pocket.
What are the dangers of putting all my money in my home?
*
Housing prices can fall: If you buy your home when prices are up, and then have to sell when prices are lower, you could lose money.
*
Bad luck happens: Homes can get damaged by fire, wind, or water. You should have home insurance, but insurance doesn’t always cover everything.
*
Getting your money may not be easy: It can often take months to sell your home and get your money back.
*
There are other costs: There are lots of costs when you own a home, including roof repairs, painting, heat, property taxes, and hydro, to name just a few.
Remember: Don’t put all your savings in one investment.
Buying a home can be an important part of your investment plan. Still, think carefully about your financial situation before you take this major step. You are usually better off if you have a number of different investments. Then, if one does poorly, you can hope the others do better.
If you are renting right now, you may have spent some time thinking about buying a home. There are some very good reasons to invest in a home, but there are also reasons to think with care about taking this step, especially if this is your only investment.
Why would I want to invest in a home?
*
You are investing in something that has value: When you buy a home, you own it (at least the part that you don’t owe the bank through a mortgage).
*
Your home can go up in value: You may be able to sell your home for more money than you paid for it. You can use that money to spend on a new home, save, invest, or do whatever you like.
*
You get to live in your investment: You have to live somewhere. You can’t live in a Guaranteed Investment Certificate (GIC) or mutual fund.
*
The cost may be about the same as rent: In some cases, your monthly mortgage payment to the bank may be about the same as what you would pay in rent.
*
It forces you to save: With each mortgage payment you make, you own a little more of your home. The more you own of your home when you sell it, the more money that goes into your pocket.
What are the dangers of putting all my money in my home?
*
Housing prices can fall: If you buy your home when prices are up, and then have to sell when prices are lower, you could lose money.
*
Bad luck happens: Homes can get damaged by fire, wind, or water. You should have home insurance, but insurance doesn’t always cover everything.
*
Getting your money may not be easy: It can often take months to sell your home and get your money back.
*
There are other costs: There are lots of costs when you own a home, including roof repairs, painting, heat, property taxes, and hydro, to name just a few.
Remember: Don’t put all your savings in one investment.
Buying a home can be an important part of your investment plan. Still, think carefully about your financial situation before you take this major step. You are usually better off if you have a number of different investments. Then, if one does poorly, you can hope the others do better.
Wednesday, February 3, 2010
Pay Your Mortgage Faster!
With interest rates at an all-time low, many Canadians are taking advantage of the savings by refinancing their mortgages to consolidate debt, make home renovations, invest in real estate or other ventures, or moving up the property ladder.
Following are ways to take even further advantage of this excellent rate environment by paying down your mortgage faster.
Tip #1
Prepay early in the mortgage
Make extra payments as early as you can after getting a mortgage because the loans are interest-heavy upfront and the faster you pay down your principal, the more interest savings you will accumulate over the long run. Within the first five to seven years of your mortgage is where the largest portions of interest payments are contained. This not only will save you thousands of dollars in interest payments, but it will also increase the speed at which you are accumulating equity in your property. Many mortgage products allow you to make up to 20% more in payments per year.
Tip #2
Make an annual lump sum payment
Whether you use your tax refund, receive an inheritance or get a Christmas bonus, you should apply as much as possible directly to your principal. Most lenders allow you to pay 20% in lump sum payments per year without penalty. I can help you determine exactly how much you can prepay and what maximum percentage of your principal you are allowed to pay without penalty each year.
Tip #3
If your payments go down, don’t lower the payment amount
If you are on a variable-rate mortgage and the rates go down your payment will also often go down. Instead of making the lower mortgage payments, however, it’s best to call your lender and let them know that you would like to
continue making payments for the original amount. I can help you determine if there is a charge for making the extra payment. Even with the charge, in most cases, it is still worth it and will help you pay down your principal faster.
Tip #4
Round up your payments even if it’s just a little
If your monthly mortgage payment is $776.22 and you were to round up your payment an extra $23.78 a month to $800 – that’s less than a dollar a day – you would effectively reduce your mortgage amortization from 35 years to just over 32 years right away or from 25 years to just over 23 years.
TIP #5
Increase your payments with your pay increases
If your income increases, try not to keep your mortgage payments the same. Although the disposable income is a joy to spend on unnecessary luxuries in the short-term, the long-term benefits of being mortgage free faster and saving those interest payments will far outweigh the short-term joys. Pretend that your income did not increase and maintain the lifestyle that you are currently living.
Tip #6
Increase the frequency of your payments
You can also change the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. Basically, with accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year.
As always, if you have any questions about paying your mortgage down faster, I’m here to help!
Following are ways to take even further advantage of this excellent rate environment by paying down your mortgage faster.
Tip #1
Prepay early in the mortgage
Make extra payments as early as you can after getting a mortgage because the loans are interest-heavy upfront and the faster you pay down your principal, the more interest savings you will accumulate over the long run. Within the first five to seven years of your mortgage is where the largest portions of interest payments are contained. This not only will save you thousands of dollars in interest payments, but it will also increase the speed at which you are accumulating equity in your property. Many mortgage products allow you to make up to 20% more in payments per year.
Tip #2
Make an annual lump sum payment
Whether you use your tax refund, receive an inheritance or get a Christmas bonus, you should apply as much as possible directly to your principal. Most lenders allow you to pay 20% in lump sum payments per year without penalty. I can help you determine exactly how much you can prepay and what maximum percentage of your principal you are allowed to pay without penalty each year.
Tip #3
If your payments go down, don’t lower the payment amount
If you are on a variable-rate mortgage and the rates go down your payment will also often go down. Instead of making the lower mortgage payments, however, it’s best to call your lender and let them know that you would like to
continue making payments for the original amount. I can help you determine if there is a charge for making the extra payment. Even with the charge, in most cases, it is still worth it and will help you pay down your principal faster.
Tip #4
Round up your payments even if it’s just a little
If your monthly mortgage payment is $776.22 and you were to round up your payment an extra $23.78 a month to $800 – that’s less than a dollar a day – you would effectively reduce your mortgage amortization from 35 years to just over 32 years right away or from 25 years to just over 23 years.
TIP #5
Increase your payments with your pay increases
If your income increases, try not to keep your mortgage payments the same. Although the disposable income is a joy to spend on unnecessary luxuries in the short-term, the long-term benefits of being mortgage free faster and saving those interest payments will far outweigh the short-term joys. Pretend that your income did not increase and maintain the lifestyle that you are currently living.
Tip #6
Increase the frequency of your payments
You can also change the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. Basically, with accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year.
As always, if you have any questions about paying your mortgage down faster, I’m here to help!
Tuesday, February 2, 2010
Canadian Facts And Figures!
Canadian facts and figures
• 6 big banks, approximately 73 banking institutions in total
• The big banks are all universal – offering retail, commercial and investment banking services. Some boutique investment and commercial banks exist but they are relatively small
• Banks have minimal off-balance-sheet holdings
• Banks’ return on equity generally 13% to 20%
• Home ownership rate: 68.4% of the population
• Subprime less than 5% of the mortgage market
• Relatively low penetration of derivatives and securitisation
(27% of mortgages repackaged and sold as bonds)
• Mortgage default rate less than 1%
Source: McKinsey
Dates: 2008 & 2009, except Canadian home ownership figures, which come from the 2006 census.
• 6 big banks, approximately 73 banking institutions in total
• The big banks are all universal – offering retail, commercial and investment banking services. Some boutique investment and commercial banks exist but they are relatively small
• Banks have minimal off-balance-sheet holdings
• Banks’ return on equity generally 13% to 20%
• Home ownership rate: 68.4% of the population
• Subprime less than 5% of the mortgage market
• Relatively low penetration of derivatives and securitisation
(27% of mortgages repackaged and sold as bonds)
• Mortgage default rate less than 1%
Source: McKinsey
Dates: 2008 & 2009, except Canadian home ownership figures, which come from the 2006 census.
Monday, February 1, 2010
Your RRSP can help you buy a home!
First-time homebuyers who are Canadian residents can withdraw up to $25,000 from their RRSP TAX FREE. Through Canada’s Home Buyers Plan (HBP) you and your spouse can each withdraw up to $25,000 (as of the 2009 federal budget) to build or buy a qualifying home.
Getting access to your RRSPs through the HBP is fairly easy. Fill out form T1036 at your financial institution for each withdrawal. Then make sure to file an income tax return for the year of the withdrawal and each year thereafter, until the RRSP is fully repaid.
Keep in mind there are a few rules:
• To qualify, you must be a first time home buyer and a resident of Canada at the time of withdrawal.
• You MUST purchase/build the home before October 1st after the year of withdrawal.
• You only need to repay 1/15 of the borrowed amount starting in the second year after the year of withdrawal, or you’ll have to add the amount as income.
• RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.
This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. For more information about the HBP program go to the CRA website .
(http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html
Getting access to your RRSPs through the HBP is fairly easy. Fill out form T1036 at your financial institution for each withdrawal. Then make sure to file an income tax return for the year of the withdrawal and each year thereafter, until the RRSP is fully repaid.
Keep in mind there are a few rules:
• To qualify, you must be a first time home buyer and a resident of Canada at the time of withdrawal.
• You MUST purchase/build the home before October 1st after the year of withdrawal.
• You only need to repay 1/15 of the borrowed amount starting in the second year after the year of withdrawal, or you’ll have to add the amount as income.
• RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.
This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. For more information about the HBP program go to the CRA website .
(http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html
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