What do falling rates mean for borrowers?

This clearly falls into the 88% of the time where borrowers get significantly ahead by having a variable-rate mortgage. With the mess in the US expected to take several years to get sorted out, we’re in an unprecedented time where we can safely assume rates will remain low.

Where did this come from?

This specifically came from the US and its debt ceiling. When it was announced the US could be a risk to investors and it was downgraded, investors from the stock market moved to safe investments – Canadian Government Bonds. When everyone moves to a safe investment, their return goes down (less risk = less return). This means that fixed interest rates go down. This is déjà vu from 2008.

Although Prime is based on the Bank of Canada and unemployment in both Canada and the US has gone down over a half of a percent, the probability of a rate decrease has gone up significantly for September and again at year’s end. This comes just weeks after the Bank of Canada almost guaranteed we would see a hike before year’s end. On a variable-rate mortgage or line of credit, with every 0.25 decrease, you will see a $14 decrease for every $100,000 mortgage.

Fundamentals never go out of style. Don’t wait! If you have a mortgage above 3.5%, redo it. And if you don’t own, it’s your time to buy.

Will real estate follow?

Real estate does not follow the stock market and it’s not as volatile. You have a basic need to live somewhere so if the payment is affordable and fits into your budget, it’s in your best interest. When people stop migrating to BC and people are leaving BC that’s what you have to watch.

Helping you understand the market

Angela Calla, AMP Mortgage Expert

Dominion Lending Centres-Angela Calla Mortgage Team

Host of “The Mortgage Show” CKNW AM980 Saturdays @7pm

Phone: 604-802-3983 Fax: 604-939-8795

Email: acalla@dominionlending.ca  

www.angelacalla.ca

By David Olive Business Columnist

How to put this politely? While not a deadbeat, the U.S. is no longer among the world’s most creditworthy nations. America now has a lower credit rating than Liechtenstein. And the Toronto-Dominion Bank.

Mind you, that’s a matter of opinion.

On Friday, U.S. credit rating agency Standard & Poor’s for the first time in 70 years stripped the world’s largest economy of its top, triple-A rating on America’s $14.3 trillion in government debt. S&P dropped its rating a notch, to AA-plus.

But the two other members of the U.S. ratings oligopoly, Moody’s Investors Service and Fitch Ratings, earlier in the week reconfirmed their top rating on U.S. debt.

Just 16 of the 126 nations whose debt is rated by S&P earn its coveted triple-A rating, Canada among them.

For S&P, last week’s panicky, acrimonious budget-cutting deal that narrowly averted a first-ever default by Washington was a factor in its U.S. debt downgrade.

“(S&P’s) conclusion was pretty much motivated by all of the debate about the raising of the debt ceiling,” John Chambers, chairman of S&P’s sovereign ratings committee, told The Wall Street Journal Friday.

“It involved a level of brinkmanship greater than what we had expected.”

A furious Obama administration pleaded with S&P to hold off on its announcement for a few weeks of further assessment, arguing that such a historic decision should be free of political considerations. But S&P was having none of that.

In S&P’s view, the intransigence of hard-right U.S. deficit hawks, notably the so-called Tea Partiers, is highly relevant in determining a nation’s ability or willingness to honour its debt obligations.

“The kind of debate we’ve seen over the debt ceiling has made us think the United States is no longer in the top echelon on its political settings.” That’s Chambers’ gentle way of saying that America’s political class can no longer be relied upon to expertly manage the nation’s finances.

China’s central banker, Zhou Xiaochuan, was a little blunter, depicting the Americans as a threat to the world economy. “Big fluctuations and uncertainty in the U.S. Treasury market will influence the stability of international monetary and financial systems, thus hurting the global economic recovery,” the chief of the People’s Bank of China said last week.

China, the world’s largest creditor nation, holds about $2 trillion worth of U.S.-denominated securities.

For years, the U.S. has been hectoring Beijing on everything from its allegedly overvalued currency to human rights abuses to intellectual property theft.

You can sense Zhou relishing this moment to return fire: “We hope that the U.S. government and the Congress will take concrete and responsible policy measures . . . to properly deal with its debt issues, so as to ensure smooth operation of the Treasury market and investor safety.”

Stop playing with matches, is Beijing’s humiliating admonition to the U.S. And really, there’s no snappy comeback to that, although the state Xinhua News Agency was piling it on in labelling the recent Washington budget debate a “madcap farce” (we know, we know) and U.S. debt a “ticking bomb.”

Typically, a lower debt rating means steeper borrowing costs, for consumers, business and government. Debt issuers must offer a higher rate of interest to attract buyers of higher-risk securities.

But hold on.

As noted, S&P is an “outlier” in banishing the U.S. from the triple-A club. Also, the U.S. owes most of its debt to itself. Less than one-third of U.S. government debt is held by foreigners, while most of crisis-stricken Greece’s debt is owed to offshore lenders. And U.S. Treasurys are still unmatched as a safe store of value for investors worldwide.

Yet for many economic observers, S&P’s move is overdue.

Across a range of factors — including anemic GDP growth, still-declining house values, a 9.1 per cent jobless rate, stagnant middle-class incomes and recent inflation in food, gasoline and apparel prices — the U.S. economy has been underperforming for years. Layering unmanageable debt atop that plethora of sickly leading indicators made a U.S. debt downgrade inevitable.

Felix Salmon, the top economics analyst who blogs at Reuters, expects the U.S. has lost its triple-A rating forever. “If we came that close to defaulting,” Salmon writes, “there’s no way that our securities can be risk-free.” The downgrade, he says, is “merely a late-to-the-party recognition of that fact.”

I don’t know about forever. But it will take a lot of convincing for S&P to restore America’s membership in the triple-A fraternity. We should know. S&P downgraded Canada in 1992, when we seemed blasé about a record $43 billion deficit.

Not until Canada was well into its 11-year run of consecutive budget surpluses — unmatched by any G8 nation — did S&P deign to restore our triple-A status, in 2002.

Elapsed time: nine years and nine months. http://www.thestar.com/news/world/article/1035722–olive-u-s-will-take-a-long-time-to-dig-out-of-this-hole

The US stepped back from the brink of default on Tuesday, but congressional approval of a last-ditch deficit-cutting plan failed to dispel fears of a credit downgrade and future tax and spending feuds.

 President Barack Obama and lawmakers from across the political divide expressed relief over the hard-won compromise to raise the country’s borrowing authority after weeks of rancorous partisan battles.

Nevertheless, US stocks tumbled, turning negative for the year, as investors shifted their attention to the increasingly grim state of the US economy and the potential for a downgrade of America’s gold-plated debt rating.

That risk grew when one of the three major ratings agencies said it was affirming the US government’s AAA-rated sovereign debt but slapping it with a negative outlook.

Click here to read more from Reuters.

Turning the key in a lock that no landlord has access to, reading in a hammock in your own backyard and painting your dining room bright red – what could be more exciting than making the leap from renter to first-time homeowner?

Getting swept up in all the excitement is a wonderful feeling, but some first-time homeowners lose their heads and make mistakes that can jeopardize everything they’ve worked so hard to earn.

Don’t be one of those people – take a few moments to ponder the Globe and Mail’s Five smart steps every new homeowner should take that will help ensure that your first home becomes the place of luxury and financial freedom you’ve anticipated.

Yields crash = lower fixed mortgage rates coming. The five-year bond yield nose-dived 16 bps yesterday, crashing through “support” at 2%. It’s the biggest plunge in yields since March 2009.

Yields are hurtling lower in response to a slew of negatives, including:

• “Austerity measures” (spending cuts) built into Congress’ debt agreement. Those will drag on Canada’s economy
• Weaker economic data out of the US (like Monday’s brutal ISM number)
• Ongoing angst about the euro-debt dilemma

On a positive note, global investors are now finding Canadian treasuries far more appetizing – due, in part, to Canada’s AAA debt rating, budgetary prudence and stable currency. That has sparked a money rotation into Canada, adding to yesterday’s bond buying. (When investors bid up Canadian government bonds, our yields drop.)

Angela Calla, AMP

Dominion Lending Centres-Angela Calla

604-802-3983

acalla@dominionlending.ca

Host of The Mortgage Show Saturdays @ 7pm on CKNW AM980

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.

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.

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.