Potential Bank of Canada Prime Rate increase on the horizon

General Leslie Morris 12 Jun


The Bank of Canada offered its strongest signal yet that it’s ready to raise interest rates as the economy gathers steam, in surprise comments that sent the Canadian dollar and bond yields soaring.

In a speech Monday, Senior Deputy Governor Carolyn Wilkins highlighted how the nation’s recovery is broadening across regions and sectors, giving policy makers “reason to be encouraged.” She downplayed worries about Toronto’s housing market and said policy makers need to keep their eye on the future evolution of growth, not only current economic conditions.

“As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required,” Wilkins said in Winnipeg, Manitoba. “At present, there is significant monetary policy stimulus in the system.”

Wilkins said policy makers will be focusing on the data and talking to “many people” ahead of the next interest-rate decision on July 12.

The remarks are an indication policy makers anticipate the next rate move will be higher as momentum has shifted after two years of pain from a slump in oil prices. It’s also effectively a rebuke of pessimists betting on a disorderly unwinding of Toronto’s housing bubble that has left the Canadian dollar one of the worst performing currencies this year.

The Canadian dollar extended gains after Wilkins’s comments, appreciating 0.9 percent to C$1.3350 per U.S. dollar at 2:04 p.m. in Toronto, the steepest increase since March and the biggest advance among Group-of-10 peers on Monday. The gain helped turn the loonie’s year-to-date loss against the greenback into a gain.

As early as January, Governor Stephen Poloz had been talking about the possibility of another rate cut, after lowering the key rate twice in 2015 to 0.5 percent.

Swaps trading suggests investors are placing an 11 percent probability of a rate increase next month, and a 56 percent chance by the end of this year. On Friday, those probabilities were 5 percent and 30 percent. The central bank hasn’t raised interest rates since 2010.

Bond Sell-Off
The comments also sparked a sell-off in Canada’s federal government bonds, pushing the yield on two-year notes up seven basis points, the steepest rise since December, to an almost three-month high of 0.81 percent. The rate on five-year securities rose above 1 percent for the first time in three weeks.

“Markets have barely priced in any real risk of a rate hike this year and will need to adjust,” said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. “This is quite a change in messaging on the face of it – and likely brings forward expectations for Bank of Canada tightening just at the time when the market is doubting how much more the Fed will move.”

Wilkins said encouraging signs included the fact that more than 70 percent of industries are growing, the labor market has improved and demand in energy-dependent provinces is strengthening. In fact, the drag from the oil price shock — the reason for two rate cuts in 2015 — is done, according to Wilkins.

“The adjustment to lower oil prices is now largely behind us, and we are looking for signs that the sources of growth are broadening across sectors and regions,” Wilkins said. “The signs are encouraging.”
As an analogy, Wilkins likened monetary policy to a car slowly braking before a traffic light.

“If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly,” she said. “You do not want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.”

Wilkins said it was too early to tell how measures by the Ontario government to cool Toronto’s housing market will impact activity and prices, citing the rebounding Vancouver market as an example. If Toronto’s market performs better than expected, that would be a boost for household spending and another driver of growth.

“Given we expect household spending to slow somewhat, it could surprise us and provide an unexpected boost to growth in the near term,” Wilkins said.

Other Details
Diversity of economic growth “helps support strong and sustained overall growth.” Risks to the economy include potential changes in U.S. policies, faster-than-expected household spending. Core inflation measures have “drifted down in recent quarters,” consistent with lagged effects of slack in the economy, she said. “Other indicators also point to ongoing spare capacity,” such as wage gains, Wilkins says.
First quarter growth rate of 3.7 percent was “pretty impressive.” Bank of Canada modeling shows broadening in provincial activity in 2017. Exports still remain a disappointment. Gains in employment spreading across the country.

Copyright Bloomberg 2017


How to pay off your Mortgage Faster

General Leslie Morris 30 May

Congratulations! You are now the proud owner of a new home! You also likely own a rather intimidating mortgage as well. That debt may seem like a daunting mountain you’ll be chipping away at for years, but you could actually pay it off faster than you realize. Here are five hot tips from mortgage-handling pros to get you in the free and clear fast.

Mortgage Broker Kitchener

Pay more than the minimum.
Let your mortgage servicer know ahead of time that you plan to pay vigorously. They will most likely help you put together a more aggressive payment schedule. If you plan to do all the calculating yourself, still make sure you let the servicer know to expect higher than usual payments. Some require a notation that extra money should be applied toward your loan. Always check your statement afterward to make sure the right funds were applied.

Pay more often.
If your mortgage lender offers a bi-weekly payment schedule, take it! Not only will this allow you to make a half-payment every other week, it also cuts down on the amount of interest you’ll be paying too. Check with your lender first to see if they offer bi-weekly payments, otherwise your payment may be held in escrow until you make the other half payment, which defeats the whole purpose.

If a bi-weekly payment schedule doesn’t work for you, consider making one extra payment per year instead. The best way to do this is save a twelfth of a regular payment every month. By the end of the year you will have a whole extra payment to put into your loan. It’s not as fast as more aggressive payments, but you will still save thousands in interest and still knock years off your term.

Set goals and stick to them.
Make your payoff goal challenging but reasonable; the easier the goal, the longer you will probably stay in debt. How fast you will pay off your mortgage depends on how many sacrifices you are willing to make. Some smart homeowners have managed to pay off a 15-year loan in as little as 2 years, but they also made a lot of cuts to their expenses. Which leads us to the next tip…

Be mindful of the “little things”.
Buying lunch every day may be convenient, but it also cuts into the cash you could be putting towards your payoff. In fact, taking a sack lunch from home could save you up to $1,000 a year! That’s $1,000 you could knock off your mortgage. Other big savings from small changes include making coffee at home or cutting down on new clothes shopping. More proactive payers put all of their extra income – from tax refunds, bonuses, or even second jobs – toward their loans.

Consider refinancing your mortgage.
If you have a 30-year or longer loan, consider refinancing it to a shorter term with a lower interest rate. This works particularly well if you already plan to make higher, more frequent payments. It’s important to look out for a good deal, at least one percent lower interest than you are already paying. If you aren’t already making higher payments, a shorter term will drive up the cost of your monthly payment, so make sure you can afford it. However, you could save thousands off interest in the long run.

5 Common Mistakes To Avoid When Shopping For a Mortgage

General Leslie Morris 15 Mar

5 Common Mistakes To Avoid When Shopping For a MortgageAvoid these 5 common mistakes, and you will have no problem getting your mortgage faster, more efficiently, and with a clear understanding of the process:

1. Thinking banks are the first and best place to go for a mortgage

Mortgage brokers can often beat the bank rates by using different lending institutions. The bank is limited to one lender, but if you use a mortgage broker, they have the option to shop for you with multiple lenders to find you the best product.

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How Your Credit Score Affects Your Purchase Price

General Leslie Morris 14 Mar

How Your Credit Score Affects Your Purchase PriceYour Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

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