Bank of Canada Lowers Key Rate by a Quarter Point

The Bank of Canada reduced its key interest rate by a quarter point today to its lowest level ever. In its announcement the Bank also stated that it expects to hold this policy rate at its current level until the end of the second quarter of 2010, conditional on the outlook for inflation.

While rates for variable rate mortgages are typically impacted by Bank of Canada policy rate changes, what’s interesting is that rates for popular five-year fixed rate mortgages have been declining significantly in recent months. The reason behind this drop is an abundant supply of money being put into circulation, as well as guarantees of government agencies to purchase mortgage investments.

A comparison of fixed rates today versus six months ago shows a noticeable improvement in purchasing power.

Six months ago, a competitive rate on a five-year fixed mortgage was 5.75 per cent. At this rate, the monthly payment on a $250,000 mortgage with a 25-year amortization was $1,563. With the five-year rate of 3.95 per cent available today, the monthly payment falls to $1,308, which adds up to a savings of $15,300 in payments over the five year term.

Toronto Real Estate Forum

BMO and industry experts shared their insights on the current and future state of Canada’s reestate market at BMO’s Real Estate Forum in Toronto.

The panel discussion featured  BMO experts John Turner, Director, Mortgages, and Sal Guatieri, Senior Economist, along with industry experts, Brad Lamb, Brad J. Lamb Realty Inc.; Donald Lawby, President and COO, Century 21 Canada; and Phil Soper, President and COO, Brookfield Real Estate Services.

The panel acknowledged that while Canada’s real estate market has significantly slowed over the past year, there are positive signs that the worst may be behind us. With mortgage rates at near-record lows the current conditions may be optimal for some first-time home buyers.

First-time home buyers need to surround themselves with a good cast of experts, including a realtor and a lender that can help them take the mystery out of the home-buying process. We’re here to help guide you through the home buying experience and provide the right advice so you can shop for your home with confidence.

Key insights from Mortgage Specialist:

-Prices are expected to fall moderately further this year.

-The housing downturn appears to be slowing in response to improved affordability.

-Interest rates are likely to remain low well into next year. The economic recovery, coupled with low interest rates and good affordability, should spur an increase in home sales next year.

-Firmer sales, in turn, should allow prices to stabilize and eventually grow alongside household income. Firmer demand should also lift housing starts to about 160,000 in 2010.

-While the housing market may experience a further correction this year, it will remain far more stable than the U.S and several other countries. More conservative borrowing and lending practices in Canada limit the risk of a deep correction.

Shaping Up Your Finances

First of all put together a family budget. Find out how much you spend over a six month period by looking at your receipts and establish a budget based on your figures. Most people pay attention to mortgage or rent payments, car loan, phone and hydro, but little thought is given to incidentals such as lunch, a trip to Tim Hortons etc. You should keep track of every penny you spend. You’ll be amazed at how much you actually spend on little things.
Lenders tend to look at total debt load of no more than 35-40% of your income. Since your mortgage ranges between 25-28% of your income, you need to keep you other loans at 8-10% range.
Make more money. Sounds simple but sometimes there is no other alternative, the extra money may be enough to allow you to qualify for your first home. So that part-time job doesn’t sound so bad after all.Save.Save.Save. The more money you have for a downpaymnet the better off you’ll be. Try to aim for a 20% downpayment although you can purchase with a minimum of 5%.
Set up a downpayment fund. When you pay your monthly bills consider putting away a specific amount towards your downpayment fund as if it was a bill. Before you know it you’ll have enough to by your first home..
Another important factor is employement stability. Most lenders like to see at least 2 years of steady employement with the same firm..
This last tip should always be on your mind. Develop a good credit history. Your credit rating makes all the difference when applying for a big loan such as a car or home. Make your payments by the due date and try not to carry a balance. A good credit rating will save you a lot of money over the length of the loan.

Good News For March '09 Resale Housing Stats!

The figures are out for the March resale market in the GTA and they’re getting better! Greater Toronto Realtors reported a 7% drop in sales over March of 2008. This is the smallest decline (year-to-year) in the last 5 months with the average price down less than 5% over the same period last year at $362,052.

The Toronto housing market is holding it’s own in these economic times and has actually improved over the past 2 months.

March sales surpassed what was projected for the spring time start up. So, what does this mean? It means that saavy buyers are very likely taking advantage of the current low interest rates and lower (market corrected) housing prices and are realizing that now is a good time to buy. This is great news not only for the Real Estate market, which is one of the most important economic indicators. It may indicate a light at the end of the tunnel, and isn’t that what we all want to see? So, if anyone has been thinking of looking, now is not the time to wait to see what else the market will do, now is the time to do it! Now is not the time to see if prices will fall further because when the market does fully turn around, those interest rates are going to creep up along with housing prices.   

7 Helpful Tips that Ensure Your Mortgage Process Goes Smoothly

The mortgage process can be a stressful and sometimes frustrating process. The idea is to make the entire process go as smoothly as possible. What is most important? Be prepared before you sit down with your mortgage agent.
Here are some things you can do to help ensure successful results, as well as give you some control over your own loan process.

1. Take time to Straighten out your finances:
If you don’t have a grip on what’s coming in and what’s going out (and where, and why), you may be in for a rough time when you apply for a home loan.

2. Make sure to check your credit record:
Everyone’s heard the horror stories: Your best friend, your sister, neighbor, goes to buy a home only to discover the worst… that the credit report contains negative or inaccurate credit information. Instead of having a clean record, he or she has an $80,000 outstanding bill, that is not their own. The loan officer looks at the outstanding bill and gives you a choice: Clean up the credit problem or no loan. Some choice. And you’ve probably heard how difficult it is going to be to get your credit history cleaned up. Maybe so, but it’s important to try nonetheless.
Here’s what to do: First, order a credit report on yourself. You can contact Equifax By phone: (1 800 465-7166 ), or online at: www.equifax.ca
For less than $10, Equifax will send you your credit report. This is the same information lenders will receive. By getting a copy of your credit report before you apply for a loan, you’ll get a first look at any problems or discrepancies that have sprung up.
3. Gather The Information You Need Ahead of Time:
It’s a great idea to gather information ahead of time and organize it so that it’s easily accessible for you to review and have corrected. Now, you’ll also need complete copies of your past two or three tax returns plus a current pay stub, or a current profit and loss if you’re self-employed, you’ll be able to have that information on hand when you sit down with your mortgage agent.

4. Know The Current Lending Guidelines:
Get a current copy of the lending guidelines. If you are applying for a high ratio Mortgage, the federal Canada Mortgage and Housing Corp. (CMHC) must insure these loans. The protection is for the lender, not for you. Mortgage insurance can be expensive: it can range up to 2.5 per cent of the value of the loan. You have to insure the entire loan, not just the amount that is above 80 per cent of the purchase price. That means the insurance premium for a $140,000 mortgage would be $3,500. Most lenders will let you roll the insurance premium into your mortgage. If you do, though, you’ll end up paying a good deal of interest on the insurance fee as well.
One advantage to this type of financing is that CMHC-insured mortgages become open after three years. All that’s required to pay off your mortgage at that point is to pay a penalty of three months’ interest. (An open mortgage means you can pay it off or refinance at current rates at any point.)

5. CMHC’s 5 Per Cent Down Program:
If you are a first-time buyer, you can put as little as 5 per cent down with an insured mortgage — provided you earn enough income to qualify. The amount of money you can borrow under this plan depends on where the house is located. Contact CMHC for more information about your specific situation and location.
These loans must be insured, and while you can choose any term you wish, your income must be able to meet the payments required under a three-year term.

6. Choose a Conventional Mortgage:
Conventional mortgages require a down payment of 20 per cent of the home’s appraised value. If you’re looking at a house with a price tag of $200,000, that means you need to come up with $50,000 of your own money. But if you don’t have that much saved, you may still be able to purchase that property.
Although it may seem that the lender’s primary job is disqualifying mortgage applicants, the reverse is true: The lender wants to qualify as many applicants as possible (lenders make their money by approving loans) but are restricted by the rules and regulations of a larger, more powerful body.
If you understand up front what your lender is going through, it may help smooth the process.
7. Qualify your lender:
Just as you shop for a real estate broker and a new home, it’s very important to shop for a lender, your Mortgage Agent can help you. Loan products, services, style, and personal attention vary greatly. Look for a lender that is best qualified to meet your needs.
For example, if you’re self-employed, and you’ve only been self-employed for a year, you may find it more difficult, even though you may have paid every bill on time in your life. The reason for that is that lenders need to see that you’ve been self-employed, maintaining an income for at least two years, and have the tax returns to prove it. At this point, your choices would be to wait until you’ve been self-employed for two years, or go with a sub-par loan (also known as a B or C loan in the lending industry).