Rate increases on hold for Bank of Canada
Preword: It looks like the Canadian interst rates can not rise above the US to much and the US will have to keep their rates the same for most all of 2010 and most of 2011. That means our rates will stay close to the same as now for another 18 months! Great news if you are on the variable rate mortgage.
We have variable rates are Prime – .65% right now, from good banks.
CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad
TORONTO, Aug. 18 /CNW/ – Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.
… “Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”
While Canada is in much better economic shape – it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.
For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.
Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”
The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.
“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”
As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_aug10.pdf
Credit Score info
Credit Score Secrets
by Gail Vaz-Oxlade, for Yahoo! Canada Finance
Thursday, May 27, 2010
Ever wonder how that magical number – The Credit Score – is computed?
Whether you’re obsessing over your FICO score or your Beacon score, you’re likely shopping for credit. The FICO score was developed by Fair Isaac & Co., which began credit scoring in the late 1950s. The point of the score is consolidate your credit profile into a single number. The Beacon score is a brand name used by Equifax, the largest credit-reporting agency in Canada. While Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed, whether you get a loan or not is a numbers game: The more points you score on your credit app, the better you do.
There’s a reason you have to fill out so much information when you’re applying for credit. Everything counts. Your age, your address, and even your telephone number all have a role to play in whether or not you’ll get credit.
Young ‘uns and old folk are at a disadvantage since under 21 and over 65 likely means you aren’t working; no points for you. If you’re married, you’ll get a point for being “stable.” And while you might think that being divorced would work against you (all that spousal and child support), most creditors don’t give a whit.
No dependents? Zero points. You’re probably still gallivanting like a teenager since you haven’t yet “settled down.” One to three dependents? Score one point. You’re a solid citizen. More than three dependents? Score zero. Have you no self control! And don’t you know you that with all those mouths to feed you could get in debt over your head?
Your home address counts too. Live in a trailer park or with your parents? Bad risk, score zero points. You could skip town with nary a look over your shoulder. Rent an apartment? Give yourself one point. Own a home with a big fat mortgage and you’ll score major points since someone has already done some checking and you qualified for a mortgage. Own your home free and clear? Even better. You’ve proven you can pay off a sizable debt and now you have a pile of equity that the card company would love to help you spend.
Previous Residence? Zero to five years (some applications only go to three years), score zero points since you move around too much. No land-line: zero points. How the Dickens are they gonna find you when you fall behind in payments. Since they can’t use your cell phone to actually locate you physically, it doesn’t count.
Less then one year at your present employer earns you no points. Again, it’s a stability and earning continuity thing. The longer you’re on the job, the more likely you are to be bored out of your mind but you’ll score more points. And, not to overstate the obvious, the more you make the better.
The more willing you are to make your lender rich, the higher your score will be. Since the FICO score was originally designed to measure customer profitability, if you pay off your balance in full every month, you’re going to score lower than the guy who only makes the minimum payment and pays huge amounts of interest.
Scores range from 300 to 900 and if you manage to hit 750 or above you’ll qualify for the best rates and terms. Score 620 or lower and you’ll pay premium interest if you even qualify; 620 is the absolute minimum credit score for insured mortgages.
Your credit score can change quickly. Payment history accounts for about 35% of your credit score and just one negative report can drop your pristine score into the doldrums. Since scores are updated monthly, your bad behaviour won’t go unpunished for long.
The type of credit you have counts for about 10% of your score. And your current level of indebtedness accounts for about 30% so going too close to your credit limit is another way to deflate your score. One rule of thumb is to keep your balances below the 65% mark. So if you have a limit of $1,000, you won’t ever carry a balance that’s more than $650.
Having too much credit available can also hurt your ability to borrow since the more credit you have, the more trouble you can get yourself into. If you’ve got a walletful of cards, canceling credit you’re not using can be a good thing – for both you and your credit score – over the long haul. Careful though. If the card you’re eliminating is one with a long, positive history, you’ll eliminate what could be a very good record of your repayment when you cancel the card. You’d be better off cutting up the card so you aren’t tempted to use it, while you establish a track record (six months or more) before you actually cancel the account.
Credit shopping can also cost you points. Since about 10% of your credit score relates to the number and frequency of new credit enquiries, applying willy nilly for new credit will end up costing you. However, it’s only when a lender checks your score that this registers on your score. Checking your own credit report/score is considered a “soft” inquiry and does not go against your score.
http://ca.finance.yahoo.com/personal-finance/article/yfinance/1623/credit-score-secrets
Prime up 1/4% as expected
Comment: many think that Prime will hold here or go to 3% and hold there for a long while as the economy gets going again.
1/4% Prime Raise
The Bank of Canada raised its benchmark interest rate by 25 basis points for the second time in two months, even as households and governments in the developed world continue to cut back on spending.
The rate is now 0.75 per cent. The bank said any further increases “would have to be weighed carefully against domestic and global economic developments.”
The central bank became the only one in the Group of Seven to hike its key lending rate after keeping it at unprecedented lows during the recession.
While economic growth in Canada has largely relied on consumer spending, the bank now projects that business and trade will make up a larger part of the country’s gross domestic product, but overall growth won’t be as large as the bank previously thought.
The bank now estimates that Canadian GDP will expand 3.5 per cent in 2010 and 2.9 per cent in 2011, down from the previous projection of 3.7 per cent and 3.1 per cent respectively.
Prime rate increase in the cards
comment: Variable rates should stay a good mortgage option as Prime is expected to stay at 3% for the rest of the year. Prime – .6% will be a 2.4% mortgage rate and the fixed rates will stay around the 4% mark. The great thing is fixed rates are coming down now so a variable will save now and you can lock in later when the 5 year fixed is even lower.
Week Ahead: Rate hike in the cards
Kim Covert, Financial Post · Friday, Jul. 16, 2010
OTTAWA — Two major announcements bookending the coming week’s economic news will provide a clearer snapshot of the state of the Canadian recovery.
The Bank of Canada will be first up when it makes its monthly interest rate announcement on Tuesday. But that will come before Friday’s critical report from Statistics Canada on the country’s consumer price index for June.
The central bank raised its benchmark index rate in June by 25 basis points, and at the time expectations were that the rate would increase steadily. But in the weeks since that announcement concerns about a double-dip recession have been growing, increasing speculation that the bank would hold the course. Consensus expectation is for a 25 basis-point increase on Tuesday, bringing the rate to 0.75%, though analysts disagree on what will happen as the year unfolds.
“While both domestic and global conditions have deteriorated modestly since June, the underlying momentum in the Canadian economy warrants the continued normalization of policy in the near term,” wrote strategist David Tulk of TD Securities in a note to investors. “When we look further into the future, the impact of financial market turmoil and decelerating economic growth is more difficult to quantify. In recognition of this uncertainty, we have scaled back our forecast for rate increases, and now look for a year-end overnight rate of 1.25% and a rate of 2.50% by the end of 2011.”
Economist Michael Gregory of BMO Economics, who also calls for a another 25 basis point increase, said he expects the bank to make one more increase of that size in September then hold the line for the remainder of the year. CIBC is calling for the rate to reach 1.25% in October, followed by a pause lasting at least two quarters.
The Bank of Canada’s rate announcement will come ahead of the key June inflation report on Friday. The consensus expectation is for 0.1% month-over-month drop in the consumer price index on lower gasoline prices, while the core year-over-year inflation rate will be unchanged at 1.8%, below the Bank of Canada’s target of two%.
CIBC economist Krishen Rangasamy said that while the rate announcement will precede the CPI, he doesn’t expect the “milder” June prices will have any effect on the rate. He said July’s prices should get a bounce from the harmonized sales tax introduced on July 1 in Ontario in British Columbia.
The bank will also release its Monetary Policy Report on Thursday. Mr. Rangasamy doesn’t expect the bank to make material changes to its April forecast of 3.5% growth for the second half.
“The only thing will be perhaps in the tone of the report. We think that they might adopt a more cautious tone on the external environment, particularly what’s happening in Europe and elsewhere, with slower Chinese growth, so they might adopt a little bit more cautious tone as opposed to their upbeat tone in April.”
Statistics Canada reports in the coming week include securities transactions on Monday, travel data on Tuesday, wholesale trade on Wednesday, as well as employment insurance and retail trade data on Thursday.
On the corporate front, some major Canadian companies will be reporting earnings on Thursday, including Canadian National Railway, Shoppers Drug Mart and Loblaw Cos.
Mortgage Market Primer
Mortgage Market Primer (TD)
If you have any interest in the nitty gritty of Canada’s mortgage industry, TD Securities’ Eric Lascelles has put out this fantastic market overview: Canadian Mortgage Market Primer
Here are some of the more notable points…
- 70% of Canadian lenders are deposit-taking institutions (Page 1)
- 5-year GICs and the Interest Rate Act are two reasons Canadian mortgage terms are usually five years or less (Page 5)
- There is a difference between Adjustable Rate Mortgages (ARMs) and Variable Rate Mortgages (VRMs). Both have variable rates but the former has variable payments while the latter has “fixed” payments. (Page 5)
- For any term over five years, the pre-payment penalty cannot be greater than three months interest once five years have elapsed. (Page 7)
- “Given a mortgage delinquency rate of 0.44% and the assumption of a (pessimistic) recovery rate of 80%, this means that expected mortgage portfolio losses for Canadian lenders are less than 10 basis points per year for uninsured mortgages.” (Page 8)
- About 50% of Canadian mortgages are insured. (Page 8)
- “Even with an insured mortgage, the lending institution manages the mortgage, directly handling payment collection, foreclosure, and sale of the home, where applicable.” (Page 10)
- 29% of Canadian mortgages are securitized versus 60% in the U.S. (Page 10)
- $175 billion of the $275 billion in Canadian securitized mortgages (64%) are sold into the Canada Mortgage Bond (CMB) program. (Page 10)
- Canadian borrowers can usually prepay 10-25% of their mortgage each year without penalty, but the average prepayment is less than 1%. (Page 11)
- It is estimated that the Insured Mortgage Purchase Program (IMPP), which allowed the government to buy back mortgages during the credit crisis in 2008-2010, netted the government extra profit of roughly $187.5 million. (Page 11)
- Lenders (or their agents) must continue servicing a mortgage after it’s sold into the CMB program—including assuming all pre-payment and uncovered default-related costs. Mortgage Insurance does not make lenders completely whole in the event of default. (Page 13)
The CMB program intentionally operates on a break-even basis (Page 14)
- Mortgage defaults “would have to increase by three- to four-fold to compromise the profitability” of CMHC’s default insurance program. CMHC should have ~$8.8 billion in insurance retained earnings as a buffer for its insurance business in 2010. (Page 15)
- Like any insurance business, CMHC’s is not completely without risk. (See Page 16)
- The CMB program adds very little additional risk for CMHC. The underlying mortgages are already insured. (Page 15)
- 71% of mortgagors with CMHC insurance have “equity in their homes of more than 20%.” (Page 16)
- “Over 40% of CMHC’s total business in 2008 was in areas, or for housing options, that are less well served or not served at all by the private sector mortgage insurers.” (Page 17)
Canadian Prime rate to go up only a bit.
As expected the economy is not as hot as every one thought. That means that Prime – as below – is now predicted to go up to .5% and then hold there or up to 1% for the rest of the year.
This means that the Variable rates are now very attractive because we know where Prime is headed – as in holding constant. A variable at Prime -.6 today is 2.5-.6= 1.9%. The 5 year fixed are more like 4.30%
Weak Canadian GDP puts BoC on the spot
Eric Lam, Financial Post · Friday, Jul. 2, 2010
With Canada’s economy stumbling in April, adding fuel to speculation the country’s roaring recovery that began in September 2009 was coming to an abrupt end, economists warned Canada’s central bank will have to tread carefully on its plan to raise interest rates for the rest of the year.
Derek Holt and Gorica Djeric, economists with Scotia Capital, said the Bank of Canada “was not likely to be swayed” by Wednesday’s economic data. The pair maintain a forecasted 1.25% benchmark rate by the end of the year.
“There should be enough strength in the underlying economic momentum to dismiss the drag on GDP in April as something that does not portend the start of a new trend,” the pair say in a note.
In April, Canada’s gross domestic product neither expanded nor contracted, compared with 0.6% growth in March. Economists surveyed by Bloomberg had been forecasting 0.2% growth in GDP for April.
This is the first time in eight months Canada’s economy did not expand.
In its report, Statistics Canada blames the stagnant April on a “large decline” in retail trade of 1.7%, after a 1.9% gain in March. Declines in manufacturing and utilities also contributed to the underperformance while advances in mining, wholesale trade, the public sector and construction helped to offset the decreases.
Krishen Rangasamy, economist with CIBC World Markets, said it was too soon to jump to conclusions.
“It’s too early to conclude from this GDP report that the recovery is already waning,” he said in a note on Wednesday. “The excellent handoff from March means that we’re starting the second quarter from a higher base, which sets Canada up for a decent quarter despite a slow start.”
Michael Gregory, senior economist with BMO Capital Markets, said that while the 3% growth now expected is respectable, it is a bit of a letdown compared with the 5% to 6% growth figures seen earlier.
“It’s kind of like driving on the highway at 100 kilometres an hour, then getting off and going 50,” he said in an interview. “But 3% growth is still all right and where we see it for this year.”
The second half of the year will likely move quite sluggishly, however, as a lot of spending in housing, renovation and other big-ticket items was “pulled forward” due to the HST, introduced in July in Ontario and British Columbia. Mr. Gregory expects growth of about 2% on average in the fall and winter months.
Canada’s economy also faces headwinds from the sovereign debt crisis in Europe, an even worse slowdown in the United States, and possible fallout in China, he warned.
Warren Jestin, chief economist with Scotia Economics, said in a note on Wednesday that Canada’s position as a resource leader should help keep it afloat in the face of other developed countries, although “this won’t be a hard race to win.”
The situation in Europe is troubling for Mr. Gregory, but he suspects the combination of weakening housing, high unemployment and zero credit growth will hurt the United States.
“That buzz you hear about a possible double-dip recession is legitimate and will remain a worry for markets the rest of the summer and into the fall,” he said. “It’s why we think the Bank of Canada will be on hold for a while after July.”
Mr. Gregory figures the central bank will raise rates 25 basis points at its next meeting in July, then go on hold to see how things play out in Canada the rest of the year. It is likely the BoC will push rates to 1% by the end of 2010 and add another 1 percentage point to 1.5 percentage points in 2011.
“An environment of 3% growth is still something that requires higher interest rates,” he said. “Rapid buildup in household debt is a long-term risk.”
Canadian Mortgage Rates May Slide Down
Canadian 5 yr bond yield is at 2.34%. The spread, (based on the 5 yr rate published rate of 4.49%) has jumped far above the comfort zone at 2.15.
The banks dropped their posted rates by .10bps lasts week
Explanation:
The rate of return on the bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Currently lenders are looking for a spread, between 1.50 and 1.75.
Toronto woman paying for mortgage fraud
This is too bad and we see it all the time. There is no free lunch. If you sign papers for a house and they pay you to do it is pretty much fraud and you pay the price.
Toronto woman paying for mortgage fraud
A Toronto woman is being ordered to pay RBC $95,000 after failing to realize she was being tricked into a mortgage fraud.
Angela Isaacs accepted $6,000 to co-sign a stranger’s mortgage and signed the documents without reading them, reported the Toronto Star.
Madam Justice Anne Molloy of the Ontario Superior Court of Justice also decreed that Isaacs owes 6.3 per cent annual interest on the $95,000 loss from June 26, 2008 until the debt is paid and, within 30 days, $13,500 of the bank’s legal fees.
“She took the risk and got stung,” said Molloy during the ruling. “That is her own responsibility, not the fault of the bank.”
In late 2004, Isaacs was discussing her financial woes with her then common-law husband in a Tim Hortons coffee shop. She was earning $35,000 a year at a full-time job and raising three young children.
A stranger called Mike told her she could receive $4,000 for co-signing a mortgage for six months so a man with a poor credit rating could buy a house. Later Isaacs decided against it but was persuaded after she was offered $6,000.
Isaacs clued into the scam when RBC started sending her late payment notices for a $280,000 mortgage on a house she owned with a man supposedly named Mark Forrest.
Residential Mortgage Rates Lowered
- 4.49% to 4.19% to 4.09% – depending on how long your rate hold is for a 5 year fixed
- 1.90% = Prime – .6% = 2.5%-,65=1.90% for a variable.
Residential Mortgage Rates Lowered
TORONTO, June 24 /JAC/ – Residential mortgage rate changes as and when announced by major lenders.
TORONTO, June 24 /CNW/ – RBC Royal Bank announced today that it is decreasing its residential mortgage rates effective June 25, 2010.
The changes are as follows:
Fixed Rate Mortgages
- Six-month convertible 4.85 per cent (decreased by 0.10 per cent)
- One-year closed 3.60 per cent (decreased by 0.10 per cent)
- Two-year closed 3.95 per cent (decreased by 0.10 per cent)
- Three-year closed 4.50 per cent (decreased by 0.10 per cent)
- Four-year closed 5.54 per cent (decreased by 0.10 per cent)
- Five-year closed 5.89 per cent (decreased by 0.10 per cent)
- Seven-year closed 6.85 per cent (decreased by 0.10 per cent)
- Ten-year closed 7.00 per cent (decreased by 0.10 per cent)
Special Fixed Rate Offers*
- Four-year closed 4.39 per cent (decreased by 0.10 per cent)
- Five-year closed 4.49 per cent (decreased by 0.10 per cent)
* The rates indicated are special discounted rates and are not the posted rates of Royal Bank of Canada. To calculate a rate discount compare the Special Offer rate against the posted rate for the applicable term.
Special Offers may be changed, withdrawn or extended at any time, without notice. Not available in combination with any other rate discounts, offers or promotions.
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For further information: Media contact: Gillian McArdle, (416) 974-5506
TORONTO, June 24 /CNW/ – TD Canada Trust has changed its mortgage rates, effective June 25, 2010.
The changes are as follows:
Fixed Rates To/Change:
- 6-month convertible 4.75% – 0.10%
- 1-year open 6.70% N/C
- 1-year closed 3.80% – 0.10%
- 2-year closed 4.30% – 0.10%
- 3-year closed 4.85% – 0.10%
- 4-year closed 5.54% – 0.10%
- 5-year closed 5.89% – 0.10%
- 6-year closed 6.20% – 0.10%
- 7-year closed 6.59% N/C
- 10-year closed 6.90% N/C
Special Fixed Rate Offers To/Change:
- 1-year closed 2.80% – 0.10%
- 4-year closed 4.39% – 0.10%
- 5-year closed 4.49% – 0.10%
- 7-year closed 5.25% N/C
- 10-year closed 5.59% N/C
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For further information: Tashlin Hirani, Media Relations, Corporate and Public Affairs, TD Bank Financial Group, (416) 982-3375
TORONTO, June 25 /CNW/ – CIBC (CM: TSX; NYSE) today announced the following changes in mortgage rates:
- Six-month convertible 4.85 per cent, down 0.10 per cent
- Six-month open 6.70 per cent, no change
- One-year open 6.45 per cent, no change
- One-year closed 3.60 per cent, down 0.10 per cent
- Two-year closed 3.95 per cent, down 0.10 per cent
- Three-year closed 4.60 per cent, down 0.10 per cent
- Four-year closed 5.54 per cent, down 0.10 per cent
- Five-year closed 5.89 per cent, down 0.10 per cent
- Seven-year closed 6.95 per cent, down 0.10 per cent
- Ten-year closed 7.00 per cent, down 0.10 per cent
These rates are effective Saturday, June 26, 2010.
Canadian Economy Gathering Steam
TORONTO, June 22 /JAC/ – The Canadian economy is gathering steam, with Western Canada leading the way and all provinces participating, according to the Provincial Outlook report issued today by BMO Capital Markets Economics. Canadian growth is expected to reach 3.4 per cent in 2010 and 3.1 per cent in 2011, providing a strong rebound from the 2.5 per cent decline in 2009.
“Real GDP will likely expand across the country in 2010, with the strongest growth rates seen in Western Canada as commodity-sector activity recovers from a depressed year in 2009,” said Michael Gregory, Senior Economist, BMO Capital Markets, pictured top-left. “The theme of the ‘West Outperforming the Rest’ should persist into 2011 as global commodity demand remains firm, while a strong Canadian dollar tempers growth in Central Canada and capital investment activity begins to wane in Atlantic Canada.”
Highlights include:
Western Canada
• Western Canada is poised to benefit from a rebound in commodity prices, firming global demand for raw materials and a lower overall cost environment in the energy sector.
• Oil prices have more than doubled from their recession lows, and investment activity in Western Canada has started to pick up as a result.
• At the same time, reduced royalty rates in Alberta and various incentives in B.C. and Saskatchewan have helped improve the energy economics in the region, and have removed some of the political uncertainty surrounding the Alberta royalty regime.
• Meantime, Western Canada’s post-recession fiscal hole is much shallower than in Central Canada, and as a result, the impact on growth of budget-balancing measures will be milder in the coming years, allowing real GDP growth of about 4 per cent per year through 2011.
Central Canada
• The recovery is also well underway in Central Canada, as auto production has rebounded from the depths of recession, and Ontario’s housing market has roared back to see record sales and price levels.
• While housing is expected to cool through the rest of 2010, and the manufacturing sectors in Ontario and Quebec will continue to bear the weight of a strong Canadian dollar, domestic demand will pick up the slack.
• Indeed, retail sales have rebounded to record levels in both provinces, as have the number of service-sector jobs.
• However, longer-term growth in the region will be challenged by fiscal restraint—Ontario faces the largest budget deficit in the country and Quebec has already begun to implement tax increases and spending restraint.
• Taken together, these factors all point to below-average economic growth of slightly less than 3 per cent per year through 2011.
Atlantic Canada
• Atlantic Canada’s outlook remains stable.
• Aside from Newfoundland & Labrador (which was hit by some one-time factors), the region saw very modest real GDP declines in 2009.
• One factor supporting growth during the recession was capital investment in both the public and private sectors.
• While government stimulus remains strong in the region, some major private-sector projects will wind down in the next few years.
• This, combined with an ongoing challenge in the manufacturing sector, will lead to below-average growth of about 2.5 per cent per year through 2011 in Atlantic Canada.