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Posted Interest rates

Bond market drops… expect fixed rates to follow.

It’s the morning after the US govt agreed on a new Debt Ceiling…… and like a scene from ‘The Hangover’, many of us are waking up to unfamiliar surroundings with a big headache and an uncertain feeling in our stomach…. let’s call it a ‘financial hangover’.   The global stock markets are down…..giving back all gains made this year…  The Chinese credit agency has downgraded the US credit rating...

The 5 year Canada govt bond yields has dropped to 1.84%...  A level only seen twice before…  first, just after the October 2008 US mortgage crisis and again late last year.

So what’s the good news??   This should mean lower fixed mortgage rates are coming… let’s hope the Banks move as fast to cut the rate as they do when they raise them.   This also means less chance of any rate hikes….

Enjoy the low rates.

Posted Mortgage News

US govt debt crisis and a slower Canadian economy

It seems US has reached a compromise on the debt ceiling and another crisis avoided.    President Obama and the Republicans have come to an agreement.   read more here.

We already knew the US was on shaky economic ground… no one really knew how a US debt default would affect Canada or the rest of the world.   It certainly wouldn’t be a good thing.

But before we can breathe a sigh of relief, Canada’s Gross Domestic Product (GDP) fell by 0.3% in May.  The largest single month drop since May 2009.  This unexpected drop is good news for those of us with mortgages.

Interest rates are expected to remain low for this year.   And a Bank of Canada rate hike is less likely in September or even October.

Enjoy the low rates.

Posted Mortgage Rates

No surprise, Bank of Canada keeps rate the same

No real surprise here… Just about everyone expected the BOC to keep the Key Rate unchanged at today’s fifth of eight scheduled meetings.   This keeps the your Bank Prime lending rate at 3.00%…. Here’s

We can thank a slower than expected U.S. recovery and the European debt crisis…   With all this uncertainty in the global economy, it appears interest rates won’t go up until there is some positive news…

Most experts fee that no change will occur til later this year and some are even forecasting no rate hikes til next year.

The BOC did hint they do want to raise rates but are being cautious in their approach.  Here’s a report from CBC.ca.

Enjoy the low rates..

Posted 1 Comment on Good debt and Bad debt…. maybe we Canadians have more good debt? Consumer Debt

Good debt and Bad debt…. maybe we Canadians have more good debt?

I saw this recent article about Good debt and Bad debt…  Canadian Personal debt levels have now surpassed $1.5 trillion.  That’s a big number… should we be concerned?  I started to wonder how much of this is Bad debt?  Let’s take a closer look at these stats.

First, let’s define Good debt.. I agree with the article….to me, it’s debt that is used to accumulate an investment or asset….  and if it’s an investment then you may be able to deduct the interest costs from your income, making it tax-deductible…..  investments like a rental property, stocks, bonds, etc would qualify…Borrowing to invest in a rental property is good debt and you can deduct the mortgage interest and other property related costs from the rental income.

Bad debt is any expense where the interest is not tax-deductible and is used to purchase consumer goods… things like borrowing for a vacation, a 60″ TV, that new computer, or leather sofa..etc…  Hey, we all spend some money on these items, the key is to have some discipline.  Borrowing to buy a TV, computer, take a vacation, etc is generally a bad idea… save up for these purchases and then pay in cash.

Now the stats say that $1.5trillion makes up all personal debt including mortgages….  Hey, wait a minute… outstanding mortgage balances recently topped $1trillion in Canada…. If mortgages are classified as Good debt, then let’s subtract this from the total personal debt total of $1.5trillion…

We now have $500billion in potentially bad debt…  So let’s amend the household average debt to $58,000 per family of 4.   Is that really a high number?  And let’s look at our asset base… Guess what?  Our personal asset base is appreciating in value…Here’s a previous article that shows Canadians are borrowing wisely and we just taking advantage of theses record low interest rates to enhance our net worth…  And here’s a more recent article from CBC.ca stating our household credit is growing at it’s slowest pace since 2002.  Good to see some positive news put out by the media.

Remember, Good debt can help you grow your net worth… Bad debt is for personal lifestyle and usually decreases your net worth… We all have some bad debt, we just need to minimize it as best we can.

Posted 1 Comment on Banks quick to raise but slow to lower rates Interest rates

Banks quick to raise but slow to lower rates

Nothing new about this story…. Since April 11-2011, the 5 year bond yields went from 2.87%,  down to 2.10% on June 24th, and have gone up slightly to 2.34% on July 1st….  Remember, fixed rates are closely tied to the govt of Canada bond yields…So that means the Banks would have lowered their fixed rates accordingly and then raise them slightly, right?

Well, not really…  On April 11th, the Big Six Banks posted rates were 5.69%.. they went down slightly to 5.39% recently but are back up to 5.54%…   What’s wrong with math…?  Why didn’t the Banks reduce their rates accordingly?    It’s called MAXIMIZING your PROFIT…  The banks want to earn a little more at the borrowers expense.

I find it kinda funny but also frustrating when I see articles reporting that Bank profit margins on mortgages is shrinking…  The spread between the 5 year bond yield and the posted 5 year fixed rate is around 3.20%…  and historically, it’s been around 2.50% and sometimes even as low as 2.00%….  Where’s the fierce competition, I wonder?

Banks are a business that want to maximize their profits… Let’s not forget this.