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Federal Budget brings standard mortgage penalties

Minister of Finance, Jim Flaherty released the 2010 Federal Budget yesterday… There were a lot of headlines in the media but for the most part, very little change for the average Canadian…

Here are the numbers….

One change I did like is the standardization of mortgage prepayment penalties… No details were released but this could be welcome news for tens of thousands of Canadians that are in a fixed rate mortgage and can’t get out…..

You’ve been hearing about the govt stimulus plan… record low interest rates to help out Canadians… and then you contact your bank to see how much  you save… it’s good news.. your payment on a $250,000 mortgage with a 5.25% rate will drop by $189/mth with a 3.89% rate… it’s so exciting… that’s $11,340 over a 5 year term…. but WAIT… now you get told there is a penalty.. and it will cost you $13,000 to break your mortgage….

Sound unbelievable?  Call your bank to see how they calculate their penalties…   Those who have already done so know the reality of these numbers…..  The govt forgot about helping existing homeowners… the tens of thousands of taxpayers that needed and wanted a break…

How do you feel about the Big Six Banks reporting  Billion $ profits in the first quarter?   After all, didn’t the govt offer financial support to help the banks in case they ran into trouble?    Profit is good.. but not like this.. not at this time.. not when average Joe or Sally homeowner can’t benefit…

Expect fixed rate increase of 20bp to 30bps as 5 yr Bonds up to 2.70%

Fixed rates could increase as the 5 year Bond yield jumped to 2.70%….this is up 21bps from a week ago… The spread now is 1.19% between 5 yr fixed rate and the 5 yr Bond… normally, lenders want to see a 1.35% spread …. if the Bond market continues to stay at this level or increases further, we will see fixed rates rise.

The U.S. employment stats also came out today…..unemployment held steady at 9.7% which is better than analysts expected… This will also put pressure on the Bond Market… Canadian employment figures come out next week…

Remember, fixed rates has historically increased sooner than the Bank prime rate which affects Variable rate….. This could be the beginning of the slow but steady rise in rates…. It’s certainly not time to panic but we should pay attention…

Bank of Canada rate stays the same…yawn..

Mark Carney, the Bank of Canada Governor, kept the overnight rate at 0.25%…(yawn…)…  The rate that affects all Bank Prime rates and Variable Mortgage Rates has remained at this level since April 2009….

In the announcement, the Bank of Canada stated they were concerned about inflation increasing a little faster than they had forecast.   The Economy also grew at an annualized rate of 5% in the fourth quarter of 2009….. (personally, I think it would be surprising to see it continue to grow at this pace…. )

Governor Carney has repeatedly stated he will not increase the rate before June… well June is approaching and some of the Economists are starting to forecast for possible rate hikes as early as June… but nothing too drastic..

One rule of thumb or interesting historical trend is that fixed rates usually increase first or before the variable rates rise….we’ll be watching the bond market (bonds affect fixed rates)….

RBC first quarter profits $1.5billion…where is the crisis?

RBC posted a $1.5billion dollar profit in quarter one this year….WOW!  It’s good to see Canada’s banking system so strong.. but profits this high during what some called, the worst recession in history, might leave a bad taste in your  mouth…

Last November, a secret meeting between the Big Six Banks executives and Bank of Canada Governor, Mark Carney, took place.. the Banks called for tighter mortgage rules…. The Banks were concerned about rising debt levels…

Three months later, we have the new rules… but why all the concern when all the banks are reporting healthy profits?  Arrears and defaults don’t seem to be an issue…

There must be a concern about loan defaults in the future… and yet the Minister of Finance repeatedly keeps saying he sees no evidence of a housing bubble…. Makes you wonder?

…..we’ll be discussing this further in future postings…

CMHC Chief Economist forecasts a rebound in 2010

Good news release ….CMHC’s Chief Economist, Bob Dugan, says new housing starts for 2010 will be around 172,250…. and 175,150 in 2011…. this is much higher than 2009’s 140,081….

The strong resale market is not expected to continue it’s record setting pace…. Existing home sales are forecast to total 486,700 in 2010 and taper off to 469,950 in 2011. But this is a good thing.. we really don’t want to see a red hot market as this always leads to a sharp decline…. slow and steady.. that’s always a better trend.

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