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Showing posts from March, 2011

Effect of a variable rate hike

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Speculation is that the Bank of Canada is planning at least two rate hikes this year of .25% each. Here's an example that shows approximately how much monthly payments would increase on a typical variable rate mortgage with a .50 % point rate hike. It's based on the current average variable rate of 2.3%, amortized over 30 years. On a $100,000 mortgage, payment will increase approx $26 On a $200,000 mortgage, payment will increase approx $52 On a $300,000 mortgage, payment will increase approx $77 On a $400,000 mortgage, payment will increase approx $103 Some lenders offer a "hold your payment" feature to keep your variable rate mortgage payment from increasing if rates rise. However, the portion of your payments going to interest will increase, therefore decreasing the amount you pay towards principle.
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IFRS and Mortgage Rates

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IFRS. You’ll hear more about this acronym as time goes on. It stands for International Financial Reporting Standards and it’s basically a newly-adopted set of accounting rules. The relevance here is how IFRS will impact Canadian mortgage rates. Under IFRS, mortgages that are securitized must be reflected on a lender’s balance sheet. Prior to January 1, 2011 that was not the case. (IFRS securitization guidelines don’t take effect on the big banks until November 1 of this year.) Once mortgages come on the balance sheet, a lender (if federally regulated) must allocate capital to those mortgages to meet the regulatory asset-to-capital multiple. For giant banks, with gobs of surplus capital, this isn’t as big an issue. For smaller lenders, it’s a serious matter because it raises capital costs notably. Home Trust, for example, has had to allocate capital where the return is greatest. In Home’s case, that means it’s now focusing on non-prime mortgages. In turn, Home had to raise pricing on it
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Budget Tools

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It is vital that you determine how much can afford before you start looking for a house. If you begin by looking at houses outside of your price range, your home may appear disappointing by comparison. You also want to be confident that your monthly payments are sustainable and realistic for your budget. Here are a few tools to help you carefully consider the size of mortgage that is most suitable for you: Household Budget Calculator http://www.cmhc.ca/sharing/en/householdbudget.html Mortgage Affordability Calculator http://www.cmhc.ca/sharing/en/affordability.html Mortgage Payment Calculator http://www.cmhc.ca/sharing/en/mortgage-payment-calculator.html
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Big 6 see rate hike in May or June

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With the Bank of Canada maintaining the status quo last week, many are wondering what’s next for mortgage rates. If you put any stock in the Big Six banks’ predictions, here’s the latest commentary from their professional ball gazers… CIBC: “We're sticking with our view that an upgraded economic outlook in April's policy report will pave the way for a rate hike in May, assuming the C$ settles down a bit before then.” BMO: "We judge that the bank is waiting for evidence that U.S. economic performance is strong and steady enough to ensure that Canadian exports will contribute to Canadian economic growth regardless of the level of the loonie. We’ve pencilled in a July resumption of rate hikes.” National Bank: “There is a compelling case to be made for higher interest rates in Canada since excess supply is closing faster than previously anticipated by the Bank…We remain of the opinion that the next rate hike will occur at the May 31 interest-rate setting meeting.” RBC: “The Ba
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