September 24, 2008
Ellen Roseman
Last week, Prime Minister Stephen Harper announced a tax break for the closing costs paid by homebuyers.
But he's not promoting a more important federal initiative that takes effect Oct. 15 (one day after the election).
Major changes are in store for people buying homes who can't make a down payment of 20 per cent or more.
Their mortgages must be insured by the lender – and the premium is often added to the borrower's debt.
Here are the new rules, announced July 9 for house deals entered into after Oct. 15.
They apply to residential properties with up to four units.
No more 40-year amortizations for insured mortgages. The maximum amortization is 35 years.
Say goodbye to "no money down" mortgages. A down payment of at least 5 per cent is required.
No government guarantees for high-ratio mortgages that begin with interest-only payments.
Lenders must document the borrower's income and the property value to meet a certain standard.
A previous plan to limit the borrower's total debt service ratio to 45 per cent has been scrapped.
A minimum credit score of 600 is required. That has been reduced from the 620 minimum credit score originally announced.
A credit score is a numerical value that measures a borrower's risk, based on a statistical evaluation of information in his or her credit bureau record.
A lower minimum credit score was needed to accommodate credit-challenged buyers – such as new Canadians and self-employed business owners.
"That's one of the few changes the government made," says Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.
Lenders will still be allowed to make exceptions up to a certain limit, recognizing that some borrowers with scores below the minimum are otherwise good credit risks.
And buyers can still borrow the down payment from financial institutions that offer cash-back incentives on mortgages.
They can also borrow from registered retirement savings plan.
Here's a question for Harper: When will he update the tax-free withdrawal limits on RRSPs, unchanged since the early 1990s?
You can borrow $20,000 from your RRSP for a house purchase (or $40,000 for couples who both have RRSPs).
But that may not cover the $30,000 down payment on a typical $600,000 property in greater Toronto.
"That 5 per cent is a lot of money," says Dawn Devcic-Erceg, director of marketing at ResMor Trust Co., a Toronto-based lender that deals with mortgage brokers.
ResMor did a survey showing that fewer than half of Canadians (45 per cent) agreed with the tighter mortgage rules and the statement "the federal government needs to protect homeowners."
That statement is wrong, of course.
The government wanted to protect the providers of mortgage insurance – including the government-owned Canada Mortgage and Housing Corp. – whose potential losses were backstopped by a federal guarantee.
Wednesday, September 24, 2008
Tuesday, September 9, 2008
Bank of Canada holds the line on rates
HEATHER SCOFFIELD
Globe and Mail September 3, 2008
The Bank of Canada is keeping its key interest rate on hold,even though inflationary pressure has abated in Canada, and growth has slowed to a stop.
The central bank announced Wednesday that the overnight rate will remain at three per cent, and gave few hints about which direction its next move might be.
"The bank judges that the current level of the target for the overnight rate remains appropriately accommodative," the bank said.
Economists had widely expected the bank to keep rates unchanged, although some had also expected the bank to suggest that its next move would be a rate cut in order to stimulate Canada's flagging economy.
The bank omitted its traditional assessment of the risks facing the bank's forecast - an assessment that is usually closely watched to determine whether the bank is leaning in the direction of future rate cuts or hikes.
Instead, the bank's one-page statement focused on the reversal in commodity prices since the beginning of July. Then, oil was trading above $140 (U.S.) a barrel, and has since declined steeply to close on Tuesday at $109.71 - driven lower by sagging global demand, the bank said.
The slide has meant that the central bank's earlier expectations that the inflation rate would soar to above four per cent by the end of this year will not pan out, the statement said, although the bank said it expects commodity prices to remain volatile because of tight inventories.
At the same time, lower oil prices have also meant that the Canadian dollar is much weaker than a couple of months ago. Normally, a weaker Canadian dollar would boost Canadian exports, but this time, it comes just as the world economy is losing steam, the bank noted.
"The weaker global growth and the decline of the Canadian dollar will have opposing effects on the demand for Canadian goods and services,"the bank stated.
The Canadian dollar closed at 93.58 cents (U.S.) on Tuesday, after trading just below parity for months.
The bank did not express any concern for Canada's stagnant economy,which contracted in the first quarter and barely expanded in the second quarter. Domestic demand has softened, but remains fairly strong, the bank said.
"Overall, the level of economic activity is slightly lower than expected in July but still close to the economy's production capacity."Total inflation, which has surged above three per cent recently, has been affected by temporary factors and should move back to the bank's two per cent target by this time next year, the bank said. Still, the bank warned that the heightened inflation risk that gripped central bankers a couple of months ago and prompted the Bank of Canada to suddenly stop its aggressive rate cuts this summer still exists.
"Global inflationary pressures remain elevated, with potential implications for import prices and the dynamics of inflation in Canada,"the bank said.
Around the world, rising food and commodity prices have driven up inflation over the past few months, especially in emerging markets, but also in developed economies, albeit to a lesser extent.
In the United States, economic growth and the turbulence in global financial markets are unfolding as the bank expected, the statement said. The bank has projected 1.6 per cent growth in the United States this year, despite continuing turmoil in the financial sector and a collapse of the housing market.
Still, there's a risk that the negative feedback loop between the U.S.economy and tighter credit conditions will worsen, and hamper the expected revival of the U.S. economy in 2009, the bank suggested.
The Bank of Canada's next rate announcement is on Oct. 21 - a week after the widely-anticipated date of the federal election. With interest rates on hold, and the bank giving no obvious indication about its next move, Governor Mark Carney has likely removed himself as a factor in an election campaign that will no doubt be dominated by debate on how to manage the flagging economy.
Globe and Mail September 3, 2008
The Bank of Canada is keeping its key interest rate on hold,even though inflationary pressure has abated in Canada, and growth has slowed to a stop.
The central bank announced Wednesday that the overnight rate will remain at three per cent, and gave few hints about which direction its next move might be.
"The bank judges that the current level of the target for the overnight rate remains appropriately accommodative," the bank said.
Economists had widely expected the bank to keep rates unchanged, although some had also expected the bank to suggest that its next move would be a rate cut in order to stimulate Canada's flagging economy.
The bank omitted its traditional assessment of the risks facing the bank's forecast - an assessment that is usually closely watched to determine whether the bank is leaning in the direction of future rate cuts or hikes.
Instead, the bank's one-page statement focused on the reversal in commodity prices since the beginning of July. Then, oil was trading above $140 (U.S.) a barrel, and has since declined steeply to close on Tuesday at $109.71 - driven lower by sagging global demand, the bank said.
The slide has meant that the central bank's earlier expectations that the inflation rate would soar to above four per cent by the end of this year will not pan out, the statement said, although the bank said it expects commodity prices to remain volatile because of tight inventories.
At the same time, lower oil prices have also meant that the Canadian dollar is much weaker than a couple of months ago. Normally, a weaker Canadian dollar would boost Canadian exports, but this time, it comes just as the world economy is losing steam, the bank noted.
"The weaker global growth and the decline of the Canadian dollar will have opposing effects on the demand for Canadian goods and services,"the bank stated.
The Canadian dollar closed at 93.58 cents (U.S.) on Tuesday, after trading just below parity for months.
The bank did not express any concern for Canada's stagnant economy,which contracted in the first quarter and barely expanded in the second quarter. Domestic demand has softened, but remains fairly strong, the bank said.
"Overall, the level of economic activity is slightly lower than expected in July but still close to the economy's production capacity."Total inflation, which has surged above three per cent recently, has been affected by temporary factors and should move back to the bank's two per cent target by this time next year, the bank said. Still, the bank warned that the heightened inflation risk that gripped central bankers a couple of months ago and prompted the Bank of Canada to suddenly stop its aggressive rate cuts this summer still exists.
"Global inflationary pressures remain elevated, with potential implications for import prices and the dynamics of inflation in Canada,"the bank said.
Around the world, rising food and commodity prices have driven up inflation over the past few months, especially in emerging markets, but also in developed economies, albeit to a lesser extent.
In the United States, economic growth and the turbulence in global financial markets are unfolding as the bank expected, the statement said. The bank has projected 1.6 per cent growth in the United States this year, despite continuing turmoil in the financial sector and a collapse of the housing market.
Still, there's a risk that the negative feedback loop between the U.S.economy and tighter credit conditions will worsen, and hamper the expected revival of the U.S. economy in 2009, the bank suggested.
The Bank of Canada's next rate announcement is on Oct. 21 - a week after the widely-anticipated date of the federal election. With interest rates on hold, and the bank giving no obvious indication about its next move, Governor Mark Carney has likely removed himself as a factor in an election campaign that will no doubt be dominated by debate on how to manage the flagging economy.
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