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Posted Interest rates

Inflation rate drops in February and rate hikes pulled back.

It may seem hard to believe  but Canada’s core inflation rate is down in February to lowest level since 1984 as reported by CBC.  It’s now 0.90%.

Filling up my car at the gas pumps or buying groceries is certainly costing me more… So how can the inflation rate be lower be lower?

The Core inflation rate strips away food and energy costs resulting in a lower rate of inflation.

The Bank of Canada has a Target inflation rate of 2%.  The Target range is 1% to 3%.  When you combine a high Canadian $dollar that is at par with the $US dollar and this low inflation rate, the Bank of Canada less likely to raise the Target Rate….for now.

Here are a few forecasts…  Citigroup says a rate hike will not take place in April but instead, July.  And retired RBC Chief Economist, Patricia Croft says to watch the Bank of Canada 2 year bond yields for an indication of where the market thinks rates are headed.   The yields have dropped from 1.90% to 1.68%.    She says the market thinks rates won’t go up til October and only by 35bps.  But she thinks we should be ready for summer rate hikes.  The next few inflation reports will play a big part in the Bank of Canada’s future decisions.

I tend to agree with both forecasts… Summer rate hikes are  likely…. but I’m not sure how high and how quickly these rate hikes will happen.   We’ll be watching and reporting.

Posted 19 Comments on CBC news reports Scotiabank slams client with $30,000 penalty! Case study

CBC news reports Scotiabank slams client with $30,000 penalty!

A word about world events the past 4 weeks…  We have seen a lot of turmoil overseas……  Egypt, Libya  and other middle east countries…. We need to pay attention…. Let’s hope for an immediate and peaceful resolution…

The Tsunami in Japan has been horrible… the images on TV are tough to watch…what a tragedy… Our hearts go out to the people of that nation.

Fixed rates drop slightly and Variable rates remain flat.

We have also seen how mortgage rates can be affected by these events… The uncertainty has caused the Bond market to fall…. and we even saw a very small rate reduction by the Big Banks… Posted Fixed rates are down around 10bps… 5 yr fixed is 5.34%. Continue reading “CBC news reports Scotiabank slams client with $30,000 penalty!”

Posted Mortgage Trends

Scotiabank says Bank of Canada won’t move till October

Last week, the Bank of Canada (BOC) kept it’s Target Rate unchanged for the 4th consecutive meeting.  That’s means Bank Prime is still 3.00%.  Many Experts and Economists think the next rate hike will come as early as April or as late as June….

But not all Economists agree.  Scotiabank’s economists say the rate will remain unchanged til October.   They give a detailed explanation as outlined in this National Post article... but the main reasons are:

  • high $Canadian Dollar (an increase by BOC usually increases the $CAD)
  • global uncertainty… the middle east turmoil and European debt worries
  • tougher financing rules including the new mortgage rules
  • U.S. Fed not expected to raise their rate til next year…any increase by the BOC would push the $CAD even higher and make our exports even more expensive
  • possible Federal election in Canada coming soon.. and provincial elections this year…  history tells us that rates are usually flat during election time.

The Scotiabank economist make a good argument.   I like the political reason… History shows us politics play a big role in the BOC actions….  Enjoy the low rates… They seem to be here for a while.

Posted Mortgage News

Bond yields fall after Middle East turmoil

Earlier this month, we saw Fixed mortgage rates go up and the forecasts were calling for rates to continue to go up over the next 2 years.   It’s important to remember that all forecasts make certain assumptions and don’t allow for the unexpected… These forecasts may still be accurate but of course, no one was expecting the uprising in Egypt, now Libya and possibly other Middle East countries…

The Canada Bond yield has dropped around 22bps to 2.58% from a 10 month high of 2.80%.    This takes some of the pressure off to raise fixed rates… and we might even start to see some Fixed rate decreases if the Bond yields fall further…(or course, the Banks are famous for raising rates immediately but lowering them slowly and this was even identified by the most recent Bank of Canada quarterly review)

I can’t help but to reflect on Professor Moshe Milevsky’s article from a few weeks about how to deal with rising interest rates…. In this article he cautioned us about overreacting to warnings of huge rate hikes or calls to lock in your mortgage…    Wow, the timing of his article couldn’t be more perfect.   I recommend you take a moment and read what the Professor has to say.

Posted Mortgage News

TD and RBC CEO’s income $11million each for 2010…

Are the BIG SIX Bank CEO’s that good?

It’s that time of the year again… when Bank CEO salaries have to be reported… TD’s CEO Ed Clark earned $11.3million on profits of $4.6billion in 2010, RBC’s CEO Gord Nixon pocketed $11million. Congratulations….!   Staggering numbers considering that we are just coming out of (hopefully) the worst recession ever… click here for more on Bank salaries.

So what’s the problem?

There has been so much publicity about how strong our Canadian Banking system has been through this recession…. And yes, it’s true.. we have held it together very well.  But was it that our Bankers were that smart or just that far behind the times??

It has been said that Canada is always 5 years behind the U.S. Ever heard that saying?  Well, it’s true for many things, including Banking and Financial Services…   In 2006, we saw the introduction of 30, 35 and then 40 year amortization mortgages. We also saw $0 money down mortgages….. Interest only mortgages!! 107% loan to value financing!!!

These products were beginning to gain some popularity in Canada.. but then in October 2008, the U.S. mortgage crisis hit… and all the new products were pulled from the shelf.   Imagine if these products were introduced to Canada 5 years earlier…. Imagine how many of us would have been affected….  Don’t be fooled into believing that it was our Banking system that saved us…

Look, the plain truth is that we got lucky… we were a bit slow to embrace these products… and that’s really our infamous Canadian conservatism coming out… It’s got nothing to do with our Bankers being that much smarter… It’s got everything to do with you, the general public, the average Canadian, not taking to change quickly…. This is the real reason we didn’t suffer a worse fate.

How much did mortgage penalties contribute to Bank Profits?

Here’s a bit of math to play with…. Statistics tell us that on average, Canadians move or refinance their mortgage every three years…. The stats also tell us that approximately 75% of all mortgages are in a fixed rate term… I would venture to guess that probably 95% of those are in a 5 year fixed rate….  Okay, so now let’s look what the average penalty would cost you to break your mortgage…

And today, I have another example that I will share with you… it’s about a young couple that needed some help….  (I get these almost daily, by the way)….

A $250k mortgage with a 5.15% rate with 28 months til maturity…  The penalty quote to break the mortgage was $11k... I gave some advice and helped to get it down to $8k...    That penalty still works out to over 7 months interest. Can you say ka-ching!!   The Banks have made an absolute fortune on the backs of unsuspecting Canadians….

The Govt and the Banks should tighten credit card rules

Last November, the Banks pressured the Federal Govt to tighten mortgage lending, to make it harder to take a Variable Rate Mortgage… to make it harder to refinance your debts into a mortgage….  The results are bad for Canadians.. we now have to take a 5 year fixed rate mortgage in many cases… we now have to keep our higher interest credit card debt, loans, and other debt….  Canadians are being forced to keep these higher interest debts while Banks increase their profit margins…  Here’s a great article about Household Debt..

By the way, there are no rules for giving out a credit card…