Central bank makes eagerly awaited announcement on benchmark rate

General Michael Distefano 24 Jan

The Bank of Canada has left its policy rate unchanged in its first announcement of the year, keeping rates where they are for a fourth straight decision but giving little indication of a timeline for possible cuts.

The central bank revealed on Wednesday that its overnight rate, which leads variable mortgage rates in Canada, would remain at its current level of 5.0%, but continued to highlight its concern over inflation risks and the persistence of underlying inflation.

The decision had been widely expected by markets, which had anticipated no movement by the Bank in January as expectation continues to build around a possible June loosening of monetary policy.

While Canada’s annual inflation rate ticked upwards to 3.4% at the last reading, it’s fallen substantially from a 39-year high of 8.1% in June 2022 – and with forecasts predicting the economy will grow at a rate of just 0.3% in the first quarter of this year, much of the heat that triggered the Bank of Canada’s aggressive spate of rate increases in recent times appears to have dissipated.

The central bank kept its trendsetting rate at a rock-bottom 0.25% throughout the COVID-19 pandemic but began hiking rates in March 2022 as inflation continued to spike. That rate has since jumped by 475 basis points, a surge that saw borrowing costs balloon for scores of mortgage holders and poured cold water over a previously red-hot national housing market.

Last January, the Bank declared a “conditional pause” on interest rate hikes, an announcement that spurred an unexpected housing market resurgence and inflation uptick in the spring. It appears eager to avoid a repeat of that scenario this time around – although market observers will be closely watching the Bank’s language between now and its next announcement, scheduled for March 6, to pick up possible clues on when rates could be on the way down.

Those skyrocketing mortgage servicing costs – which increased by 28.6% on a year-over-year basis in December, according to Statistics Canada – have been cited as a cause for concern by leading economists, with a glut of mortgages up for renewal between now and 2026 at significantly higher rates than before.

Michael Distefano
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Canada lost 17,000 jobs in May, said Statistics Canada

General Michael Distefano 9 Jun

The Bank of Canada cited continuing strength in the labour market in announcing its decision to raise its key overnight lending rate to 4.75 percent.

By Josh Rubin Business Reporter
Friday, June 9, 2023

A help wanted sign is seen in a storefront along Queen St. W. in Toronto. Strong job growth and a tight labour market, according to conventional economic theory, lead to higher wages, something the Bank of Canada has argued is helping drive inflation.

The Canadian labour market is finally cooling off, at least a bit.

In its Labour Force Survey released Friday morning, Statistics Canada said 17,000 jobs were lost in May, the first time in nine months there was a net job loss. The unemployment rate rose for the first time since last August, to 5.2 per cent.

A consensus of economists surveyed by Bloomberg had expected the economy added 20,000 jobs.

Just two days earlier, the Bank of Canada cited continuing strength in the labour market in announcing its decision to raise its key overnight lending rate by 25 basis points — a quarter of a percentage point — to 4.75 per cent.

“The labour market remains tight: higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour,” the Bank said in announcing its increase, and dropping hints it would hike rates again at its July meeting.

Last March, the bank began an aggressive rate-hike campaign in a bid to drive inflation down, pushing its key overnight rate to 4.5 per cent from 0.25 per cent.

The theory is that by making it more expensive to borrow money, consumers — and businesses — will spend less, driving prices down and slowing the economy.

In January, a hike of 25 basis points (a quarter of a percentage point) came with a statement from bank governor Tiff Macklem that it was pausing hikes — at least temporarily.

But a steady stream of stronger-than-expected economic data — including several straight months of strong jobs growth — put an increase back on the table.

A tight labour market and strong job growth, according to conventional economic theory, leads to higher wages, something the Bank of Canada has argued is contributing to inflation.

In May, average hourly wages were 5.1 per cent higher than they were a year ago, Statistics Canada said Friday.

Josh Rubin is a Toronto-based business reporter. Follow him on Twitter: @starbeer

 

Michael Distefano
Mortgage Agent and Manager of operations
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mdistefano@dominionlending.ca

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Bank of Canada announces new rate hike

General Michael Distefano 7 Jun

The central bank has returned to rate increases after a pause

By Fergal McAlinden

The Bank of Canada has announced a 25-basis-point increase to its benchmark interest rate, returning to a rate-hiking policy after hitting a pause in its last two announcements.

The move, which brings that trendsetting rate to 4.75%, arrives amid a flurry of new data in the past month suggesting the economy is still running hotter than the Bank would prefer.

In its statement accompanying the decision, the Bank said it deemed monetary policy “not sufficiently restrictive” to restore the supply-demand balance and push inflation back towards its 2% target.

It noted that “concerns have increased” that inflation could remain persistently higher than that level, although its expectation that it will ease to around 3% by mid-summer remains unchanged.

That annual rate of inflation ticked unexpectedly upwards in April – rising by 0.1% over the prior month – and GDP growth continued at a pace of 3.1% in the first quarter.

Canada’s labour market, meanwhile, remains resilient in the face of the central bank’s efforts to slow the economy, adding 41,000 jobs in April, while the national housing market also shows signs of beginning to heat up again after a months-long slowdown.

The announcement marks a departure of sorts from the Bank’s apparent willingness in recent statements to keep rates where they are – but comes as little surprise, with about one in five economists surveyed by Bloomberg before the decision expecting rates to increase today.

Swap market traders had also raised expectations of an imminent jump prior to the announcement, fully pricing in a rate increase by July 12, the date of the Bank’s next scheduled decision.

The Bank kept its benchmark rate, which heavily influences variable mortgage rates in Canada, at a rock-bottom 0.25% throughout much of the COVID-19 pandemic – but as inflation surged last year, it began an aggressive rate-hiking campaign that saw a 425-basis-point spike in under a year.

Michael Distefano
Mortgage Agent
1-4687 Queen St Niagara Falls, ON, L2E 2L9
905.246.5363 dlcbtbniagara@gmail.com

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10 Money Saving Tips!

General Michael Distefano 6 Jun

When it comes to saving money, there are a lot of little things you can do that add up to make a big difference! 

Here are 10 of my favorite money-saving tips to help get you started today:

Automatic Savings are one of the most effective ways to save because you can’t spend what you can’t access! Instruct your employer to transfer a certain amount from your paycheck each pay period into an RRSP or savings account (or both) or set up automatic transfers in your banking account to coincide with your payday.

Consolidating Debt will result in a single monthly payment and lower interest costs! Many people don’t realize just how much money they are wasting on interest each month, especially if they have multiple loans or credit cards. Consolidating debt can help you gain control and maximize spend on the principal amounts to pay off loans faster.

Budget with Cash if you have trouble with overspending or find it too easy to use your card. After your bills are paid, take out the remaining cash (spending money) and only use that. Once the cash is gone, you’re out of money until the next payday! Having physical cash in hand can also help you think twice when making purchases.

Buying in Bulk is a great way to save a bit here and a bit there when doing your regular grocery shop or purchasing other items. Now you’ll need more? Stock up at once for bulk savings, which will help you in the long run!

Before Buying there are two things you should always do. The first is to wait at least 24 hours and the second is to shop around! If you still want to buy something the next day, make sure you get the best price available!

Plan Your Meals. Most of us don’t have time to make breakfast (let alone lunch!) before we fly out the door for work. But what if I told you that getting up an hour earlier could save you over $100 a week!? Just think about how much you spend going out for breakfast AND lunch each day. Groceries are a lot cheaper and you can even prep a few day’s worth of meals on Sunday while you get ready for the week.

Think in Hours versus Dollars every time you are looking to make a purchase, especially large ones to help you understand the TIME value of money. A new $24 Blu-Ray = 1 hour of work. A brand-new mattress = 41.67 hours of work. Understanding the time that went into earning money for a purchase can help with reconsidering frivolous items, or encourage you to look for the best deal on necessary products.

Utility Savings can help you save each month! Don’t blast your A/C with all the doors in your house open, don’t pump the heat without sealing cracks, and consider things like installing water-saving toilets and running cold-water wash cycles to save energy (and money!) every day.

Master DIY – While sometimes you can spend $120 to make a $20 item yourself, there are some things that do benefit from DIY, such as installing dimmer switches, that can help save you money in the long run.

Save Windfalls and Tax Refunds for a rainy day. A good rule of thumb is to put 50% of bonuses, tax refunds, or other windfalls into your savings account and put the rest against loans owing. While you might want to go on a shopping spree or plan a vacation, paying off your debt NOW will free you up in the future.

Michael Distefano
Mortgage Agent
License M08000052

P: 905-357-5366 M: 905-246-5363
1-4687 Queen St Niagara Falls, ON, L2E 2L9

dlcbtbniagara@gmail.com  betterthanbankmortgage.com 
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Bank of Canada sounds warning on homeowner mortgage burdens

General Michael Distefano 18 May

 

'Nearly all' mortgages will see payments increase by 2026 – but most households should cope

Nearly all’ mortgages will see payments increase by 2026 – but most households should cope

The Bank of Canada has expressed its concern over households’ ability to absorb the shock of higher borrowing costs as a growing number turn to credit cards to service their debt loads.

In its annual Financial System Review, released on Thursday, the central bank said that while most Canadian homeowners appear to be coping with the impact of higher interest rates, “pockets of strain” are emerging, particularly among those who purchased during the COVID-19 pandemic.

The Bank said Canadian households that took on a mortgage between 2020 and 2022 were carrying over an average of about 17% more credit card debt than those that purchased between 2017 and 2019, while the share of indebted households behind on their payments in any credit category for at least 60 days has been growing since the middle of last year.

By 2026, “nearly all” mortgages will see payments increase, the Bank said, with the median payment between now and that year expected to rise by about 20%. Payments have already increased for about one-third of mortgages compared with February 2022, it added.

Those looming spikes are expected to be manageable for most households, according to the Bank, with the stress test imposed on federally regulated financial institutions meaning their borrowers have already proven they can handle higher costs.

Still, it said that while many of those financial institutions have introduced relief options for Canadians struggling with their payments, “for some households, the combination of higher DSRs, lower home equity and longer amortization periods will reduce household flexibility in the event of added financial stress, such as reduced income.”

Michael Distefano
Operations Manager
P: 905-357-5366 M: 905-246-5363
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Bank of Canada raises key interest rate for eighth time, to 4.5 per cent. What you need to know

General Michael Distefano 25 Jan

By Josh Rubin Business Reporter Wed., Jan. 25, 2023

Central bank signals its rate-hiking campaign could finally be over, while it “assesses the impact of the cumulative interest rate increases.” The interest rate hikes are over — probably.

The Bank of Canada raised its key overnight lending rate for the eighth straight time Wednesday morning but signaled its rate-hiking campaign could finally be over.

The central bank bumped the overnight rate up by 25 basis points — a quarter of a percentage point — to 4.5 percent, just what markets had been expecting.

“If economic developments evolve broadly in line with the … outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” the Bank said in a news release announcing the 25-basis point increase.

The Bank also said previous hikes have been having their desired effect of slowing inflation by hitting consumer demand.

“There is growing evidence that restrictive monetary policy is slowing activity, especially household spending. Consumption growth has moderated from the first half of 2022 and housing market activity has declined substantially,” the Bank said.

“As the effects of interest rate increases continue to work through the economy, spending on consumer services and business investment is expected to slow. Meanwhile, weaker foreign demand will likely weigh on exports. This overall slowdown in activity will allow supply to catch up with demand,” the Bank predicted.

The Bank also said the Canadian economy likely grew by 3.6 percent in 2022, slightly higher than it had forecast in October. It also predicts the Canadian economy will grow by just one percent this year, and by two percent in 2024.

The Bank also released its quarterly analysis of the state of the Canadian economy, and for the first time ever, published minutes of its internal debate that led to Wednesday’s decision.

In an attempt to get inflation under control, the Bank raised the overnight lending rate seven times in 2022, most recently bumping it by 50 basis points (half a percentage point) to 4.25 percent in early December.

The overnight rate began last year at 0.25 percent, where it had been since the Bank dropped it three times in one month in March 2020, as the global COVID-19 pandemic was declared.

The theory is that by making it more costly to borrow money, people will spend less, eventually driving prices down.

A survey released last week by the Bank of Canada found consumers are keeping a wary eye on their spending because they expect inflation to keep soaring.

The survey found that a majority of Canadians are expecting a “mild to moderate” recession over the next 12 months.

The survey found that Canadians have reduced their spending on a wide variety of goods and services in response to interest rate hikes and inflation, and a growing share expects to keep cutting back.

A business confidence survey by the Bank also found companies are pulling back on plans because they expect sales to slow. According to the business outlook survey, two-thirds of firms expect a recession in the next 12 months.

Michael Distefano

C: 905-246-5363

Email; dlcbtbniagara@gmail.com  

1-4687 Queen St Niagara Falls, ON, L2E 2L9

Website: www.betterthanbankmortgage.com

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Bank of Canada says some Canadians could see mortgage payments jump 45% in 2025-26

General Michael Distefano 9 Jun

Bank of Canada says some Canadians could see mortgage payments jump 45% in 2025-26

Central bank highlights rising debt loads and falling home prices among risks

The Bank of Canada released its annual financial system review Thursday.

Some Canadians who took out mortgages in 2020-21 could see their monthly payments jump by as much as 45 percent in 2025-26, given rising rates, according to a Bank of Canada scenario released on Thursday.

Elevated levels of inflation – which is currently at a 31-year-high – could also mean that households allocate more of their income to food and gas if wage increases do not keep pace, the central bank said in its annual financial system review.

“In this context, highly indebted households are especially vulnerable to a loss of income,” it said.

The bank increased rates by 50-basis-points in April and June and money markets are betting on another half-point rise in July.

Canadians with a high loan-to-income ratio variable-rate mortgages would see payments rise by 45 percent in 2025-26 upon renewal. The overall increase in monthly payments for all types of mortgages originating in 2020-21 would be 30 percent.

The scenario focused on mortgages with a five-year term taken out at banks in 2020-21 when rates were at record lows. It assumed variable- and fixed-rate mortgages would renew at median rates of 4.4 percent and 4.5 percent respectively in 2025-26.

“These households will see the largest rate increase because they took out a mortgage when rates were at or near record lows. This is particularly true of the historically large number of households that opted for variable-rate mortgages,” it said.

“A larger share of households took out mortgages that were large relative to their income,” it added. The bank’s classification of a high loan-to-income ratio includes mortgages that had a loan-to-income ratio above 450 percent at origination.

In the review, the bank said it was paying particular attention to the fact that a greater number of Canadian households were carrying high levels of debt. Those who entered the market in the last year or so would be more exposed in case of a significant price correction, it said.  Thomson Reuters 2022

Michael Distefano
Mortgage Agent

  

 

O: 905-357-5366
C: 905-246-5363

dlcbtbniagara@gmail.com
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What is mortgage refinance?

General Michael Distefano 28 Apr

Mortgage Refinance

Learn what it means to refinance your mortgage loan and how this could help you reach your goals.

Refinancing your mortgage means renegotiating your existing mortgage loan agreement. You might do this to consolidate debts, or you could use the equity in your property to increase your mortgage loan amount for large expenses. By refinancing at the end of your current mortgage term, you may be able to avoid prepayment charges.

Should I refinance my mortgage?

Whether it’s a Mortgage or a Home Equity Line, refinancing can help with certain goals: Debt consolidation. Merge higher interest debts into one manageable payment with a lower interest rate.
Home renovations. Get the money you need to renovate or make repairs.
Investing. Take advantage of an investment opportunity (speak to your tax advisor first).

The pros and cons of refinancing

Pros of refinancing
Cons of refinancing
Access the equity you’ve built up in your home.
Increasing the amount you are borrowing may lengthen the time it takes to pay off your mortgage.
Consolidate your debts and lower your overall interest rate.
Your overall interest rate might be lower but the amount owing on your mortgage may be higher.
Possibly get a lower interest rate and pay less for your mortgage over time.
There may be additional costs, including a prepayment charge.

Consider the cost to refinance

Before you decide on refinancing your  Mortgage or a  Home Equity Line, be sure to look at all potential costs. Prepayment charges may apply if the agreement is ended before the term is done. There may also be associated fees for mortgage registration and property valuation.  But if you’re able to take advantage of lower interest rates, your overall savings may make it worthwhile.

How much can I borrow through a refinance?

Over the years, you’ve been building up equity in your home by paying down a portion of the principal with every payment. The amount of money you can borrow by refinancing is up to 80% of the equity you have in your home, subject to any additional charges.

Give me a call at 905 246 5363 or send an email to dlcbtbniagara@gmail.com and start saving today!

Michael Distefano
Mortgage Agent
License M08000052

P: 905-357-5366
M: 905-246-5363
F: 905-357-6654

APPLY ONLINE   HERE

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Dominion Lending Centres launches first responder program

General Michael Distefano 24 Jun

By Paul Lucas 24 Jun 2021 Mortgage Broker News

Dominion Lending Centres (DLC) launches a new first responder mortgage program.

Coming into effect yesterday, June 23, the program is available to first responders across Canada with the corporation claiming it offers competitive rates, alongside cashback incentives.

“The DLC Group of Companies are incredibly grateful to all of the amazing first responders across the country,” said executive chairman and CEO Gary Mauris. “We wanted to create a program specifically for you as a token of our appreciation and gratitude. We thank you for your ongoing service and sacrifice and hope that the burden of the pandemic eases in the coming days and weeks.”

It involves an online application process that allows the likes of paramedics, correctional service officers, search and rescue personnel, registered physicians and nurses, police officers, and firefighters the chance to connect with a mortgage professional in their area in as little as 15 minutes.

“Our Dominion Lending Centres advertising highlights the tireless work first responders across Canada do to keep us safe and the sanctuary that is their home and family,” said Kate Brady, vice president of marketing of the corporation. “We have a full suite of English and French digital, print, and television commercials and are connecting with a host of first responder professional associations to ensure we increase the awareness around this special program.”

For more information about this program or any other exclusive DLC, mortgage program give us a call at 905 357 5366 or visit us online at www.betterthanbankmortgage.com

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Michael Distefano
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Don’t Fall into the Appraisal Trap and bidding war on your home purchase

Mortgage Tips Michael Distefano 31 Mar

Armed with a hard-earned down payment, pre-approval from a lender, and a wish-list of what you “must” have in your dream property, window shopping for homes can be an exciting experience.

And then it happens. You find the perfect place in your desired neighborhood. Unfortunately, there are 10 others who have also fallen in love with “your” new home. And so, the bidding war begins.

Let’s say you win that battle, with the final selling price magically within your pre-approved amount as set by your lender. It is at this stage that buyers believe the hard work is over, and it is only a matter of signing a few papers to close the mortgage so you can finally get the keys to your new home. But that is not the case for some.

If an appointed appraiser assesses that the property value is less than what you offered in a high-stakes bidding war, you could be in trouble. Should this happen, your lender will only loan you as much as the home is actually valued at (minus your down payment) – not what they’d originally offered in your pre-approval.

For example, a buyer has a $30,000 (5%) down payment and is approved for a mortgage of $570,000. He/She finds a property, with a $600,000 price tag. The appraiser, however, believes the property to be only worth $575,000.

What does this mean for the buyer?
The maximum mortgage amount that the lender will provide on this new appraised value is :
95% of $575,000 = $546,250

The total amount required to close this deal is: $600,000 – $546,250 = $53,750

Amount needed to close deal – buyer down payment = Additional funds required
$53,750,000 – $30,000 = $23,750

The buyer only intended to put down $30,000 but now needs an additional $23,750 to secure a mortgage for this transaction. At this point, you have two options: borrow money from someone, or be forced to walk away from the deal (and risk losing your deposit, in the process). Not having the resources in this situation is what we refer to as “appraisal risk”.

So, how can buyers avoid this nightmare?

First, you should avoid overpaying. But how can you do this in a competitive market? A good real estate agent should understand the “real” value of the property and the neighborhood you want to buy in.

Having a larger down payment can also reduce your risk in appraisal cases. You can put less money down and use the extra cash to make up the shortfall. However, on the flip side, this means you might have to pay a higher CMHC insurance premium (premiums are mandatory for down payments under 20% and are charged in 5% tiers).

The big trouble arises when a buyer only has a 5% down payment saved and makes a firm offer to buy because then there is little room to get extra funds from their own sources; this is when a buyer has an extreme appraisal risk.

For that reason, we would never recommend any buyer enter a bidding war with only a 5% down payment. And, if they do, we suggest having a financing condition within the deal. While this puts the buyer at a disadvantage to those with a “clean” (condition-free) offer in the bidding war, it is the risk they, unfortunately, have to take if they really want that property.

Even buyers at the 20% down payment threshold face appraisal risk in bidding wars. If an appraisal comes in lower than the purchase price, the buyer then has to put down less in order to make up the shortfall, and purchase CMHC insurance when they otherwise would not have had to.

Your broker or agent cannot control what an independent appraiser values a property at. Neither can buyers. Knowing the risks before making a firm offer in a bidding war, however, can help you prepare and plan for every outcome.

Michael Distefano
Mortgage Agent and Manager of operations
DLC BTB Mortgage Solutions FSCO 12039
Niagara’s largest Mortgage Broker
1-4687 Queen St Niagara Falls On L2E 2L9
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