Global debt affects us in 2 ways

General Angela Calla 27 Jul

The debt problems of the global financial system are your problems. So pay down your credit card, credit line and mortgage. Making your household balance sheet tidier has the fortunate spillover effect of saving our economy. 

From what? Just look at what’s happening in the US: The housing market is a disaster, weak consumer spending has crippled the economy, and politicians are grappling with how to fix things through a mix of government spending cuts and tax increases. 

 The Bank of Canada gave you another reason to get your debts in line last week, when it signalled, in its typically obscure way, that interest rates will rise in the foreseeable future. The bank did this by deleting the world “eventually” from a discussion of rate increases. 

 Rising rates will hit you in two stages. The first is instant – when the central bank raises its overnight rate, the major banks increase their prime lending rates by an identical amount. That, in turn, means higher interest charges for people with variable-rate mortgages, lines of credit and floating rate loans. 


Click here for more from the Globe and Mail.


Stay Variable or lock in?

General Angela Calla 27 Jul

With anticipated interest rate increases on the horizon, many homeowners are wondering whether to lock debt such as mortgages and secured lines of credit into a fixed-rate mortgage or stay variable. 

 Even some who are mortgage free are concerned with how rate increases will impact secured lines of credit, the financing of vacation homes and recreational property.

 First-time buyers may be particularly concerned with entering an expensive real estate market. As a first-time homebuyer, it’s essential to figure out what you can afford. A quick rule of thumb is that your household expenses should not add up to more than 40% of your pre-tax household income. Household expenses include mortgage payments, property taxes, condo fees, utility and heating costs, and any payments on other loans such as car loans, credit card debt and lines of credit.

 Probably the first step should be to get a copy of your credit history from Equifax Canada and TransUnion. As this is what lenders will look at, it’s important to review its accuracy.


Click here for the full Ottawa Citizen article.

Experts encouraging home ownership

General Angela Calla 27 Jul

Owning the roof over your head should still be a goal for most Canadians as paying rent is like paying someone else’s mortgage, experts say. 


The Bank of Canada gave its clearest signal last week that interest rates are set to rise, while a growing number of real estate watchers and some economists are forecasting property prices will decline.


Given such a scenario, some first-time buyers may be tempted to hold off on what’s likely to be one of the biggest purchases of their lives, though that may be a mistake.


Click here to read the full Money article.

Real Estate Investing & Mortgage Tips- Angela Calla

General Angela Calla 26 Jul


If you’ve been thinking about investing in real estate, there are some important things to keep in mind when it comes to where you decide to invest, how best to position your mortgage and why it’s important not simply to seek the lowest available rate.

 As always, location is a key component to any real estate purchase. You want to see the official community plan, current re-zonings, and investment from developers and the city. These details will help you understand how many more buildings are being erected in the area, as this could affect the view or quality of living for a tenant.

Other considerations include what improvements are being made to the area (roads, bridges, entertainment facilities, etc), proximity to transit, malls, hospitals, schools and major roads, as well as strata bylaws (for rental restrictions).

Why the lowest rate may not always be the best

When it comes to mortgage rates, cheaper may not always be better – for both investment and personal residential purposes.

When it comes to the type of mortgage you select – fixed or variable – some lenders do offer the ability to have your broker assist you with lock-in to ensure the best rate. For rental properties, however, some lenders restrict the products they allow.

Longer amortization is better when building a real estate portfolio for future qualifying purposes, so you don’t have to redo your other mortgages at a later date for an added expense. If paying your mortgage(s) off faster is important to you, ensure you use prepayment privileges. Also remember that the interest you pay on rental properties is 100% tax deductable.

Various mortgage terms, such as a lower down payment, larger rental offset ability, mortgage structure (saver mortgage where your principal portion is re-advanceable to assist you with down payments for future purchases) are also important considerations.

For rental offsets, keep in mind that different lenders allow different offsets, which will affect you when you’re looking to add to your portfolio.

Accredited Mortgage Professional (AMPs) look for the overall best long-term mortgage solution for each client. In today’s market, the lowest rate is not the best option for many borrowers and often costs them more in the long run. Having a proactive AMP is the solution to a borrower saving the most amount of money on their mortgages, as lenders are often not focused on proactive solutions because these options aren’t as profitable for the banks’ shareholders.

Tune into The Mortgage Show Saturdays at 7pm on CKNW with Angela Calla to learn more important tips on your mortgage.


Dollar within striking distance of modern-day high

General Angela Calla 22 Jul

TORONTO (Reuters) – The Canadian dollar looks set to extend a rally that’s taken it to 3-1/2 year highs against the U.S. dollar this week, as more hawkish Bank of Canada comments lifted the currency and global investors pushed into the safety of Canadian assets.

Given the central bank’s clear signal it would likely resume interest rate hikes later this year, analysts said the currency might even revisit its modern-day high. It reached C$0.9059 to the U.S. dollar, or US$1.1039, in November 2007, according to Thomson Reuters dealing data.

“Yes, Canada could hit post-Civil War highs once again,” said Michael Woolfolk, a senior currency strategist at BNY Mellon in New York.

“(Hitting the high) would not be altogether unwarranted if Canada begins raising interest rates again. It’s certainly not in our forecasts, but it’s a nontrivial possibility of hitting C$0.90 within the next 12 months.”

Based on available data, the Canadian dollar was at an all-time high of C$0.36 to the U.S. dollar, or $2.78 in 1864.

A survey on Wednesday of Canadian primary dealers found most expect a rate hike in September or October, perhaps as much as a year before the U.S. Federal Reserve starts raising interest rates.

“Against a background of firm commodity prices and continued global diversification flows to the relatively safe harbor of Canadian bonds, we look for the loonie to stay close to around US$1.05 even by the early part of 2012, before Fed rate hikes start to kick in,” said Douglas Porter, deputy chief economist at BMO Capital Markets in a note.


The currency began rallying on Tuesday after the Bank of Canada signaled it was closer to resuming rate hikes. Governor Mark Carney indicated that the central bank’s focus was on inflation and not the Canadian dollar, despite concerns that a strong dollar could hurt the economy.

But other G10 currencies are still outperforming the Canadian dollar, with part of its strength coming from U.S. dollar weakness, and general strength from the bloc of Australian, New Zealand and Canadian dollars.

A release of draft conclusions from a euro zone meeting on Thursday to tackle contagion from Greece’s debt woes helped push the Canadian dollar to a 3-1/2 year high of C$0.9425 to the U.S. dollar, or $1.0610, its highest since November 2007.

“That was viewed very constructively by the market and lifted the euro up. It also helped bolster risk appetite, which undermined the U.S. dollar,” said Woolfolk.

Canada, with its relatively robust economy, stable debt market and internationally recognized sound banks, has become particularly appealing to investors as the U.S. and European debt crises send investors elsewhere.

“As uncertainty in Europe continues to rise and problems in the U.S. remain at the forefront, there is likely increased appetite to diversify holdings away from both USD and EUR based assets,” Scotia Capital chief currency strategist Camilla Sutton said in a research note.

“Small open economies, with strong sovereign positions and flexible FX regimes, like CAD, are in demand. We expect this is a long-term trend…that will help support CAD into year-end.”


Currency analysts polled by Reuters said this month they expected global risks to drag the Canadian dollar down against a stronger U.S. dollar, with parity a possibility within the next 12 months.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said a stronger Canadian dollar will hurt non-commodity aspects of the economy, such as manufacturing.

“The Bank of Canada will get more concerned about … the higher currency and may dampen expectations of a rate hike,” Chandler said.

“The exports are heavily weighted toward commodities, but part of the country doesn’t produce commodities, they’re consumers of commodities. They get hurt, so it leads to this bifurcation of the economy, which makes it all the more difficult to conduct monetary policy and has political ramifications.”

Woolfolk disagreed.

“We think conditions warrant higher interest rates in Canada, but (the central bank) is likely holding back because of the obvious positive it would have for the currency,” he said.


RRSP’s vsTFSA decisions for homebuyers

General Angela Calla 20 Jul

Add RRSPs versus TFSAs to the list of decisions you have to make as a prospective homebuyer. 


Some serious saving is going to be required to meet the minimum 5% down payment for buying a home, not to mention the 20% threshold for avoiding costly mortgage default insurance. Two ideal vehicles for saving are registered retirement savings plans and tax-free savings accounts. Which is best? 


Click here to read more in the Globe and Mail.


Two Canadian Economists weigh in on US debt ceiling

General Angela Calla 20 Jul

The world is watching as negotiations to raise the US debt ceiling drag on towards the August 2nd deadline. Republicans recently proposed a plan to be voted on this week, hinging on cuts and caps, but the acrimony over spending or taxes continues.


Two Canadian economists have weighed into the debate, with editorials. While their approach differs, their conclusions do not. If politicians can’t let reason prevail and avert a US default, the consequences will be dire, not only for America, but the world.


Click here to read the editorials in the Financial Post.

Bank of Canada hints that rate hikes are coming sooner rather than later

General Angela Calla 20 Jul


OTTAWA – The Bank of Canada signaled Tuesday that it will look for an opportunity to raise interest rates sooner rather than later to keep inflation in check as the Canadian economy continues to grow.

The central bank kept its overnight rate target at one per cent but noted that the U.S. economy has grown at a slower pace than expected and Europe faces a growing credit crisis — both potential drags on the domestic economy.

Despite those threats, the bank said it believes Canada’s economy remains on track to grow this year, which observers said likely means a rate hike as early as October .

CIBC World Markets chief economist Avery Shenfeld said the bank’s decision to drop the word “eventually” in reference to the timing of its next rate hike suggests it will move before the end of the year.

“The underlying message is that rate hikes will be coming sooner than eventually,” Shenfeld said.

“The surprise is really for those who thought that the Bank of Canada would be waiting until 2012 to begin hiking rates, because I think here the message is directed at those dovish observers and indicating that we will probably be moving sooner than that.”

The suggestion that rates in Canada will rise in the near term helped push the loonie up 0.87 of a cent to 105.16 cents U.S.

Canadian economic growth slowed in the second quarter, but the central bank said it expects to see an acceleration in the second half of the year.

Overall, the Bank of Canada expects the economy will expand by 2.8 per cent in 2011, compared with its call in April for 2.9 per cent growth. The outlook for 2012 and 2013 was unchanged at 2.6 per cent and 2.1 per cent respectively.

Shenfeld said the central bank will likely wait to see if its economic outlook is on track before moving to raise rates.

“The key is the Bank of Canada has to see evidence that its projection for a re-accelleration in economic growth is actually taking place,” said Shenfeld, who currently expects the central bank to hold rates in September and move in October.

BMO Capital Markets senior economist Michael Gregory said the case of a rate hike was building, noting that household spending in Canada remains solid.

“We are sticking to our call for October and December rate hikes this year,” Gregory wrote in a note to clients.

However TD Bank economist Sonya Gulati said she continued to expect the Bank of Canada to keep rates on hold until its first meeting in 2012.

“We think that they are going to time it more to when the (U.S.) Fed is going to start to increase it, which we think is going to be March of next year,” she said.

“In previous communications, the governor has indicated that the rate spreads between the two countries is something he’s keeping a close eye on and that there has to be a working gap between the two for the countries to go forward, given how high the Canadian dollar is.”

Gulati said TD expects the Bank of Canada will increase its overnight rate target in one-quarter percentage point intervals starting in January to two per cent before pausing to assess the situation and then increasing the key rate again to three per cent by the end of 2012.

A full update on the central bank’s outlook for the economy and inflation is expected when the Bank of Canada publishes its monetary policy report on Wednesday.

The central bank said in its statement Tuesday that the U.S. economy continues to be restrained by the consolidation of household balance sheets and slow growth in employment while fiscal austerity measures in Europe also restrain growth.

“Widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets,” the central bank said in its statement.

The central bank also said its outlook assumes that European authorities will be able to contain the sovereign debt crisis, “although there are clear risks around this outcome.”

However as Europe and the United States continue to put up warning signs, the Canadian economy has appeared to be on track with three consecutive months of job growth and signs of inflation.

Statistics Canada said Tuesday that its composite leading index rose 0.2 per cent in June compared with a 0.8 per cent gain made in May.

The agency said a downturn in the auto sector due to disruptions following the earthquake and tsunami in Japan temporarily slowed assembly work in Canada, while the housing index increased 0.3 per cent as home starts in June hit a high for the year to date.

The Bank of Canada’s latest business outlook survey last week found corporate Canada in a generally upbeat mood and looking to hire with 57 per cent of the firms surveyed expected to hire new workers over the next year compared with just four per cent of firms that expected to have fewer employees over the next 12 months.

Statistics Canada also reported a net gain of 28,000 jobs for June, a stark contrast to a disappointing report of only 18,000 jobs added in the United States.

The bank’s overnight target rate affects the prime lending rate at Canada’s big banks and in turn the rates for variable rate mortgages and lines of credit.

The Bank of Canada’s next scheduled rate announcement is set for Sept. 7.

The Canadian Press–bank-of-canada-hints-that-rate-hikes-are-coming-sooner-rather-than-later


Why Canadian mortgage rates are on a roller coaster

General Angela Calla 20 Jul

Tom Fennell Yahoo Finance  If there’s one question being kicked around the barbecue more than any other this summer, it’s probably this: should I lock in my variable rate mortgage?

But with interest rates bouncing around, to the point where they make a mortgage-rate chart look more like the diagram of a rollercoaster, homeowners can be forgiven if they are hesitant.

After all, every time mortgage rates rise, they seem to come back down again. Recently, Royal Bank tried to raise mortgage rates, increasing the cost of its five-year fixed mortgage by 0.15 per cent, only to quietly lower them a few weeks later.

What gives?

On the variable side, rates have been stable, holding at 2.1 per cent for so long it seems like the new normal. They are priced based on the Bank of Canada rate. And with the U.S. economy slowing (Alberta created more jobs than the U.S. did in the last quarter), it’s little wonder that Bank of Canada governor Mark Carney decided not to raise interest rates this week – and it’s doubtful he will anytime soon.

While the variable rate has held steady for months, fixed-rate mortgages are far more difficult to predict. Fixed mortgages are primarily priced off of the five-year bond, and as a result are subject to volatility in the bond market, which is being whipsawed by the European sovereign debt crisis.

As more European countries edge toward default, interest rates have risen on their bonds, in some cases to more than 10 per cent. Many investors, however, fearing widespread defaults, have fled to the safe haven of the U.S. bond market. In the process, that has kept U.S. rates in the 2.3 per cent range, and helped keep mortgages rates low in this country, with a five-year fixed term mortgage going as low as 3.29 per cent.

But these bedrock-low rates could rise quickly if the U.S. does not solve its own debt crisis. President Obama has asked Congress to lift the country’s debt ceiling — the amount the country can borrow to meet its obligations. The Republican-controlled House of Representatives is refusing to grant the increase until Obama makes deep cuts to government expenditures.

They have until Aug. 2 to solve the impasse and if nothing is done, the U.S. will default on the latest round of payments it has to make on its debts. Bond rating agencies have already said they will downgrade U.S. bonds if a default occurs. If that happens, it will drive up interest rates in the U.S. and push rates up on Canadian mortgages in the process.

“If Europe gets into trouble and the U.S. gets into trouble, money will be looking elsewhere,” says Kelvin Mangaroo, founder and president of “Interest rates have been bouncing around and we might continue to see that until the U.S. credit situation gets sorted out.”

Could the uncertainty in Europe actually drive interest rates lower in Canada?

If Obama and Congressional Republicans come to an agreement, there could be a sudden flight to quality as investors buy U.S. bonds. That could drive down interest rates on the U.S. five-year bond, and reduce rates on Canadian fixed mortgages.

“There is always the possibility that they could drop a bit still,” said Mangaroo. “They’ve been lower before, so there is no reason that they can’t go back.”

With so much volatility in the market, should you lock in your mortgage? It’s hard to say, but studies have concluded you are better off holding a variable mortgage. Then again, those studies also include periods of extremely high interest rates, but with rates now at historic lows they would only go marginally lower.

In fact, you can purchase a 10-year mortgage for just 4.84 per cent and a 25-year at 8.35 per cent. In effect, you could lock your mortgage costs in at today’s historic lows and that would pay dividends long after the crisis in Europe and the U.S. has passed and rates are rising again.

Whether to lock in or not is the most common question Mangaroo gets at About one-third of Canadian mortgages are variable, but Mangaroo says, “It all comes down to risk profile. And interest rates will be going up, so if you’re uncomfortable with that, you should look at a fixed five-year term which is at 3.5 per cent.”

But one thing is certain. If you hold a variable mortgage, you can breathe a little easier knowing Carney won’t be raising rates anytime soon. Ian Lee, director of the MBA Program at Carleton University, says this is because of the ongoing failure by the European leadership to address, let alone resolve, the growing Eurozone debt crisis and the ongoing inability of the U.S. political leadership to seriously address their annual $1.5 trillion deficit and $14 trillion debt.

“This clearly suggests,” says Lee, “that Governor Carney will think many times before raising interest rates now or in the fall.”

BOC leaves rates unchanged

General Angela Calla 19 Jul

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic expansion is proceeding broadly as projected in the Bank’s April Monetary Policy Report (MPR), with modest growth in major advanced economies and robust expansions in emerging economies.  The U.S. economy has grown at a slower pace than expected and continues to be restrained by the consolidation of household balance sheets and slow growth in employment. While growth in core Europe has been stronger than expected, necessary fiscal austerity measures in a number of countries will restrain growth over the projection horizon. The Japanese economy has begun to recover from the disasters that struck in March, although the level of economic activity in that country will remain below previous expectations.  In contrast, growth in emerging-market economies, particularly China, remains very strong. As a consequence, commodity prices are expected to remain at elevated levels, following recent declines. These high prices, combined with persistent excess demand in major emerging-market economies, are contributing to broader global inflationary pressures.  Widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets.

In Canada, the economic expansion is proceeding largely as projected, although the expected rotation of demand is somewhat slower than had been anticipated. Household spending remains solid and business investment robust. Net exports remain weak, reflecting modest U.S. demand and ongoing competitiveness challenges, particularly the persistent strength of the Canadian dollar. Despite increased global risk aversion, financial conditions in Canada remain very stimulative and private credit growth is strong.

Following an anticipated slowdown in growth during the second quarter due to temporary supply chain disruptions and the impact of higher energy prices on consumption, the Bank expects growth in Canada to re-accelerate in the second half of 2011. Over the projection horizon, business investment is expected to remain strong, household spending to grow more in line with disposable income, and net exports to become more supportive of growth. Relative to the April projection, growth in household spending is now projected to be slightly firmer, reflecting higher household income, and net exports to be slightly weaker, reflecting more subdued U.S. activity. Overall, the Bank projects the economy will expand by 2.8 per cent in 2011, 2.6 per cent in 2012, and 2.1 per cent in 2013, returning to capacity in the middle of 2012.

Total CPI inflation is expected to remain above 3 per cent in the near term, largely reflecting temporary factors such as significantly higher food and energy prices. Core inflation is slightly firmer than anticipated, owing to temporary factors and to more persistent strength in the prices of some services. Core inflation is now expected to remain around 2 per cent over the projection horizon.  Total CPI inflation is expected to return to the 2 per cent target by the middle of 2012 as temporary factors unwind, excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.

Information note:

A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 July 2011. The next scheduled date for announcing the overnight rate target is 7 September 2011.


Information note:

A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 20 July 2011. The next scheduled date for announcing the overnight rate target is 7 September 2011.