After bleeding workers in recent months, Canadian factories boosted headcount in December, helping employment register its first positive reading after two straight losses. Canadian jobs edged up by 17,500, led by hiring in the manufacturing sector. However, we don’t expect a renewed pick-up in manufacturing hiring as that sector continues to struggle with the pain of an elevated Canadian dollar that’s inflating the wages of manufacturing workers relative to global competitors.

In the US, employment gains are putting more money in household pockets, but we expect only a slightly stronger-than- consensus retail report for December. All told, not enough here to change the prevailing view that America’s economic engines were in somewhat better shape as 2011 came to a close.

December’s pace of hiring in Canada, taken together with the last few months’ employment reports, still suggests a weak deceleration in job creation and economic growth. That’s consistent with our view that Canada’s fourth quarter Gross Domestic Product (the size of our economy with inflation factored in) scaled down to around a 2% annual pace.
In December, we forecast that the Bank of Canada would likely continue to hold interest rates steady through to the end of 2013. Governor Mark Carney’s “flexible” targeting approach gives the Bank some latitude in responding to inflation. Notwithstanding the risks created by payroll tax wrangling in the US, we’re sticking with that rate forecast.

If you’d like to discuss your mortgage options in the context of this report, give me a call 416.461.0204 or come join me on the Danforth for a coffee.

Other features include:

• HELOC only (100% of funds can be advanced as a line of credit instead of mortgage)
• Available for owner occupied properties only, can’t be arranged on your rental or cottage
• Minimum credit score must be 620
• Maximum loan to value is 80%
• Interest only payments
• When drawing funds they can be electronically transferred to an external chequing account
• Accessible online, through a mobile app or over the phone

I should warn that although HELOCs can be used as a great financial tool which can actually help you pay down your mortgage more quickly or create wealth, they can be dangerous and shouldn’t be used like an ATM.

If you are interested in an orange HELOC fill out the contact form below and I’ll follow up with you right away to discuss the opportunity.

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Also be sure to check out my post How To Protect Yourself From A Mortgage Interest Rate Increase

Click here to view the embedded video.

One of the questions I get asked all the time is, “how do I protect myself if the mortgage interest rates go up?” To help you with this challenge, I’ve put together 3 points you can use to protect yourself if the mortgage rates go up. These points are the real deal, but first off, some context around what has happened recently with mortgage interest rates and where we’re headed.

Mortgage interest rates have never been lower.  Mid January 2012 represented the lowest of the low when BMO announced a rate of 2.99% for a fixed 5 year.  Other banks followed suit. Here’s the deal: the offering of such low rates wasn’t necessarily a profitable strategy for banks. The strategy was designed to bring clients into branches during a very slow time of the year and perhaps more importantly, give the branch sales force an opportunity to cross sell investments as we approach RRSP season.

When BMO announced their ground breaking 2.99% mortgage rate they intended to keep the rate until February 29th. However, late last week BMO and a number of other banks have pulled back their deeply discounted rates due to increased competition and rising borrowing costs for the bank. The result is that these deeply discounted fixed rate mortgages may increase slightly over the coming weeks. Here’s the take home message: this shouldn’t be seen as an increase of fixed rate mortgage but rather an adjustment to more normal and sustainable pricing.

This price adjustment to more “normal” levels is fine and dandy if you are a bank but as a mortgage borrower a price increase is a price increase. Bottom line, it affects your wallet.

Depending on your situation, here’s what you can do to protect yourself from mortgage interest rate increase:

Situation 1: Pre-approval. If you’re thinking of buying over the next 4 months get a pre-approval. When you have a pre-approval in place the rate set out in the pre-approval document is held for you over the next 120 days. If rates go up, you are protected. If rates go down you get the benefit of the lower rate. If you decide to do nothing then the pre-approval expires harmlessly.

Situation 2: Mortgage Maturing. If your existing mortgage is maturing in the next 120 days connect with your lender to find out what rate they will offer you at maturity. If the rate isn’t competitive engage a mortgage broker who will find you a competitive rate to attract your mortgage business.

Finally, work with a mortgage broker. OK,  a little self-promotion, but seriously, mortgage brokers shop the market for you. And their service is free. Best of all, they specialize in one specific area, they know the ins and outs of the market, who is offering what, and the fine print. And if you get a good one, they’re always in touch with you, keeping you in the loop, watching the market for changes that might affect you. I’d love the opportunity to work with you.  If you have a question about your mortgage, reach out to me at 416.461.0204 or drop me a line below.

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As a consumer it may be very confusing to understand what the concerns and implications are. In this post I’ll address Ottawa’s concern for tightened mortgage rules.

As Canadians we are proud of hockey, our multiculturalism, Celine Dion and our remarkable resilience in the face of global economic decline. Okay, maybe we aren’t so proud of Celine but it’s true, if you have an opportunity to travel abroad and talk business with anyone from outside of Canada there is a tremendous amount of reverence from all corners of the globe for our economic policy and strength. And that is due in large part to our prudent banking system. So if we have such a prudent banking system what is all this fuss about tightened mortgage rules and tightened credit?

Ottawa is becoming more and more uncomfortable with debt levels. Record-low mortgage rates being offered by Canadian banks and the ease with which some institutions are advancing lines of credit seems to be keeping finance minister Jim Flaherty up at night (by the way, the fact the Government is concerned about low rates is a clear indication of where they believe rates are going to be for the short to medium term).

So are Canadians really in that much more debt? The following graph sourced from a presentation by CIBC chief economist, Avery Shenfeld, show some interesting and revealing information about Canadians and their debt. The graph shows that since 2007 borrowers who are considered heavy debtors (see * definition) have piled 101.4% more debt over the last 5 years. Translation: if you owed $10,000 in 2007 you now owe $20,140.  While borrowers who are considered light to medium debtors have actually lowered their dependence on credit. Perhaps the more troubling statistic is that of those people who are heavy debtors 44% are 45+. These are the wrong kind of debtors, if the majority were in their 20s and 30s this wouldn’t be so bad as they are leveraging to start out their lives but its never good to have an aging population in debt.

And yet despite the increased number of Canadians who shouldn’t be in debt, I’m not convinced tightened rules is a good idea. It’s one thing for politicians to sit in Ottawa and make statements about credit but the reality on the street is that it has never been harder to qualify for a mortgage. I’m working with mortgage lenders and insurers every day and I can assure you that nothing and I mean nothing gets by them. The number of mortgages that went into default in Canada last year were only 0.38%.  Borrowers are required to dot every “i” and cross every “t” and credit is not easily given out like these reports would have you believe. In my experience credit needs to be earned these days.

The conspiracy theorist inside of me (or at least the political one) sees this as a political play to justify the tightening of CMHC rules or some other major change in the mortgage industry effecting borrowers and lenders alike. In the face of what might be an already slowing Canadian real estate market I’m worried about what these changes will mean. Stay tuned for my follow up commentary on CMHC reaching its limit and the implications to the mortgage borrower.

Do you have something add? I’d love to hear about your experience qualifying for a mortgage? Do you think it’s as easy as Ottawa would have us believe?

Christopher Molder – Toronto Mortgage Broker. Have a question about your mortgage or want to qualify, call me at 416.461.0204.

I love questions and I answer them all.

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It was only a matter of time before the casual conversation turned to Canadian real estate. Along the way he shared some insights with me about housing prices and the dreaded “B” word. Bubble.  There are two things Avery explained to me that have put my mind at ease regarding the over heated real estate market.

A Balanced Real Estate Market

Anybody who has recently braved the real estate market especially here in Toronto is probably well aware that the market has been slightly favoring sellers. That trend will likely change in 2012. Over the last two months the sales to new listings ratio, an important metric used by economist to determine whether we are in a buyer’s market or seller’s market, has started to ease off and the expectation is that the market will continue to balance itself in 2012.  There are a number of reasons including the possible tightening of mortgage rules (more to come on that topic on this blog), concerns about purchasers affordability being maxed out and over supply in the market. If you look at the graph below you will see that the sales to new listings ratio is hovering around the 50% mark, a good indicator of a healthy real estate market.

Housing Inflation

Avery also explained to me that housing inflation, another indicator used to check the health of a real estate market, was trending back towards zero. House inflation is a measure used to determine year over year (y/y) how rapidly housing prices are increasing. The current y/y % change is around 4.8% as of the 3rd quarter of 2011. Globally Canada has some of the hottest real estate however economists are expecting prices to level off spring 2012. Ultra-low interest rates are still attracting buyers, but increased economic uncertainty combined with job loss and unemployment could effect the numbers in 2012.

By the time Avery and I made it back to our resort his message was clear regarding Canadian real estate in 2012. Things could be better and they could be worse. 2012 appears as if it’s going to be a flat year.

Personally I think this is great news because the numbers are showing that Canada is not experiencing a real estate bubble and that things look like they are easing softly in what has been a somewhat over heated market over the past 24 months.  A sentiment that is starting to be shared in the media most recently Canada Housing Is Pricey But Far From A Bubble: BMO

What do you think? Do you have an opinion about Canada’s real estate market? I’d love to hear your comments. Feel free to drop me a line below.

Any of Tridac – The Mortgage Centre’s clients know exactly what my connection to piggy banks is. If you’ve done business with us then you no doubt have received one of our cute little piggy banks as a ‘thank you’ gift after closing your mortgage.  The significance of the piggy bank runs deep in our family business as a metaphor for savings and the building of equity in your home. My Dad has been using piggy banks for years and the apple hasn’t fallen far from the tree as evidenced in our most recent company portrait below.

Piggy banks and cute closing gifts aside, the glue that binds together any successful relationship business like our mortgage brokerage, is a solid client relationship management system or CRM in industry terms. I rely on British Colombia based CRM provider GoMax Solutions for the tools and systems that allow me to provide the personalized service that my clients have come to expect and enjoy from me.  Earlier this month GoMax ran a Facebook contest asking mortgage agents and brokers to share their best marketing ideas. I shared our Piggy Bank idea below and won the $100 prize!

Upon successfully closing a mortgage with any of our clients, we send them a very attractive looking piggy bank and message along the lines of “like a constantly dripping faucet will eventually fill any vessel, the accumulation of small amounts of money will amount to significant savings over time.” The piggy bank and savings then become a topic of conversation throughout our various touch points throughout the year. GoMax has made the management of these touch points so easy. On our client’s birthday we send them a card with a brand new shiny loonie. We use the piggy bank as a metaphor for equity in a client’s home and use it to show how small changes to payment habits can result in major savings over the life of the mortgage.

Whether you are a first time home buyer shopping around for a mortgage or you already have a mortgage and are looking to see what else is out there, I invite you to give me a call 416.461.0204 or fill out the contact form below. Not only will you get  personalized attention from experienced brokers (checkout our client testimonials) but you’ll also receive great rates, unbiased advice and your own little piggy bank and all of this for free! Why for free? Because as a mortgage broker I get compensated through the bank by a finder’s fee so our service doesn’t cost you. I look forward to hearing from you.

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1) BMO has been losing mortgage market share over the past couple of years. Mortgage market share is important to the bank because inevitably their mortgage borrowers will open investment, savings & chequing accounts which drive profits.

2) The move to give money away is very intentional this time of the year because it is the beginning of RRSP season. The more people to visit a BMO branch the more opportunity they will have to cross sell RRSPs and other products.

Son of a broker’s pick: You can’t go wrong with the fixed 5 year at 3.15% and if you are feeling particularily rate sensitive the fixed 4 year at 2.99% is the answer. You get all the bells and whistles with out the restrictions of BMO’s offer.

Click here to view the embedded video.

CURRENT RATES

1 Year Fixed – 2.99%

3 Year Fixed – 3.09%

4 Year Fixed – 2.99%

5 Year Fixed – 3.15%

5 Year Variable P-.10 (2.90%)

10 Year Fixed – 3.99%

Prime Rate is currently 3.00%

Rates are subject to change and subject to the lender’s approval.

If you’d like more information connect with me below or call me directly at: 416.461.0204.

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Click here to view the embedded video.

A cashback means that the lender will give you 5% of your mortgage amount back as cash. So, if you borrow $100,000 they will also lend you an additional $5,000. The cash can be used for anything however, it is really designed to help buyers who can’t come up with a full 5% down payment, the minimum down payment required to buy a home. If you are buying a home and don’t have the required 5% down payment through a cashback mortgage the lender would provide you with 99.75% of the financing (wondering why 99.75? It’s 5% of 95% financing giving you that 99.75% number). In exchange for the cashback a borrower is expected to pay a higher interest rate. Currently that rate is 4.99% as offered by the National Bank who are running a promotion.

If you’re stretching to buy a home and can’t come up with the required 5% down payment it’s tempting to think that 4.99% isn’t too bad. But once you break down the cashback offer you’ll find that it isn’t that sweet of a deal… at least not for you, the borrower.

Consider the following example (if the numbers below make you dizzy, just skip to the summary section):

Borrower A has her 5% down payment and requires a $250,000 mortgage to buy. Her mortgage is arranged with a fixed 5-year rate of 3.39% amortized over 25 years.

Borrower B couldn’t come up with 5% down payment so he opted to take $250,000 with a 5% cashback. This cashback gave him $12,500. In total borrower B receives $262,500. The cashback mortgage costs borrower B 4.99% for a 5-year term amortized over 25 years. Keep in mind that only $250,000 is registered as a mortgage for a cashback.

The following graph shows how much interest is paid by Borrower A vs. Borrower B each year given their different interest rates.

The graph shows that by the end of the 5 year mortgage term Borrower B pays $19,103 more in interest to the lender. Of course out of that $19,103 Borrower B is getting the benefit of $12,500 therefore, the cost is $6,603 ($19,103-$12,500). So the actual interest paid on a 5% cashback of $12,500 is close to 10.6% (($6,603/$12,500)/5 years).

It’s also important to note that after 5 years Borrower A‘s outstanding mortgage balance is $215,264 mean while Borrower B‘s outstanding balance is $221,233 (note: all figures are approximate).

The skinny

• The cashback in a 5% cackback mortgage costing approximately 10.6% per year to borrow over a 5 year period
• When a cashback mortgage comes up for renewal 5 years into the mortgage the outstanding balance is significantly higher
• If a borrower breaks their cashback mortgage during the 5 year term there is a clawback on the cash
• Over the entire life of the a cashback mortgage a borrower will pay more interest to the lender

For some first time home buyers the allure of stepping into your first home without needing a significant down payment can be very tempting. There maybe extreme circumstances where the 5% cashback mortgage should be considered to purchase but I wouldn’t advise anyone to step into a cashback mortgage. The premium for the extra funds is too high and if you can’t afford to save the 5% down payment then you are likely not financially ready to own a home.

If you have any further questions about cashback mortgages or any other mortgage product call me at 416.461.0204 or fill in the form below. I’m always available.

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