Canada’s current and former central bankers seem at odds over the country’s soaring consumer debt, with former Bank of Canada governor David Dodge playing down warnings by his successor, Mark Carney.

“I don’t think it’s in trouble,” he said, noting most consumers aren’t overexposed. In areas where employment levels remain high (such as Alberta, which Statistics Canada reports has Canada’s highest per-capita consumer debt level), debt loads are “probably not such a big deal.” And so long as interest rates don’t rise past historically average levels, it would be “a bit of a squeeze, but that’s kind of manageable.”

One tool to slow rising debt levels could be changing the rules around qualifying for a mortgage. “Maybe they should be a little bit tighter at the moment,” Mr. Dodge said.

See the entire article on the Globe and Mail’s website

Canadian GDP falls 0.2% in February – See the Statistics Canada Report - The Canadian economy unexpectedly shrank in February due to a slowdown in the mining and manufacturing sectors, dampening expectations that the Bank of Canada will raise interest rates soon.

From the Globe and Mail “Get used to this. There is no consensus about when the Bank of Canada will raise interest rates. The needle on the hike-o-meter will move with each piece of significant economy data. Last week, it was tilted strongly toward an increase in the Bank of Canada’s key rate. Now, the needle has swung back strongly toward neutral, as the February GDP numbers suggest the central bank’s prediction of growth at an annual rate of 2.5 per cent in the first quarter is optimistic. Most analysts say the economy will do well to hit a 2 per cent pace in the first quarter.”

Bank of Montreal deputy chief economist Doug Porter said “Much of the weakness looks temporary, but it drives home the point that the underlying growth rate is sluggish at best,”

Looks like we just need to wait and see.  In the meantime, Contact Us to discuss your options and avoid the risk of volatile rates!

Lot’s of talk these days about the impending doom in the Toronto Condo Market.  Here is an analysis of the situation provided by MCAP that puts it all in perspective……   MCAP Condo Market Analysis

Canada’s annual inflation rate dipped to 1.9% in March from 2.6% in February, largely due to slower year-over-year increases in prices for food and energy, Statistics Canada said on Friday.  The Bank of Canada uses interest rates to reach its target inflation rate of 2%.  With the current inflation rate coming in at below target, the pressure to increase interest rates is off, for now.

According to Scotia Capital economist Derek Holt, “no sooner than the ink is dry on the MPR (Bank of Canada’s Monetary Policy Report) will decelerating inflation into summer return inflation to the mid-point of the BoC’s 1% to 3% operating band or lower, and that should help put the too-quick-to-react elements within consensus who have brought forward rate-hike expectations back on their heels a bit.”

Stay Tuned….

The Bank of Canada yesterday maintained it’s key overnight lending rate at 1%, holding the Prime rate on which Variable rate mortgages are based at 3%.

In their press release, they listed several factors being considered in the decision….

“Overall, economic momentum in Canada is slightly firmer than the Bank had expected in January.”
“…The economy is now expected to return to full capacity in the first half of 2013.”
“…The profile for inflation is expected to be somewhat firmer than anticipated.”
“Europe is expected to emerge slowly from recession in the second half of 2012”

Finally, the note hinted at future possible rate increases in the form of “Stimulus withdrawal”….

“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.”

The potential withdrawal of stimulus may force a reaction on the bond market, driving up bond yields that in turn reflect in fixed mortgage rates.    The fundamentals of the relationship between bond yields and fixed mortgage rates (typically a 1.25% difference between the 5 year Bond  yield and 5 year fixed rate mortgage) don’t support this, since bond yields are still much lower then fixed rate mortgage imply given their historical relationship, but only time will tell.

Read the full article in the Montreal Gazette Here

“I find it a bit odd that some of the bank executives are taking the position that the minister of finance or the government somehow should tell them how to run their business,” Flaherty said in Stittsville, Ont., just west of Ottawa.

“We have bank executives in Canada going and saying ‘really, the rules on insured mortgages should be tightened up.’ They must forget that they are actually the ones that issue the mortgages. It’s their market. It’s not my market. They decide what they want to charge in interest rates.

“They’re the ones that make the profits out of this business, so I do find it a bit much when some of the bank executives turn to the government … and say ‘you ought to change the rules and make it tighter.’ It’s very interesting commentary from them.”

We think that this is all a precursor to potentially higher rates and tougher qualifying rules for some people.   Contact Us for a no cost, no obligation review of your mortgage requirements!

Yesterday we mentioned some of the pitfalls associated with No Frill’s products.

Here are are some real, and Full featured solutions for you to consider:

3 Years, 15/15 Pre-Payment Terms, 2.79%

4 Years, 15/15 Pre-Payment Terms, 2.99%

5 Years, 15/15 Pre-Payment Terms, 3.19%

Today’s big news is that BMO’s has brought back (Until March 28th) their “Low Rate” mortgage, and as they say on their own commercials “Some Conditions Apply” – That’s for sure!   The Terms are:

- 5 year fixed @ 2.99% (Our rate – 3.19% full featured!)

- 10 year fixed @ 3.99%.(Our rate is already lower! – 3.89% and full featured!)

The devil, as the always say, is in the details as these mortgages come with significant restrictions:

1.  A Lower Maximum Amortization - 25 years maximum versus at least 30 years elsewhere:

• This hurts first time buyers, who need the best rate and the 30 year amortization to qualify!
• We often advise clients to set the maximum amortization and increase their payments using the pre-payment allowance.  This practice allows for a fall-back to a lower payment if the client experiences income difficulties.  The restricted amortization and pre-payment ability (see below) mitigate this opportunity.

2. Less Lump-sum Pre-payment Ability - 10% maximum per year:

• As opposed to 15% – 20% in the full featured Mortgages that we direct our clients to.

3. A Smaller Payment Increase Option - Up to 10%, once per year:

• Again, 15% – 20% is standard in the full featured Mortgages that we direct our clients to.

4.  A Locked Term – Fully closed for 5 years unless you sell the property, refinance or early renew with BMO:

• The average actual length of a 5 year mortgage term is approximately 3.2 years!  That is, the average 5 year fixed rate mortgage holder refinances or switches their mortgage after 3.2 years.  That’s not possible with these terms
• Once captive with BMO, the refinance or early renewal rates that BMO offers are unlikely to be competitive in the industry!

A real example:

• $250,000 mortgage, 25 year amortization, 2.99% (Restricted Terms) vs 3.19% (Full Featured Terms):
• The monthly payments are only $25.79 more with the full featured rate!
• The mortgage balance after 5 years is only $815.40 more with the full featured rate!

As always, we urge caution when clients are considering “Low Rate” or “No Frills” Mortgages, and ask that clients Contact Us for a frank discussion of the options and implications of each.

It’s been two years since the Government Acknowledged that the rules around mortgage prepayment penalties need to be clarified.

Finally, the Government announced several measure to protect consumers, central to which is a new Code of Conduct for Federally Regulated Financial Institutions which requires federally regulated lenders to provide significantly more information and tools to borrowers with respect to potential penalty calculations.