DIY Christmas Wreath Tutorial

With the holiday season upon us we wanted to show you that we’re not just trying to save you money on your mortgage but on Christmas decor as well.  We chose Chris to do the tutorial with zero craft experience and we hope you enjoy the video, it’s worth a watch.

Make sure you stay tuned right to the end so you don’t miss any gems!

Refinancing Your Mortgage To Get Some Breathing Room

High interest debt on credit cards, auto loans, or other consumer loans can be tough to pay off. Sometimes it feels like we’re getting nowhere by just making those high interest only payments each month. Not only that, no one likes the feeling of having multiple higher payments to make every month. Your poor pay cheque feels outnumbered when there are so many hands out needing to get paid every month. However, if you’re a homeowner, you might have some options to help you manage your debt, including refinancing your home to consolidate some debt.

As a homeowner, one way to start managing some of your higher-interest debt is to refinance your existing mortgage with a debt consolidation mortgage. For example, refinancing allows you to borrow additional money on your mortgage so you can consolidate your debts into one simple payment. That way you can easily budget with a structured payment plan and just one financial obligation to focus on.

A lot of people don’t understand just how much equity they’re able to borrow against when it comes to refinancing their home. I think this is largely because it’s not really explained to you at any point by your lender. Here’s a few points to remember about refinancing:

  • You can access up to 80% of the appraised value of your home. Now remember that this means you’ll have to have a appraisal done on your home from a licensed appraiser, opinions of value or Current Market Analysis from a real estate agent is not enough I’m afraid.
  • You can stretch out your amortization up to 35 years if needed. While I don’t recommend this, sometimes there are situations where it’s the only way to keep someone in their home. Keeping that payment manageable while paying off all your high interest debt is our number one priority.
  • There are fees to consider. You’ll likely incur a penalty on your current mortgage unless you’re up for renewal. You’ll need to pay for a appraisal but in some cases I can negotiate the cost to be covered by the lender, hey, I can be persuasive when I need to be. Finally, you’ll have legal fees for the refinance, as your lawyer will need to handle the disbursement of your money you’ll be getting.

Benefits of refinancing your high interest debt:

  • Interest rates on mortgages and home equity loans or lines of credit are often much lower than those on credit cards and consumer loans
  • Making a single payment to your debt consolidation mortgage or home equity loan or line of credit is much easier than making multiple payments to credit cards and other lenders
  • Peace of mind, no more late nights wondering how you’re going to tackle all those debts.

If you or someone you know want to look into the refinancing options available then don’t hesitate to contact me. As always, I’m here to answer any questions and show you how much you could be saving.

 

IMG_2894 Chris Turcotte, Owner/Broker

 Office: (204) 727-2177

 Cell: (204) 720-4002

 Email: chris@christurcotte.ca

 

Purchase Plus Improvements

purchse plus improvements.jpgAs the housing market is starting to pick up, people are looking to buy their first home, second home or maybe just fix up their first home. I’ve been asked by a few people in the recent weeks about whether they can make their mortgage more to do some renovations to their new home.

The answer is yes! Well, sort of. Mortgage brokers and banks cannot just put in a random number to the bank for a new purchase and say “the client’s going to do some work on the house when they buy so they need a little extra money”. Unfortunately that doesn’t fly with the banks but there is a way to get a little extra funding to help you do some of the things you visualize when you are looking for a new home.

This program is called a Purchase Plus Improvements. It offers a way to help buyers add or fix up things that they wouldn’t otherwise be able to do when they buy a new home. Most people put all their money towards their down payment and closing costs and have little left over for the kitchen upgrade they would love to do.

How this program works is as follows. When you are considering putting an offer on a home but would like to, for example, put in new flooring. Take along a measuring tape to your next viewing. Get some measurements and take them to Home Depot (or place of your choice) and get some quotes for the flooring you require. When you write your offer, give me those quotes along with your accepted offer to purchase. From there, I calculate your new “purchase price” based on the accepted offer PLUS your renovation quotes. Your 5% down payment (or however much you have decided to put toward your purchase) is calculated on this new amount. I submit to the lender as a Purchase Plus improvements and they can approve you for that new flooring you want to do.

A few things to note about this program is it does have its limits like anything else. Here are a few of the basic guidelines:

  • The improvements must be something that add value, you cannot include appliances in this quote
  • There is a maximum of the greater of 20% of the initial purchase price or $40,000, if we go past this value, it becomes more of a construction draw mortgage as it’s a much bigger project
  • The work must be done before the money is advanced (the lender will require proof the work has been done before the lawyer can advance you the money).
  • You can do the work yourself, you do not have to hire a contractor
  • You have 90 days to complete the work (with some exceptions for season work)

It’s as easy as that! On possession day, the lawyer will request the full mortgage amount from the bank and pay the offer price to the seller, then hold the remaining funds (for your improvements) in trust until the work is done. Some banks will require and inspector to go in and confirm the work is done, and some will require receipts to confirm the work is done.

If you are doing the work yourself and you don’t have the cash up front, you can comfortably put it on a credit card or line of credit knowing in 90 days (or less) you will be able to pay it off in full. If you have a contractor doing the work for you, once you have their invoice, they will be paid in full. Contractors are usually pretty good about doing the work upfront if they know the bank is footing the bill and they aren’t going to be worried about chasing people around for cash.

This is something to keep in mind when you are looking for a new house, maybe you find one with an ugly kitchen or bathroom but you love the rest of the house, here’s your solution. Maybe the basement is unfinished or maybe you need a deck? These are just a few of the things you can add to your mortgage and make your new home just what you’re looking for!

For more details on this program or any other products I can offer, don’t hesitate to give me a call!

Naomi 1

 Naomi Hamm, Mortgage Broker & Partner

 Office: (204) 727-2177

 Cell: (204) 724-7290

 Email: naomi_hamm@centum.ca

Property Tax Payment Explained

property taxesJune 30 – a dreaded day in Brandon. The day property taxes are due for the current calendar year.  If you own a home and you have not already received your property tax bill in the mail, be sure to contact the city as they are due whether you receive your bill or not!

Since property taxes are due in the middle of the year, it can make it a little confusing for first time buyers (or second and third time buyers for that matter) so I thought I would share with all of you what I have learned over this last month or so.

We’ll start with the basics first. You do have options when it comes to paying your property taxes:

  • You can pay them all in one lump sum to the City on the Due Date
  • you can go on the City of Brandon’s TIPPs (Tax Installment Payment Plan), where you will pay 1/12th of your property taxes each month to the City through automatic withdrawl from your bank account
  • you can pay them along with your mortgage each month (or biweekly if that’s your payment schedule)

If you can afford to pay your entire property tax bill at once, that’s great, then it’s out of the way and you don’t have to worry about it for another year. But if you can’t, then I personally recommend the TIPS program as it seems to be the most simple. The City is the one that revises property taxes each year so if your taxes do change from year to year, they send you the bill along with the adjusted monthly payment amount you can expect.

Paying your property taxes with your mortgage through the lender can be a bit more complicated in the beginning but does even itself out for you over time. When you pay your property taxes this way, the lender will set that portion of your payment aside in a tax account and then when your property tax bill comes, they pay your taxes on your behalf to the City using that money from the tax account. Where it can get tricky is if you have not lived in your home for a full year as you will not have paid enough in that tax account to cover the amount the lender needs to pay on your behalf. Not to worry, normally the lender will still pay the taxes in full and then they will adjust your mortgage payments over the next year to make up the difference of anything they over paid for you.

That’s the easy part, now let’s get into the complicated part. When you take possession of you house, the new bank wants to be sure that property taxes are all up to date so in an ideal world, we’d all take possession of our new home on Jan 1 each year. This would make it unnecessary to do a property tax adjustment with the lawyer during closing.

We all know this is not the case. So let’s use an example of a May 1st 2015 possession and a property tax amount of $3000/year. Since you own that house on June 30 2015, you are responsible to pay that entire $3000 for the 2015 calendar year. Doesn’t seem fair since you did not live in the house from Jan 1 – April 30 2015. This is where the property tax adjustment comes in. When you meet with your lawyer, (s)he will make the adjustment so that you are being compensated for those 4 months that seller owned the home. How the lawyer does this is (s)he will figure out how much the property taxes were from January – April:

$3000/12 months = $250/month x 4 months = $1,000 is the sellers portion of the years taxes

Then lawyer will take the $1000 the seller owes for property taxes and take it off the purchase price (let’s say $200,000), so $200,000 – $1,000 = $199,000. He also adjusts deposits etc but we’ll leave that out as I just want to focus on the property taxes, not the closing costs. This means now the amount you pay the seller reduces to $199,000 instead of 200,000 so the lawyer will keep this money and use it toward the closing costs.

One thing to really be aware of is this $1,000 is for the property taxes from Jan – April 2015. You don’t physically see this money come to you from the seller because the lawyer just adjusted what you are paying for the lawyers services. It’s a little simpler than you paying $200,000 and then the seller giving you back $1,000. It’s 6 of one, ½ dozen of the other.

Keep in mind, now you are responsible for the entire 2015 year of property taxes, all $3,000. If you want to now get set up on the TIPPs program through the city, you will have to take that $1,000 you saved on your closing costs and give it to the City, along with the payments for May and June (an additional $500) to get the taxes paid up to June 30 and then the City can set you up on TIPPs and will withdraw the payments on a monthly basis for July 2015 and so on.

If you are paying your property taxes through the bank with a May 1st possession, you will only have made 2 payments of $250 by the time your full year of taxes are due. Therefore, the lender will be paying the $2,500 (that you don’t have yet) on your behalf and you’ll have to make up for that over the next year. They will adjust the tax portion of your mortgage payment accordingly. This would give you a fairly large total mortgage payment for the year but then when you are caught up, your tax payment should come back down to normal. I have suggested that clients put that $1000 toward their taxes up front so they have less being paid on their behalf by the lender, therefore having a smaller balance to make up over the next year.

Now let’s have a quick look at a possession after the taxes are due, possession date of Sept 1 2015. At this point, the property taxes for your new home have been paid in full for all of 2015 but of course the seller doesn’t live there for September – December so now you will owe the seller some money when your lawyer does the closing. Again, using $3,000 ($250/month), you would owe the seller $250 x 4 months so $1,000. Just as before, the lawyer would do the adjustment and instead of taking $1,000 off the purchase price, he’d forward and additional $1,000 to the seller. If you are paying through the lender, you will still make tax payments along with your mortgage payment and end up ahead for the next year and if you are on TIPPs, you wouldn’t make another payment until January of the upcoming year. 

I am sure this is as clear as mud to everyone. I know it took me a few times to really understand it. I just wanted to be sure everyone was aware of what happens with property taxes when they buy a home. Remember that each City/municipality has a different due date for their yearly property taxes and some do not offer a TIPPs program such as Brandon. There are also some banks that will not allow you to pay your own taxes if you put only 5% down as they want to minimize their risk by collecting tax payments on your behalf to be sure that they are paid on time.

If you have any questions at all about property taxes, please don’t hesitate to give me a call.

Naomi 1

 Naomi Hamm, Mortgage Broker & Partner

 Office: (204) 727-2177

 Cell: (204) 724-7290

 Email: naomi_hamm@centum.ca

Financing An Acreage

Some people love the big city life but others long for a big beautiful home in the country. Financing country homes on numerous acres can be a little tricky so there are a few things you need to be aware of if this is your dream.

The first thing to look at is the zoning of the property. If you are looking to do a regular residential mortgage, the zoning must comply. If the property you are looking at is zoned agricultural, that is a whole other story. You’d then be looking to do an agricultural loan which I am not going to get into the requirements here.

The next thing to consider is the number of acres. If your dream home is sitting on land with less than 5 – 10 acres, it is a little bit easier. We will typically be able to qualify you in the same manner as a regular City home except with an acreage, an appraisal is almost always required. The minimum down payment is normally 5% of the purchase price with this scenario. The difference comes when your home is located on more than 10 acres and has a barn or a shop as well. The banks will only give value to a home, garage and up to the 10 acres.

Here is an example:

If you have an accepted offer of $200,000 on a home with 20 acres that has a large shop on it (5% down payment would be $10,000), the bank will do their appraisal on the house, garage and 10 acres only. If the value comes back at $190,000 (because they have not counted the additional 10 acres and the shop but of course the seller wants paid for those too), the bank will finance 95% of the $190,000. This means, they will give you a maximum mortgage of $180,500 which increases your down payment from $10,000 to $19,500. You are paying, out of pocket, for the additional 10 acres and the shop.

Another thing to keep in mind is if you have a well and septic tank, which is typical on an acreage, you will need to have a water potability test completed (your realtor will help with this). The bank needs to know the water is safe. In regards to the septic tank, there is usually no issue here unless it is new, in which case a septic certificate is required from the municipality in order to confirm it has been installed correctly.

Financing your dream home in the country can be done, there are just a few different requirements that you need to be aware of. Your realtor and your mortgage broker will work together to help make the process go smoothly. If you have any questions, please don’t hesitate to contact me!

 

Naomi 2Naomi Hamm, Mortgage Broker & Partner

 Office: (204) 727-2177

 Cell: (204) 724-7290

 Email: naomi_hamm@centum.ca

Mortgage Insurance – We Have a Better Option

As a Mortgage Broker with CENTUM Mortgage Choice, we care about our clients and we want to do what is best for them. It bothered me to watch this investigative report but it also compelled me to let folks know that not all insurance providers that offer life and/or disability insurance on your mortgage treat their claims process this way. And how awful for the people involved that were denied their insurance claims due to ‘post claims underwriting’.

Not only do we have more mortgage options than the big banks, we also have a great product we can offer for life and/or disability insurance coverages that will protect your mortgage. The insurance provider we use underwrites your life and/or disability insurance coverage at the time of your application, not at the time of your claim. They do not believe post claims underwriting is beneficial to the consumer. By working with us early on, you will be advised of the coverage you are approved for so there are NO SURPRISES! Surprises can be nice – but not when it involves your biggest financial obligation: Your Mortgage.

As if you needed another reason to work with a Mortgage Broker, right?? Talk with us and let us tell you about all the ways to protect your mortgage.

Hellen Burnell, Mortgage Broker

 Hellen Burnell, Mortgage Broker & Partner

 Office: (204) 727-2177

 Cell: (204) 761-5741

 Email: hellen_burnell@centum.ca

 

 

Source: CBC

Not All Mortgage Penalties Are Equal

This is a story about Joe and Sue. Two different people with similar mortgages, but very different prepayment penalties. 

Joe and Sue each buy a house at the exact same time for the exact same price and get a mortgage for the exact same amount. The only difference is Joe uses a Big Bank, and Sue uses a monoline lender for their mortgages. Let’s assume they both received a rate of 2.99% for a 5 year fixed term. 

Three years into their mortgages, Joe and Sue are both going to be paying off their respective mortgages which are both at $250,000 at the time of the payoff. Now to keep the comparison fair, we will pretend that interest rates have not changed at all for any of the terms, whether it is the posted rates or the discounted rates. The rates are based on the actual interest rates at the time of writing. 

Now because they have ended their 5 year contract early, they will have to pay a penalty. Both agreed at the time they took out their mortgage they would pay the greater of 3 months interest or the Interest Rate Differential (IRD). The IRD is in place so that the lender will be reimbursed for any income they would lose because you broke the contract early. In theory it should only apply when rates have gone down from the rate you agreed to pay. In this example, they each agreed to pay 2.99% for 5 years, so if rates had dropped to 1.99% the lenders would be entitled to the 1% difference for the remaining two years. Which is fair. If you invested $1000, and were told at maturity your investment would be worth $1200, you would not want to get $50 and be told, “sorry, someone else changed their mind.” You, like everyone else, would want the full $200 you were promised. Same idea. Only the Banks are using the IRD to punish you for leaving, or to force you to stay with them. Which is not fair, nor the idea behind an IRD. 

In our example, Joe and Sue each have to pay a penalty. But how much they have to pay is a shocking difference! 

Sue’s Monoline Penalty: $1,868 

Joe’s Big Bank Penalty: $8,750 

That’s a difference of $6,882 !!! 

So why such a huge difference? In the simplest explanation, it’s the “discount” given by the big banks.

Let me explain. With a Monoline lender, like Sue used, that mortgage brokers usually use, they offer their best rates upfront. So they generally only have one rate for each term length. Where as the banks have Two rates for each term. The posted rate, and the discounted, or special offer rate. Almost everyone actually pays the discounted rate, but the banks use the posted rates when calculating the Interest Rate Differential. That is how they come up with huge IRD penalties. 

The math behind it can be a bit confusing when you read it, so pretend you’re back in high school math class…but pay attention this time. :)  

So the banks take the rate you are paying (2.99% in our example) subtract the difference between what is the current posted rate for a similar term for the time remaining (2 years at 3.04%) less the DISCOUNT GIVEN. So the posted rate in our example is 4.79% minus the real rate of 2.99% which is a discount of 1.80% That is what is going to cause the pain. So they take the similar posted term rate then minus the discount (3.04% – 1.80%). Then they multiple that number by the balance owing and the time remaining. 

Big Bank IRD calculation

2.99% – (3.04% – 1.80%) x $250,000 x 2 years = $8,750 

Compared to a true IRD calculation

(2.99% rate – 2.79% comparable rate for term remaining) x $250,000 x 2 years = $1,000 which is less than the 3 months interest, $1,868, which is what Sue would be paying. The Interest Rate Differential should not have come into play. 

The Numbers being used, based on rates at time of writing 

Posted Rate for 5 year term 4.79%
Rate Clients are paying for 5 year term 2.99%
Posted Rate for 2 year term 3.04%
Discounted Rate for a 2 year term 2.79%
   

 

To make up for such a monstrous penalty from his bank, Joe would have neede a rate of 1/2 of a percent (0.5% or 0.005) which is 2.49% lower than best rate at the time from the banks. There is more to consider with a mortgage than just rates. Know your other risks. 

At the time of writing penalties according to the Big 5 Banks online calculators and their listed posted rates: BMO $8750, Scotia $8250, RBC $9057.85, CIBC $10,677.65, TD Canada Trust online calculator not working but it would be $8750. The Banks penalties differ somewhat mainly because of differences in the banks posted rates.Mike B&W 

When shopping for a mortgage, be aware that rates are not the only thing you should consider. Although rates are obviously important, interest rates are only one of many factors to evaluate when deciding on your best mortgage. Contact Mike Trollope (204) 573-3938 or email mike@miketrollope.ca for a free consultation.

Stated Income Mortgage Q & A: Business for Self with Non-Traditional Income Verification

What is a Stated Income mortgage? It is a specialty mortgage that goes by a few different names, Stated income, Alt A, or Low Doc, but it is essentially a program for people that are Business for Self that can’t prove their income by
traditional means. It is often used by business owners that have lowered their taxable income by maximizing deductions and other business expenses. This is a great strategy at tax time, but the flip side is that the income used to qualify for a mortgage (line 150 on your taxes) can become so small, you no longer qualify for a mortgage, or your buying power is significantly reduced. 

 

Who qualifies?  The stated income program is for people that have been business for self for at least 2 years. They must have Strong Credit, at least 2 trade lines (items on your credit bureau) with 2 years of history, and be buying or refinancing acceptable real estate. Not for Commission sales people unless doing a conventional mortgage. Contact Mike Trollope (see below) for more details if you are paid by commission. 

 

What type of Property is Acceptable? This is for Residential Properties. The property must be owner occupied with a maximum of two units. Not for commercial or investment properties. Not for Second / Vacation Homes. And not a crumbling shack, but a good marketable property.

 

 How much do I need for a down payment? You need to have at least 10% down. At least 5% of the down payment must come from your own resources but the rest can be gifted by immediate family. The down payment can not be borrowed. 

 

How much income can you claim? The amount of income that is stated must be reasonable for the industry, length of operation and size of business. This is a critical. They want to know that you are actually receiving this income and will be able to pay for this mortgage as well as other existing debts. A plumber with no employees probably isn’t making $250,000 a year. However if it was stated he earned $50,000 a year, that is reasonable. 

 

Are the interest rates higher? Sometimes. At the time of writing, the rates are the same for a stated income mortgage as for a standard mortgage. In the past, some lenders have increased the rates slightly for a stated income mortgage. 

 

Are there any higher costs? Yes. The default insurance premium is increased. If you are going with a 90% loan to value (10% down) then the premium for a stated income mortgage is 5.45% compared to 2.40% for a standard mortgage at 90% Loan to Value. Like a standard mortgage the premiums do decrease as your down payment increases. At 80% loan to value, the premium drops to 1.90%. 

 

How much do I need to avoid the Default insurance? If you want to do a conventional mortgage with the stated income program, your down payment must be 35%, or a Loan to Value of 65%. With a standard mortgage you can technically avoid default insurance with 20% down. 

 

Is there additional/different paper work required? You will need to prove that you have been business for self for at least 2 years. You will also need to prove you don’t owe taxes to Canada Revenue Agency.

To show 2 years of business you will need one of the following:

  • Business License
  • Articles of Incorporation
  • GST/HST return
  • Two years T1 Generals with Statement of Business Activities prepared by a third party
  • Audited Financial Statements for the last 2 years prepared and signed by a Chartered Accountant.

To show no taxes owing they will require your most recent Notice of Assessment, or a declaration stating you owe no taxes. 

 

Any other documents? Each lender has their own requirements and every client is different. They may ask to see business bank statements, to help support that the amount that was stated is reasonable. They may ask for T1 Generals to show company sales and what is being written off. They may even ask for a copy of your contract with a particular client if it accounts for a large amount of your business. It is best to be aware of your business and it’s financial state when you meet with your mortgage broker. Depending where your mortgage ends up, will determine what papers you will be asked for.

 

 Do all the lenders offer a stated income program? No. It is a specailty program offered by a select number of lenders. 

 

Do I have to do a stated income mortgage if I’m Business For Self? No. You can provide traditional proof of income which would be a 2 year average of line 150 on your Notice of Assessments. Depending on the nature of your business you can also gross up that amount by up to 15%, or add back some of the write offs that you used to reduce your income. It is best to speak with a trained mortgage broker to go over your options and determine which route is best for you. I recommend taking a copy of your T1 Generals with the Statement of Business Activities when you meet with your broker. 

 

Where do I get more information? Contact Mike Trollope with Centum Mortgage Choice by phone or text at (204) 573-3938. Email mike@miketrollope.ca

 

 Mike B&WMike Trollope, Mortgage Broker

 Office: (204) 727-2177

 Cell: (204) 573-3938

 Email: mike@miketrollope.ca

Understanding Why Mortgage Rates Are Dropping

The Bank of Canada announced a surprise quarter-percentage-point cut to its key interest rate Wednesday – a move it calls “insurance” against the potentially destructive effects of the oil price collapse. The reduction in the bank’s overnight rate to 0.75 per cent from 1 per cent – its first move since September, 2010 – comes as a precipitous drop in the price of crude slams Canada’s oil-dependent economy.

Speaking to reporters, Mr. Poloz said the oil price drop is “unambiguously bad” for the Canadian economy, prompting the bank to take out what he called an “insurance policy” against future risks, such as weak inflation and a household debt squeeze. But he denied the move was calculated to send the Canadian dollar lower.

“Market consequences will be what they are,” he said.

The rate cut sent the loonie plummeting below 81 cents (U.S.).

Mr. Poloz, who acknowledged that oil dominated the bank’s discussions leading up to Wednesday’s rate decision, said he’s ready to cut rates again if prices fall further.

“The world changes fast and if it changes again, we have room to take out more insurance,” he said.

The rate move, which few analysts anticipated, is an attempt by Mr. Poloz to shield highly indebted Canadian households from an oil-induced hit to their jobs and incomes – signs of which are already evident in Alberta.

The rate cut is a signal to private-sector banks to lower their own rates on mortgages and other loans.

Cheaper crude, while good for the U.S. and global economies, is unequivocally bad for Canada.

The bank warned that lower oil prices would take a sizeable bite out of economic growth in 2015, delay a return to full capacity and hurt business investment – a trend that has already triggered mass layoffs and production cuts in Alberta’s oil patch.

But the effects could spread further, threatening financial stability as a result of possible losses to jobs and incomes, according to the central bank.

“The oil price shock increases both downside risks to the inflation profile and financial stability risks,” the bank acknowledged in a press release. “The Bank’s policy action is intended to provide insurance against these risks.”

The bank’s new forecast assumes a price of “around” $60 per barrel for Brent crude, more than $10 above where it is now. But the central bank said prices “over the medium term are likely to be higher” than $60.

As recently as June, oil was selling for $110 a barrel.

The bank also lowered its bank rate and the deposit rate by a quarter percentage point Wednesday, to 1 per cent and ½ per cent, respectively. And it removed any indication of which way rates might go next.

The bank’s decision coincides with a much more pessimistic economic forecast than the bank issued just three months ago.

Following the lead of most private-sector forecasters, the bank slashed its GDP growth forecast to 2.1 per cent this year (from 2.4 per cent), before rebounding to 2.4 per cent in 2016. The worst effects of the oil collapse will be felt in the first half of this year, when the bank expects annualized growth of 1.5 per cent, nearly a full percentage point lower than its October forecast.

The Canadian economy grew at an estimated rate of 2.4 per cent in 2014.

The bank said the economy won’t return to full capacity until the end of 2016, several months later than its previous estimate of the second half of next year. Among other things, the central bank pointed to significant “labour market slack.”

Crude’s effects on the economy will be broad and profound, the bank warned. Investment in the oil and gas sector will decline by as much as 30 per cent this year, while lower returns on energy exports will eat into Canadian incomes, wealth and household spending.

The bank also hinted at a possible spread to other parts of the country of a real estate slump already under way in Alberta. “The extent to which the downturn already evident in Alberta will spill over into other regions remains to be seen,” the bank pointed out in its monetary policy report.

“The ramifications of the oil-price shock for household imbalances will depend importantly on the impact of the shock on income and employment,” the bank added.

The bank also expressed growing angst about the impact that oil could have on inflation, which it said has been propped up by temporary effects, such as the “pass-through” effect of the lower Canadian dollar.

Consumer price increases, now running at roughly 2 per cent a year, are “starting to reflect the fall in oil prices,” the bank said.

The bank’s new forecast calls for overall inflation to fall well below its 2-per-cent target this year, averaging just 0.6 per cent. Core inflation, which strips out volatile food and energy prices, is expected to average 1.9 per cent in 2015.

Source: Globe and Mail

Interest Rate Hike: 4 Ways Canadians Should Prepare

The Bank of Canada is expected at some point in the year to hike interest rates, and even a small and gradual hike would affect millions of Canadians with car loans, mortgages and lines of credit.

“Definitely not going to take much of a hike to make a difference and impact your payments,” says Toronto-based financial planner Jason Heath. “As soon as there’s a quarter-point increase in interest rates, I think it’s going to have an immediate impact on people’s psychology.”

A Canadian increase would likely follow an American rise in the rates and may not come until the third quarter. But by the end of the year, Canadians could be facing a 1.5 per cent benchmark rate (it’s currently at 1.0 per cent) and higher borrowing costs.

1. Pay down debt

Some consumers may be tempted to make large purchases before the rates go up, but analysts advise against that, saying consumers should instead focus on paying down debt first. 

“I find that there’s a feeling that because interest rates are low, you shouldn’t pay down the debt — what’s the point, what’s the rush? But now may be an opportunity to focus more aggressively on debt repayment while interest rates are low,” Heath says. 

“If you make a lump sum payment against a mortgage or a line of credit, that’s going directly to your principal and reducing the interest you’re going to pay in the future when rates do rise.”

Although people may be tempted to pay down mortgage debt first, they should instead focus on department store or credit card debt where interest rates are much higher and unlikely to be affected by the Bank of Canada interest rate hike.

2. Lock in mortgage or line of credit rates

Common advice, says Ian Lee, assistant professor at Carleton University’s Sprott School of Business, is that those who have a floating-rate mortgage or floating-rate loan should lock in with a fixed interest rate. But the downside, he noted, is having a fixed payment, meaning the principal and interest must be paid back over a specified time, unlike, for example, a home equity line of credit.

“But the question was how will you save more money, and the answer is: lock in your debts,” Lee said. “If you have a variable rate mortgage, switch to a closed rate mortgage and lock it in for as long a term as possible, because once those rates start going up, we’re never going to see them again.”

3. Don’t rush to buy a home

Higher interest rates could also lead to a correction in the housing market.

“The big issue as far as I can see is that people panic and think they have to get into the housing market before interest rates climb. But they have to recognize the overall long-term impact of interest rates actually climbing,” says Laurie Campbell, CEO of Credit Canada Debt Solutions.

Homebuyers who rush out to purchase homes to beat a spike in rates could end up with homes dropping in value.

“I think people have to be vigilant about any big purchases they may be making in the next little while. Housing in particular,” Heath says. “If someone is considering purchasing a house, they have to really look at more normal interest rates during their budgeting.”

4. Sell the house?

Some Canadians have financially overextended themselves in their homes, leaving them barely any wiggle room in the event of an interest rate increase, says Chad Viminitz, an Edmonton-based financial planner and author of Money Assassins.

“To really put themselves in a good financial position, saving a cup of coffee or doing all those things you hear about, is really not going to help,” said Viminitz.

“Because when you already have everything built into your house and into your vehicle and you get a one per cent change in interest rates? Well, a one per cent change on 50 per cent of your spending — you’re in a really really difficult position.”

And it’s a development that could force homeowners to make some difficult decisions, he says. 

“If someone has the courage and that long-term view, and if they just bought a house in the last couple of years and they are really worried about interest rates going up, it may also be the right time to sell and to downsize to something that is more affordable,” Viminitz suggests. 

“And that’ s difficult. But we do come across a few people who said, ‘I need to make a change, because I can’t afford this, and saving money on coffee is not going to do this.'”

 

Source: CBC News