What it Means When Prime Rate Changes

With the recent increase that TD has made to their Prime rate, it leaves a lot of mortgage holders with a variable rate questioning what this means to them. Let me tell you.

First, it is only TD that has recently changed their Prime rate from 2.7% to 2.85% – so far anyway. Typically once one lender makes that change, the rest will eventually follow but for now, this only affects you if you have a variable rate mortgage with TD bank.

When a bank decides to raise their Prime rate, it could mean you will have an increase in your mortgage payment to cover the extra interest but each bank does have the option to leave your mortgage payment the same and instead adjust the amount of your mortgage payment that will go toward your principle balance vs your interest. Meaning, a little more of your mortgage payment will be going to interest and a little less to principle. This will cause you to pay more interest over the term and will leave you with a higher balance at maturity.

This is just one of the many changes that have happened in our mortgage world over the last few weeks. If you are concerned with how these changes may affect your ability to buy, your current mortgage or even your future renewal options, please don’t hesitate to contact me.

Naomi 1

 Naomi Hamm, Mortgage Broker & Partner

 Office: (204) 727-2177

 Cell: (204) 724-7290

 Email: naomi_hamm@centum.ca

Understanding Why Mortgage Rates Are Dropping

Th e 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

Canadians Losing Money on their Mortgages

For most Canadians, when shopping for a mortgage the simple solution is to walk through the doors of your local bank or credit union branch.  It seems to be that old saying “better the devil you know” is true.  We believe that the bank, trust company or credit union that we have been dealing with for years is the best place to be.

In fact in 2012 a whopping 72% of people did just that when they were looking for a mortgage.  The result?

Canadians lost over 41 Million Dollars by simply not shopping around for the best mortgage product for their needs.

As consumers, people typically believe that if they get the lowest rate they will save the most money, and that is largely true, but you will notice that we did not mention rate in the above statement.  Why?  Well contrary to what most people might believe, rate is not the single all important item to consider when looking at getting financing for your home.  Things like term, prepayment options, amortization, and payment schedule (to name just a few things) can have a dramatic impact on the true cost of the mortgage you are obtaining.

Canadians are very web savvy consumers when it come to getting a mortgage, in fact 2 in 3 of us will research our mortgage online before we make a decision.  What is not talked about typically is what we are researching and there are two very key items, rate and mortgage calculators.

Rate is pretty self explanatory – we want to find the lowest possible.  Mortgage calculators help us to figure out what we qualify for, what our payment will be, etc.  What we do not do is research what different product options are available, and how those options can impact us – for good or bad.  If you try to find that information you soon discover that it is not so easy, and when you do find some it is very complicated to understand.  It is because of the complexity of mortgages that the majority of people simply put their faith in the banks and are resigned to the fact that taking 25 years and at the end paying almost twice the value of the home is normal.

Mortgage brokers offer Canadians a solution to the stress of shopping around, and they typically do it at no charge.  Their role is to do the work for you and find the right mortgage to suit your financial and home ownership goals.

At Centum Mortgage Choice we believe that all Canadians should have the opportunity to achieve their financial goals and dreams.  It’s why we do not just offer mortgages, rather we offer Home Ownership Solutions.

If you want to discover how you can stop losing money on your mortgage, contact a Centum Mortgage Choice broker today.


IMG_2894  Chris Turcotte, Owner/Broker

 Office: (204) 727-2177

 Cell: (204) 720-4002

 Email: chris@christurcotte.ca