Lending Rates Hold at Historically Low Levels. Mortgage and Consumer Lending Stays Cheap Money, Could go Even Lower.

Mortgage and lending rates should remain relatively steady over the short-term as Bank of Canada governor Mark Carney decided to hold the benchmark lending rate at 1 percent today. Borrowing costs should remain low, hopefully spurring the purchase of more housing and other big ticket items like cars by Canadians. This is good news for anyone shopping for a home or investment property soon, and anyone who has existing variable rate debt. 


In the Globe and Mail today, Mark Carney is cited as saying:

“In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished.”

“The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2-per-cent inflation target over the medium term.’’


In layman's terms, the global economy is doing worse than expected, and trouble in Europe and the United States is forcing Canada to keep stoking its economy to encourage domestic spending and consumption.


Most importantly, the door has now been left open for the Bank of Canada to actually cut interest rates going forward instead of raise them... money is cheap and in Canada it might just get even cheaper : )


Please post or e-mail me your comments and questions.
Matthew J.W. Clarke.

What Amortization Period is Best when Selecting a Mortgage?

What amortization will work best for me?


The lending industry’s benchmark amortization period is 25 years, and this is also the standard used by lenders when discussing mortgage offers, as well as the basis for mortgage calculators and payment tables. Shorter or longer time-frames are also available – up to 30 or even 35 years. 


The main reason to opt for a shorter amortization period is that you’ll become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced. A shorter amortization also affords the luxury of building up equity in your home sooner. While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. 


Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be your best option.


Lastly, and very importantly, depending on the interest rate being offered, a longer amortization period might be to your advantage, especially if you are investing in the property as a rental or for a longer period of time. For instance, if you are offered an interest rate in the 3 to 4 percent range, your cost of borrowing relative to inflation is so low, you might as well use more of the lenders money while you can. If you have extra cash, invest it separately from your real estate until a time when interest rates go up, and then put the money onto the mortgage so that you have a lower debt. 


If you have any questions about real estate, mortgages, or investing, send me an e-mail. 

How to Ensure Your Credit Score Qualifies you for the Best Mortgage Rate.

How can you ensure that your credit score enables you to qualify for the best mortgage rate?

There are several things you can do to ensure your credit remains in good standing. Following are five steps you can follow: 

• 1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.

• 2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there’s a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month. 

• 3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close. 

• 4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off. 

• 5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

As always, if you have any questions, just send me an e-mail and I will be happy to help.

CMHC Says that House Prices will Continue to Rise in the Near Future. Employment, Immigration, and Low Mortgage Rates are Positive.

The Canada Mortgage and Housing Corporation says that house prices will continue to rise in the near future. The average price will probably level out in 2011 to an average of $367,500 and then rise to $372,400 in 2012. Factors such as employment, immigration, and low mortgage rates remain supportive for the housing sector as a whole.

CMHC also predicts relatively flat mortgage rates through 2011, and that they will moderately increase in 2012. Good news for mortgage borrowers over the next twelve months. Overall, housing starts are also expected to be strong, with 183,900 new builds predicted for the second quarter of 2012.

For anyone thinking of investing in real estate over the near-term, CMHC brings welcome news.

Happy Investing : )