The U.S. Fed Finally Did It - Hiked Rates

Dr. Sherry Cooper, chief economist at Dominion Lending Centres published this article today.

For the first time in nine years, the U.S. Federal Reserve hiked their key policy rate--the overnight federal funds rate--by one-quarter percentage point (25 basis points) to a range of 1/4 to 1/2 percent. The policy-making Federal Open Market Committee (FOMC) said that the stance of monetary policy remains accommodative, thereby supporting further improvement in the labor market and a return to 2 percent inflation. The U.S. labor market has improved considerably this year taking the unemployment rate down to 5%, while inflation has been depressed by falling commodity prices and the strength in the U.S. dollar. Importantly, the Fed suggests that they expect economic conditions to warrant only gradual increases in the federal funds rate and that the funds rate will remain below levels that are expected to prevail in the longer run for some time. Having said this, the Committee's interest rate forecasts signaled four quarter-point increases in 2016, a stance that has been interpreted by the markets as relatively hawkish. This, of course, will be data dependent, and many economists expect fewer than four rate hikes next year. The Canadian dollar, which has weakened sharply in recent weeks on further declines in oil prices, edged downward with the release of the Fed decision, but bounced back shortly thereafter. U.S. Treasuries tumbled on the news pushing market rates higher. U.S. stocks, on the other hand, extended today's gains and the yield on two-year Treasury notes topped 1 percent for the first time in five years after the Fed ended seven years of near-zero interest rates and reaffirmed gradual tightening over the next year. The yield on the ten-year Treasury bond edged up slightly to 2.29 percent. Bank of Canada Will Remain On the Sidelines The Canadian economy has been hard hit by the continuing decline in oil prices and other commodity prices. Not only has West Texas Intermediate crude oil, the price received in the U.S., fallen to roughly $36 a barrel, but the price received in Canada for heavy oil is substantially lower. Economists expect that Governor Poloz will keep his benchmark overnight rate at 0.5 percent unchanged until at least 2017. Nevertheless, mortgage rates in Canada have likely bottomed as five-year market rates, to which mortgage rates are linked, are edging higher and lenders are pressured by very narrow interest rate spreads.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Your Home Value

Whether you’re purchasing a home or looking to refinance, determining a property’s value is an essential step in the mortgage application process. You can help by providing precise and accurate information about your property. The value of a property is determined by a number of different criteria, each of which can influence how much your home is currently worth. These criteria range from the square footage and the age of your home, to its location, construction quality, architectural features and even the number of bathrooms. It’s important to remember that a property valuation is not a fixed or permanent number – it’s simply a snapshot of what your home is worth today, in relation to current market conditions and what other, similar properties are selling for. This value can change over time based on improvements to the property, as well as changes in your neighbourhood and the overall housing market. Property valuation and mortgages When applying for a mortgage, you’ll be asked a series of questions about your property. This information will help establish the property value – a critical element for determining the amount of your mortgage loan. If you’re buying a home, your mortgage application will include the purchase price along with a detailed description of the property.

For refinancing, the lending value will be established after considering recent sales in your area, the latest municipal value assessment and any significant improvements you’ve made to the property. If you want to add the cost of any planned improvements to your mortgage application, be sure to provide all of your plans and cost estimates. To help the process go as quickly and smoothly as possible, use the Property Information Worksheet to identify and collect the information you’ll need to complete your mortgage application. Professional appraisal A professional appraisal may be required if a more in-depth assessment of the value of your property is needed. This process includes a professional assessment of the property’s physical and functional characteristics, a detailed comparison of the home to recent comparable sales in nearby areas and an assessment of current market conditions affecting the property. It’s important to allow the appraiser access to the property in a timely manner, in order to minimize the time required to obtain financing. From time to time, the property value assessment will not support the loan amount requested. Should this happen, we can explore all options available to you.

for more information contact me

Jim Flaherty thinks Canadians do not deserve low mortgage rates

Canadians don't deserve low interest rates

Last week, Jim Flaherty, the finance minister of Canada contacted Manulife Bank and told them off for offering a 5 year fixed rate mortgage at 2.89% instead of their regular 3.09% rate.
 Every spring, all the lenders offer their best rates in the hopes of building market share and getting a bigger piece of the mortgage market. Rates fluctuate over the spring as each lender tries to get more mortgages and then they back off and another lender will jump to the front.
   This has happened every year that I have been a Calgary mortgage broker and I suppose it will in the future. The difference this year is government intervention. Last week was not the first time that Flaherty has interfered in bank operations.
  A couple of weeks ago he told BMO (Bank of Montreal) to cease advertising a 2.99% fixed rate.
People in the finance world are so upset they have started calling the minister, Comrade Flaherty.

   In response to the move towards creeping socialism and planned economies the Canadian finance industry is now offering for a limited time only, an unadvertised special of 2.89% for a 5 year fixed rate mortgage. If you feel that you should be able to decide whether you want to pay 2.89% or 3.09% because you are an adult then let me know. You can apply online at my website or email me from there. .
By the way, if you are in year 3 or 4 of a mortgage at 5% or so, it may be worthwhile to renew your mortgage now even with the penalties. Contact me and we can calculate your savings.
David Cooke is a Calgary mortgage broker with Dominion Lending Centres Westcor . He has been giving financial advice and processing mortgages since 1991. 

What's the Score? How you can improve your credit score

The credit score, also referred to as a “FICO score,” is a mathematical formulae created by Fair, Issac and Company.

The credit score is used by most companies to decide if the applicant is a good credit risk or not. Equifax and Trans Union will calculate the numbers from the credit report and generate a number between 300 and 900.

A low score indicates a bad risk. A score of 680 or more puts the applicant in the lenders’ good books.

How scores are calculated:

Factor Weight Points Payment History Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements - none is better 35% 315 Amounts Owed Amount owed on accounts, proportion of balance to total credit limit - moderate use is best 30% 270 Length of Credit History Time since accounts opened, time since account activity – The longer you have had your account open, the better. 15% 135 New Credit Number of recent credit inquiries, number of recently opened accounts - less is best. 5 per year max. 10% 90 Types of Credit Number of various types of accounts (credit cards, retail cards, mortgage) - variety is good 10% 90 Potential Totals 100% 900

 

Fair Isaac reports that the American public's credit scores break out along these lines. It would be similar for Canadians.

Credit score	Percentage
499 and below	2 percent
500-549	5 percent
550-599	8 percent
600-649	12 percent
650-699	15 percent
700-749	18 percent
750-799	27 percent
800 and above	13 percent

How Clients Can Improve Their Credit Score

1. Order a copy of the credit report, review it carefully and correct any significant errors. 
2. Pay bills on time. 
3. If there is a questionable credit history, they could open a few new accounts and use them responsibly, paying them off on time. 
4. Avoid opening accounts without intention of using them. You can, however, open it use it once and then maintain a balance of 0 which will build up your score.
5. Having a credit card or instalment loan can help boost a credit score, as long as the balance is not too high. 
6. Keep balance low in relation to available credit. If the credit limit is $1,000, keeping the balance below $500 (or 50 per cent of the limit) will improve the score. Balances of more than $750 (or 75 per cent of the limit) will decrease the score. Going over the limit has an even more negative effect and you can lose 35 points quickly.
7. Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., “balance transfer”) and closing an old account can hurt the score.

 If you would like advice on how to improve your credit score so that you can buy a home contact me through my website at davidcooke.ca    

Consumer delinquencies at lowest level since pre-recession according to Equifax Canada

Toronto, ON, November 6, 2012 - According to Equifax Canada’s Q3 Quarterly Credit Trends Report, as of September 30, 2012, consumer delinquencies have dropped to 1.22 per cent, the lowest level since before the financial crisis.

The report also reveals that total Canadian non-mortgage debt increased slightly by 1.8 per cent since last year.

Furthermore, credit card balances continue to decrease, while other credit products such as bank loans and lines of credit show very moderate growth compared to the same period last year.

The greatest increase was captive Auto Finance loans, which grew by 9 per cent over last year. The report revealed the Auto Finance loans have the lowest level of delinquency.

“To see serious delinquencies drop to a record low of 1.22 per cent is a very positive sign that consumers are doing a great job at managing their debt obligations,” says Nadim Abdo, Vice President, Consulting Solutions, Equifax Canada.  “The growth in credit over the past two years has slowed down significantly and the Canadian appetite for new credit has also diminished. According to Equifax’s Credit Seeking Index, which measures the velocity at which consumers are seeking new credit facilities,  consumer demand for new credit now is 9 per cent lower than it was prior to the financial crisis.”

Cristian deRitis, Senior Director of Consumer Credit Economics at Moody’s Analytics commented on the report by adding “consumer credit conditions in Canada remain stable and are in line with Moody’s Analytics projections for GDP growth and unemployment. Debt levels and available credit continue to rise, though at a slower pace than several years ago. Balances are declining for credit cards, personal finance and sales finance loans as borrowers turn to bank installment loans and lines of credit to meet their needs.  Auto financing continues to experience rapid expansion as Canadians flock to dealer lots and showrooms,” deRitis explained.

Other Equifax Report observations:

• Average consumer non-mortgage indebtedness in Q3/2012 increased by 2.6 per cent in the last 12 months, compared to a growth of 4.4 per cent in the same period last year;
• Average credit card debt has continued to decrease for the past eight quarters; it decreased by 3.6 per cent in Q3/2012 from the same period last year;
• Average bank installment loans grew by 4 per cent over same period last year and average bank revolving loans (lines of credit) remained stable;
• 90-day delinquencies continue to improve and have decreased to a rate of 1.22 per cent; and
• Consumer bankruptcies slightly increased slightly by 5 per cent from the same period last year.

For detailed graphs, please go to:

http://www.equifax.com/international/canada/Q3_2012_Consumer_Trends_Equifax_Canada.pdf

for more information contact David Cooke, your Calgary mortgage broker. 

Mortgage Wars 2012

July 9th , Canada's finance minister changed the rules for getting and renewing mortgages for the 4th time in 4 years. We are now back to where we were before he changed the rules in 2006. What has happened each time he changed the rules was he cut out more potential home buyers and this resulted in a dip in mortgage applications. Moving from a 30 year amortization to a 25 year amortization made the monthly payments for a $300,000 home go up by $157. per month. It's not a huge amount but it took some buyers out of the market and meant that other buyers could not afford as much house as they could have bought in June.

   As Europe looks like its going to be suffering for some time to come, and China's economy is slowing down as well, the world economy looks like it will take some time to recover. Canada's mortgage lenders are responding to the economic slowdown and the mortgage rule changes by lowering mortgage rates again.. Will this mean another mortgage rate war?

 As of this week, the 5 year fixed rate mortgage has dropped with some lenders from 3.09% to 2.99%. This means that a mortgage for $300,000 with a 25 year amortization would have monthly payments of $1418. instead of $1433. What is even more interesting is the variable rate mortgage.
For the past year, rates have been at prime or slightly above it. Many lenders are at Prime + .20% or 3.20% . As of yesterday one lender has dropped their 5 year variable rate mortgage to Prime - .35% !
 This translates into a 2.65% rate which is amazing.
 

These are not big changes but they may result in lenders competing for market share . The one to benefit from mortgage wars will be you, the borrower. If you want to discuss how these  changes affect you, contact me through my website or call me at 403-836-1201.