Choosing the Right Mortgage Requires 'Financial Acumen' and 'All the Relevant Information'

Choosing the right mortgage can be a difficult challenge with the wealth of new and innovative mortgage products that have come onto the market in the past few years. The Bank of Canada's Deputy Governor, Sheryl Kennedy, in recent comments to the Investment Industry Association of Canada on the state of Canada's mortgages and real estate markets, stressed how important it is for Canadian home buyers to make informed and educated decisions when choosing from the variety of mortgage products that are now available.

"One of the best ways to avoid painful outcomes in the housing market," Ms. Kennedy observed, "is to have individuals making well-informed financing decisions." However, she cautioned that the need for "financial acumen" has increased in recent years, and that this need for greater financial understanding will only increase further.

"The good news about innovation in the mortgage, mortgage insurance, and home equity market is that people have greater choice in financing," Ms. Kennedy noted. "But," she cautioned, "Individuals need the financial literacy and all the relevant information from those selling mortgage products to make the choices best suited to their circumstances."

Of course, one of the best ways for obtaining "all the relevant information from those selling mortgage products" is to enlist the assistance of an independent mortgage broker. A mortgage broker is not the seller, but rather has access to and information about a whole spectrum of mortgage products from multiple lenders. A qualified mortgage broker can, should, and will educate a home buyer about the range of mortgage options and terms available, and will assist the home buyer in choosing the right mortgage for his or her circumstances.

"Most home buyers require financing," Ms. Kennedy noted, "and therefore the mortgage market and its increasingly innovative products can affect when people purchase a house and the type of house they buy." A well-resourced, knowledgeable and experienced mortgage broker will be able provide a home buyer with the financial acumen to make the right mortgage choice from among the many innovative mortgage products on the market.

Good Time for Buying Your First Home as Real Estate and Mortgages Markets in Toronto/GTA Moderating

If you are buying your first home in Toronto or the GTA, then numbers released on June 18^th by the Toronto Real Estate Board should be reassuring. “The Greater Toronto Area (GTA) resale housing market continued at a moderate but healthy pace throughout the first half of June,” TREB President, Maureen O’Neill announced yesterday.

While the number of houses on the market has climbed and the pace at which existing homes are selling has declined significantly since last year, it is essential for first time homebuyers in the market for real estate and mortgages to keep theses numbers in perspective. The Toronto/GTA real estate market set record numbers last year, following record-setting years in both 2005 and 2006. Consumer confidence in the real estate and mortgages markets quite naturally ebbed with news story after news story covering the sub-prime mortgage mess and subsequent housing problems south of the border.

Yet Canadians have largely been unaffected by events in the U.S. due to tighter lending regulations and conservative consumer borrowing patterns which have resulted in a much less speculative housing market here in Canada. A more conservative approach was demonstrated by the Bank of Canada’s decision not to cut interest rates further, against industry predictions, because of concerns that the economy will face increasing inflationary pressures. This has put upward pressure on fixed rate mortgages for homebuyers, yet it underscores a healthier attitude towards fiscal policy than has been demonstrated down south.

News that the Toronto/GTA real estate markets are settling into more moderate growth patterns - the current average resale home price is up three per cent from this time last year, while across the GTA’s 905 Region the average price is up four per cent – should be reassuring for first time homebuyers who are concerned about the possibility of a significant drop in housing prices like we have seen in the U.S. With mortgage rates likely set to rise by the end of this year and the Bank of Canada voicing concerns over high energy and commodity prices, news that gains in housing prices have slowed is an indication that our mortgages and real estate markets are on track. Therefore, now may be the best of times if you are considering buying your first home to be looking at you real estate and mortgages options.

“With employment and interest rates holding steady and a 17 per cent increase in available listings compared to a year ago, it is an ideal time to take advantage of all that the market has to offer,” Ms. O’Neill noted.

Market for Bad Credit Loans in Canada Drying Up, But Not Dry

The pool for bad credit loans in Canada is drying up, but isn’t dry. That is particularly good news for Canadians with poor credit ratings who are shopping for refinancing as their mortgage terms come due.

That the pool for Canadians with less than optimal credit ratings is smaller than it once was is largely attributable to the restructuring of the asset-backed commercial paper (or, ABCP) market in Canada, a market that was spurned by Canadian investors as being too closely parallel to the sub-prime mortgage market in the United States. Investors turned away in droves from Canada’s ABCP market late last year, as the U.S. sup-prime mortgage market largely collapsed, triggering a global credit crunch and a housing crisis that the U.S. is still coming to grips with.

As a result of the ensuing general tightening in credit markets, some Canadian homeowners are now finding it difficult to obtain mortgage refinancing due to past credit problems. “People with a shaky credit rating, who relied on so-called 'B' lenders for a mortgage, could be left scrambling to find a new lender if their mortgage is coming due soon,” notes the Chatham Daily News, citing the example of a local Chatham couple who had never missed a mortgage payment but yet are having difficulty getting refinancing for their home because of their poor credit scores.

Thankfully, there are credit sources in Canada that can be tapped for individuals experiencing similar difficulties in obtaining mortgage refinancing. The best advice for anyone facing these difficulties is to speak to an experienced and well-resourced Canadian mortgage broker who can help a poorly-rated homeowner tap into the dwindling, but not dry, pool for financing bad credit loans in Canada.

Lock up Home Refinancing Before Mortgage Rates Rise

If you are making home refinancing plans or looking at purchasing a home, now is the time to speak to your mortgage broker. Canadian mortgage rates are on the rise from their current near-record lows in the wake of Monday's Bank of Canada decision not to cut its main lending rate further than the current rate of 3.0 per cent. Monday's decision emphasized a renewed caution with respect to inflationary pressures brought about by high energy and commodity prices on the part of the Bank of Canada's new Governor, Mark Carney.

The Globe and Mail reports that mortgage rates are already on the rise, as the Bank of Canada decision to stay put with its main rate caught many industry insiders and analysts by surprise. As a result, the market price for five-year Government of Canada bonds has been on the rise since Monday, dragging up the interest rates that banks, credit unions and caisses depots are charging even their best customers for fixed rate mortgages.

"A five-year fixed mortgage will now cost half a percentage point more than it did Wednesday at many of the country's big banks," reports the Globe's Lori McLeod. Although, fast-acting customers currently shopping for a house or for home refinancing will likely have about a week or so to negotiate and lock into the current low rates, according to industry sources.

Canadian Mortgages Rates and Interest Rates Hold Steady For Now

Most industry analysts and those trying to decipher where the Bank of Canada was headed with its main overnight lending rate - the main rate that basically determines the dimensions of the playing field for Canadian mortgages and lending markets - got a rude wake-up call from Bank of Canada Governor Mark Carney today. Defying what had been the near unanimous view-from-the-street prediction that the Bank of Canada would lower its main rate from the current 3.0%, Mr. Carney and the fiscal watchdogs at the Bank of Canada instead elected to sit tight. The reasoning for this is, and has been, clear - at least for the last several weeks since the G7's central bankers met to discuss monetary policy in Spain and comments over growing inflationary pressure began to circulate.

Today's news was not unexpected. That the Bank of Canada would not lower interest rates further because of concern over rising inflation was not surprising for Canadians who have weathered the sticker shock of spiraling gas prices over the past weeks and know that the costs of goods moved by truck are following or soon will follow gas prices north. Indeed, the Bank of Canada cited its concerns over rising energy and commodity prices as a key determinant in its decision not to lower interest rates further. This marked the end of a string of six successive rate cuts, as well as a shift of emphasis from stimulating economic growth to nipping inflationary pressures caused by soaring energy prices in the bud.

In the Bank of Canada press release accompanying its announcement, the Bank restated its projection that "economic growth will pick up this year and accelerate in 2009, owing in part to a firming of U.S. demand and accommodative monetary policy in Canada." That's good news for Canadians and the Canadian mortgage, housing and financial markets. This left the BofC wrestling with the spectre of inflation, which is typically what keeps central bankers up at night. "If current levels of energy prices persist, total CPI inflation will rise above 3 per cent later this year," the Bank noted in its press release.

Clearly, for Governor Carney and the other monetary mavens at the Bank of Canada, ensuring that the Canadian economy stays relatively non-inflationary and hits the 2% targets for inflation the BofC has set for 2008 and 2009 is of prime importance. U.S. Federal Reserve Chairman, Ben Bernanke also spoke out again in today's Wall Street Journal over his concerns about the inflationary clouds he sees on the horizon of a U.S. economy still struggling to get out from under its domestic housing crisis.

This seems to indicate that there are no further rate cuts for Canadians on the immediate horizon this year. Expectations and pressure are likely to build for Governor Carney to hold the Bank of Canada main rate at 3.0% when the BofC reconvenes on July 15th to review its rates. However, unless some of the gas is let out of ballooning oil prices and there is some relief for Canadian drivers and the transportation sector at the pumps, it seems more likely that Canadians will be looking at some modest interest rate hikes - whether in July, or closer to year's end. That would seem to makes now an auspicious time for persons looking at the Canadian mortgages market and contemplating a home purchasing or home refinancing decision, or those who may be sitting on the fence with variable rate mortgages, to get with their Canadian mortgage broker and see what the costs of locking into the currently low Canadian mortgage rates would be.

Mortgage Investment Payoffs: City versus Suburbs Home Purchasing Decisions

Where have Canadians' investments in mortgages paid the best dividends? It's a mixed bag according to the numbers released by Royal Lepage Real Estate Services. The Royal Lepage survey results published in today's Toronto Star show that an investment in a single-family home in the city was the better investment choice over the past ten years versus a suburban single-family home, although both showed great appreciation. There was an 89.4% appreciation for a typical two-story family home in Toronto versus an 82.4% increase in 905 areas of the G.T.A. More interesting, particularly given some of the bad press regarding condominiums as an investment, was the trend reversal in city versus suburban condos.

The suburbs beat out Toronto in condominium price appreciation over the past ten years. "An average condominium is up 86 per cent in the suburbs to $280,447 compared with a 57 per cent increase to $366,000 in the downtown core," Royal Lepage reports. "One reason for the spike in appreciation," in the suburbs versus the downtown core, according to the Royal Lepage study, "is maturing baby boomers looking to downsize their empty nests to something that requires less maintenance" while remaining loyal to their suburban communities.

The Royal Lepage survey results are, of course, retrospective, looking back over the past ten years of a housing bull market. However, the analysis of the reasons for the value increase in suburban condos indicate that suburban condos will continue to be a good investment for couples and singles making their first home purchasing decision. The price push from baby boomers looking to downsize and stay in their communities is a trend that seems likely to sustain itself as the great boomer wave moves into retirement, keeping suburban condo prices buoyant against the rest of the housing market. First-time homebuyers looking to capitalize on their first mortgage investment could do well in putting their money in suburban condos and putting off the "lifestyle" move to the downtown core for a few years until they build up the equity under that all-important initial mortgage.

Mortgages Questions from The Morning Commute

Questions about where Canada's mortgages markets are headed naturally pop to the mind of morning commuters who are are making home purchase or home refinancing decisions when they are confronted with dire headlines about the Canada's economy in local giveaway commuter papers. (See, for example, the Toronto News Service article entitled "Recession looms", in today's Metro commuter paper.)

The trouble with such commuter pieces, however, is that while they give a synopsis of the news available in paid newspapers, they lack the depth of analysis in the paid papers' longer news coverage on the same subject. The Metro piece, for example, is based on the same recently released Statistics Canada data that was subject of much more in-depth analysis in the weekend papers. On whole, the coverage of the data in the weekend papers was much more balanced and less alarmist than commuter headlines would suggest.

Writing in the National Post's weekend edition, financial reporter Jacqueline Thorpe explains the genesis of the StatsCanada numbers that showed Canadian GDP shrinking by 0.3% in the first quarter of 2008 (versus its posting the very moderate gains that were predicted). "The big drag on the ecomomy in the first quarter," Ms. Thorpe writes, "was continued turmoil in the auto sector - sideswiped by the retooling of model lines and a strike at a major U.S. parts manufacturer, in addition to ongoing restructuring."

So does this mean Canada is in, or risks, the painful consequences of a recession as the commuter headline would suggest? (To be fair Metro did note that technically a recession is two or more quarters in a row of negative growth in the overall economy, while we have experienced only one.) So . . . technically, no. We have only experienced three months of a very moderate decline in GDP - the economy shrank very slightly, by 0.3%, in the first three months of '08. Practically? . . . Also, likely no. As Ms. Thorpe notes, Canadian real income is rising at the rate of 3.7%, year over year, due to a 14% in the price of goods we are selling overseas and an 11% decline in the prices we pay for imported goods.

As far as mortgages and real estate markets go, Ms. Thorpe notes that growth in residential real estate spending did decline along with business spending, but only as a facet of the slowdown of growth in overall domestic consumption which slowed to 3.2% from an unsustainable (dare we say inflationary?) pace of 7.5% in the fourth quarter of 2008. Speculation amongst analysts, according to Ms. Thorpe, is that the economy's weak showing "would likely prompt the Bank of Canada to cut interest rates at least one more time at its next announcement on June 10th."

This is not necessarily convincing, however - at least to this writer - particularly given Bank of Canada Governor, Mark Carney's comments over the weekend about the difficulty in making predictions about inflation - which is usually a central banker's constant worry - given the volatility in energy prices. This may be the time for commuters who are gauging the temperature of Canada's mortgages market to talk to an experienced and trustworthy Canadian mortgage broker in order to see whether this is the time to lock into what are historically very, low mortgage rates,