Why today’s bank rate cut is not a big deal for mortgages
Below is a great summary of why this rate cut is not a big deal mortgage wise.
All the banks kept their rates the same but for TD that lowered their Prime rate by 0.10% only. No other banks have followed yet and are not expected to. As you can see the banks will keep that rate cut to boost their profits … because they love money; specifically, your money, not you.
Variables went down only by 0.1% … and fixed rates all stayed the same … at their 115 year all-time lows. Looks like mortgage interest rates are as low as they can go.
Mark Herman, top Calgary Alberta mortgage broker for home purchases and mortgage renewals.
Why the Bank of Canada’s interest rate cut won’t help us.
After seven years of interest rate cuts, this economic lever is a spent force. The law of diminishing returns means each new cut has less and less impact.
The Bank of Canada decision Wednesday to cut its key lending rate for the second time this year to 0.50 per cent …
The impetus behind the cut wasn’t really about getting you to borrow more or ease your borrowing burden. It was about widening the gap between our interest rates and those in the U.S. to push our dollar down.
“Canada’s economy is undergoing a significant and complex adjustment,” the bank said in its rate decision, noting there was a modest recession in the first half of the year as the economy contracted.
Our dollar started the day down a third of a cent to 78 cents, a level not seen in 10 years. That’s going to make snowbirds unhappy, but the central bank is more interested in fuelling exports to our larger trading partner.
Can the Bank of Canada really save the day? Rates are already so low, we’re at the point of diminishing returns. Each new cut is greater in percentage terms than the last, but the real impact is smaller and smaller.
Here are four reasons this cut isn’t likely to make much difference:
1. Not much relief
If interest rates are at 15 per cent – not far off what I was paying for my first mortgage – and fall to 10 per cent, that’s a 33 per cent decline and puts a huge amount of money in your pocket.
If the rate is 0.75 per cent and falls to 0.50, it’s the same 33 per cent drop, but the saving is negligible. By the time it filters down through the banking system to your line of credit, the difference may add up to a Big Mac meal.
Wednesday’s move by the central bank means the banks will likely lower consumer borrowing costs a little. The betting is that they’ll give us 10 basis points and they’ll keep the other 15. TD Bank was first off the mark, doing just that.
So, suppose you’re a good bank customer. Your $100,000 secured line of credit is at prime, plus half a point, or 3.35 per cent (2.85 plus .50). You’re making an interest-only payment each month which comes to $279 a month.
The bank passes on 10 basis points. Your new combined rate is 3.25 per cent, or $271 a month. Spend that $8 wisely.
2. Indifferent businesses
Businesses who need money to invest are already borrowing. This rate cut won’t make a difference to their plans…
3. Indifferent consumers
… many consumers see the low rates as normal. He’s right, in that anybody 45 or younger has only lived in an environment of falling interest rates. So 10 basis points off is just more of the same and unlikely to generate much interest….
4. Drooping dollar
Economist have noted that the January rate cut did send the dollar lower, but did little to accelerate growth, even as the loonie fell from 87 cents to about 82 cents and now 78 cents..
http://www.thestar.com/business/personal_finance/2015/07/15/4-reasons-the-bank-of-canadas-interest-rate-cut-wont-help-us-mayers.html
Tax Freedom Day was June 11th!
First posted: Tuesday, June 12, 2012 06:46 PM MDT | Updated: Tuesday, June 12, 2012 07:59 PM MDT
The federal government expects a deficit of $21 billion this year. (Chris Roussakis/QMI Agency)
If you’ve ever tried to calculate all the taxes you pay in a year to all levels of government, you’ve probably given up somewhere along the way.
While most of us can easily decipher how much income tax we pay — it’s right there on our tax returns — it’s a lot more difficult to gauge how much we pay in not-so-obvious taxes.
For Canadian families to reasonably estimate their total tax bill, they’d have to add up a dizzying array of taxes, including visible ones like income taxes, sales taxes, social security taxes and property taxes, as well as hidden ones like profit taxes, gas taxes, alcohol taxes … and the list goes on.
This is no easy task.
That’s why the Fraser Institute calculates Tax Freedom Day every year.
Tax Freedom Day is an easy-to-understand measure of the total tax burden imposed on Canadian families by federal, provincial and local governments.
If Canadians were required to pay all taxes up front, they would have to give governments each and every dollar they earned prior to Tax Freedom Day.
In 2012, we estimate the average Canadian family consisting of two or more people will earn $94,258 and pay a total tax bill of $41,627, or 44.2% of income.
Tax Freedom Day fell on Monday, June 11 this year.
From then on, Canadians start working for themselves and their families, rather than the government.
While that alone is reason to celebrate, you may want to keep the champagne on ice because the good news ends there.
Tax Freedom Day arrives one day later than last year. There are two main reasons.
First, several Canadian governments have raised taxes, from increased Employment Insurance premiums at the federal level, to a higher provincial sales tax in Quebec, to increased health taxes in B.C. and a new tax on high earners in Ontario.
Second, Canada’s economy is still recovering from the recession and as incomes continue to increase, a family’s tax burden increases to a greater extent because of Canada’s progressive tax system, which imposes higher taxes as Canadians earn more money.
For instance, the top fifth of income earners face an average total tax burden amounting to 54% of income, while the bottom fifth face an average burden of 18%.
There’s more bad news.
The federal and almost all provincial governments are running deficits this year. (Ottawa expects a deficit of $21 billion, while the provinces cumulatively expect deficits amounting to $20 billion).
According to our calculations, Tax Freedom Day would come 12 days later this year (June 23) if Canadian governments covered their current spending with even greater tax increases, instead of borrowing the shortfall as debt.
It’s important to remember budget deficits incurred by Ottawa and the provinces must one day be paid for by taxes.
With the recent significant growth in government debt across the country, Tax Freedom Day could come later in the future. By kicking today’s debt down the road, governments are passing on the burden of repayment to young Canadian families.
It is ultimately up to Canadians to decide whether June 11 is an acceptable Tax Freedom Day.
On that note, happy Tax Freedom Day, although maybe “happy” isn’t the right word.
— Palacios and Lammam are economists with the Fraser Institute and co-authors of Canadians Celebrate Tax Freedom Day on June 11, 2012, available at www.fraserinstitute.org