Bank of Canada Maintains Prime Rate at 3.00%

In Canada, the economy grew at an annual rate of 3.9% in the first quarter, reflecting continued strong business investment, smaller contributions from household and government spending, and a modest drag from net exports.

The U.S. economy continues to grow at a modest pace, limited by the consolidation of household balance sheets. Growth in Europe is maintaining momentum while the disasters that struck Japan in March are severely affecting its economic activity and causing temporary supply chain disruptions in advanced economies.  Commodity prices have declined recently but are expected to remain at elevated levels, supported by tight global supply and very strong demand from emerging markets.  These high prices, combined with persistent excess demand conditions in major emerging-market economies, are contributing to broader global inflationary pressures.

Economists predicted the prime rate to reach 3.75% by end of 2011, and 4.25% by 2012.  The rate hike is likely to commence September, October and December of 2011.

Property Grants and Rebates for BC Buyer and Home Owners

Here is the summary for rebates and grants avaialble for BC home buyers/owners. 

1 HOME BUYERS’ PLAN

Qualifying home buyers can withdraw up to $25,000 (couples can withdraw up to $50,000) from their RRSPs for a down payment. Home buyers who have repaid their RRSP may be eligible to use the program a second time. For more information: www.cra.gc.ca. Enter ‘Home Buyers’ Plan’ in the search box.

2 GST REBATE ON NEW HOMES

New home buyers can apply for a rebate of the federal portion of the HST (the 5% GST) if the purchase price is less than $350,000. The rebate is up to 36% of the GST to a maximum rebate of $6,300. There is a proportional GST rebate for new homes costing between $350,000 and $450,000. For more information: Canada Revenue Agency www.cra-arc. gc.ca. Enter ‘RC4028′ in the search box.

3 BC NEW HOUSING REBATE (HST)

Buyers of new or substantially renovated homes priced up to $525,000 are eligible for a rebate of 71.43% of the provincial portion (7%) of the 12% HST paid to a maximum rebate of $26,250. Homes priced at $525,000+ are eligible for a flat rebate of $26,250. For more information: www.hstinbc.ca/making_your_choice/ faqs/new_housing_rebate/

4 BC NEW RENTAL HOUSING REBATE (HST)

Landlords buying new or substantially renovated homes are eligible for a rebate of 71.43% of the provincial portion of the HST, up to $26,250 per unit. More info  www.hstinbc.ca/making_your_choice/ faqs/new_housing_rebate/

5 BC PROPERTY TRANSFER TAX (PTT) FIRST TIME HOME BUYERS’ PROGRAM

Qualifying first-time buyers may be exempt from paying the PTT of 1% on the first $200,000 and 2% on the remainder of the purchase price of a home priced up to $425,000. There is a proportional exemption for homes priced up to $450,000. For more information: www.rev.gov. bc.ca/rpt

Canadian New Mortgage Rule – 30 Year Amortization and 85% LTV, Effective March 18, 2011

Jim Flaherty, Minister of Finance announced prudent adjustments to the rules for government-backed insured mortgages.

Rules for amortization and loan to value (LTV), effective March 18th, 2011 are as follows:

• Reduce the maximum amortization period to 30 years from 35 years at high ratio (>80% LTV) 
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. 

Rules on Line of Credit (HELOC), effective April 18, 2011, as follows:

•Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs.   This means you will not be able to obtain line of credit at 80% LTV or higher (some lenders cap loan to value for HELOC at 75% LTV or lower  before this rule anyway)

For further questions, dont’ hesitate to email us at cchien@mortgagegrp.com about how this rule may affect your buying decision and qualifications.

Full story and source: Department of Finance Canada

Bank of Canada: Low Interest May Prolong

Bank of Canada governor Mark Carney is issuing a broad warning to Canadians, firms and governments that the financial and economic crisis is far from over and they need to rein in their appetite for cheap money….” global recovery is so weak that advanced nations may need to keep interest rates super-low for a long period, and the U.S. may have to resort to yet another round of printing money.

“(But) cheap money is not a long-term growth strategy,” he warned. “Experience suggests that prolonged periods of unusually low rates can cloud assessments of financial risks, induce a search for yield and delay balance sheet adjustments.” For Canadians, he noted with alarm that household credit has grown by seven per cent since the recession’s trough, compared to a 3.5 per cent decline in the U.S., perhaps an indication that Canadians believe the easy ride on debt payments will be permanent.

The Bank of Canada will set interest rates based on inflation, not on whether a large swath of Canadians have taken on too much debt, he added. In fact, he suggested the bank may tighten even in a low-inflation environment to discourage risky behaviour.  The next interest rate announcement is Jan 18th, 2011.

New Genworth Business For Self (Self-Employed) Program – Gifted Down

Down Payment Change highlighted in bold below:

• The income reported by the borrower must be reasonable based on the industry, length of operation and type of business
• Strong credit and credit score with minimum 2 trade lines with at least two (2) years history (for recommended bureau score requirements see the premium matrix below)
• Genworth will average the scores pulled from both credit bureaus for each borrower, and the minimum score requirement will apply to all borrowers on the application
• No mortgage, installment or revolving credit delinquencies appearing on the credit bureau in the past 12 months
• No reported defaults on residential mortgages for the past 7 years
• No previous bankruptcy
• Minimum 5% down payment from the borrowers own savings. The remainder may be gifted from an immediate family member. Borrowed down payments are not permitted.
• Borrowers with commission income are ineligible
• Lender to ensure borrower(s) have no tax arrears
• Maximum one (1) Genworth-insured Alt. A mortgage
• Up to 90% LTV on Purchase and 85% LTV on Refinances

**Please remember, not all lenders have adopted the change for the down payment requirement**
Make sure to check with each lender before submitting a BFS file.

Bank of Canada – Raises Prime to 3.00%

As in my previous news edition, the Bank of Canada did raise another 0.25% today.  I believe that the rate will stay until early next year before a change is considered. 

Bank of Canada raised the prime lending rate to 3.0%, acknowledged the economic recovery in Canada would be “slightly more gradual” than envisaged it its most-recent economic outlook, due to sluggish private-sector demand in the United States. However, it said domestic demand was expected to be “solid” and business investment to advance “strongly” — powered by “accommodative” credit conditions that have eased further in recent weeks due to sharp declines in bond yields.

Consumers continue to take out loans at a steady pace, with central bank data suggesting household credit expanded at an annualized 7.1% pace for the three-month period ended July 31.

Important message:  It’s time to lock-in your rates and do a pre-approval if you are thinking to buy in the next 3-6 months!   As well, never hurt to message me and ask about the ‘easy transfer’ process if you had a prime plus, or prime with very minimal discount on your existing mortgage.

Source: Financial Post

Perspectives on the Commercial Lending Landscape

Interview with Bill Butler, Chairman of Springwood – Edmonton Commercial Real Estate Developer

We asked Bill Butler for his insights into a few questions about the current Canadian Commercial Lending landscape and trends for the future, and here’s what he had to say.

Q: Who is lending, and on what type of transactions?

We’ve certainly seen a tightening of availability of capital. To the extent where we’ve had some development success, we work much harder to find the funds. The safety valve in the West has been the Alberta Treasury Branch and the Canadian Western Bank. They’ve stayed reasonably active (especially the Alberta Treasury Branch).

The life company lenders we traditionally work with – Great Life, Sun Life and Manulife – have all been tighter with their lending practices.

Lenders are focusing on new spreads and lower ratios, but clearly they want to do business with the people that they’ve done business with in the past as opposed to being courted by new borrowers.

I think relationships have paid off from that point of view. I think this pattern is going to continue over the next couple of years.

Q: What will likely be the spread between prime and lending rates?

The spread (related to the bond rate) has come down from about 400 basis points to about 300. Our opinion is that over the next six to twelve months you will probably see further reduction in the spread to about 200 basis points.

I think at some point in time lenders are going to relax some of their tougher standards because quite frankly, as they get more and more money coming in they have to put some portion of that money into solid long term real estate. Lenders want to go with tried and tested borrowers. They are certainly looking closely in the retail side at the strength of the tenants you have and the market that you’re located.

Rate Discussion: Variable or Fixed?

Vancouver Sun Report – With mortgage rates low and more likely to go up than down, some borrowers may want to think long and hard about whether they want a long and hard fixed rate mortgage.

Statistics show that 88 per cent of the time, a variable mortgage is cheaper than a fixed-rate mortgage, but the problem with a variable rate is that it is just that: It changes over the life of the mortgage.

The variable rate is based on the lender’s prime lending rate, which today is 2.75 per cent for the major banks and credit unions.  But banks change their prime rate from time to time, usually whenever the Bank of Canada changes its overnight target rate, which it has done twice since the beginning of June and is expected to do again in the fall.

If that kind of uncertainty “is going to keep you up at night,” it is recommended taking a fixed rate.

Rate Update – Prime Rate May Rise to 2.75%

Private Sector Fuels Surge in Jobs

After weathering a brutal downturn that knocked hundreds of thousands of Canadians out of the work force, Central Canada’s job machine is back and revving into high gear.  The country’s remarkable rebound from recession gained momentum in June, as surging job growth in Ontario and Quebec underpinned an increase of 93,000 jobs and unemployment fell below 8 per cent for the first time since early 2009, Statistics Canada reported.

The private sector has accounted for more than 246,000 new jobs over four months, …the stunning employment gain was close to the highest on record, second only to an increase of about 109,000 jobs two months earlier. The June hiring brought the combined total of new positions created since last July to 403,000, restoring most of the jobs lost during the recession. The jobless rate dropped to 7.9 per cent from 8.1 per cent.

“The jobs picture clearly shows that the Canadian recovery hasn’t stalled yet,” said Benjamin Reitzes, an economist with BMO Capital Markets. “The handoff from public to private spending looks to be going smoothly.”

BC HST Rebate Summary

HST Rules and Rebate- BC

Effective July 1, 2010, British Columbia will be combining the GST and PST taxes into one Harmonized Sales Tax (HST). The implementation of the HST will not change the taxation on mortgage insurance premiums. However, the HST will be applicable on new construction homes and may be eligible for the HST new housing rebate.

• In BC, the HST rate on new construction housing (i.e. both house and land) will be 12% (GST of 5% and PST of 7%)
• There will be a partial rebate of the PST portion of the HST in an amount equal to 5% of the purchase price up to a maximum rebate of $26,250. The rebate would eliminate any tax increase on new housing sold for a purchase price of up to $525,000. There would be no phase out of this rebate, such that homes priced above $525,000 would qualify for the maximum rebate amount of $26,250.
• New home buyers may be eligible for the federal GST new housing rebate, which generally equals 36% of the tax paid on the first $350,000 of the purchase price. The amount of the GST rebate is phased out on a straight-line basis for homes priced between $350,000 and less than $450,000.

Examples of the applicable taxes are as follows:

Price of Eligible New Home (excluding GST and/or HST)	GST Portion	PST Portion	Total Rebates
$350,000	$6,300	$17,500	$23,800
$400,000	$3,150	$20,000	$23,150
$450,000	$0	$22,500	$22,500
$500,000	$0	$25,000	$25,000
$525,000	$0	$26,250	$26,250

Note: Lender Financing of HST – For qualification and submission purposes, the lender is not required to deduct the rebate from the purchase price.  The lender may finance and submit to the insurer, the total purchase price as reflected on the purchase and sale agreement that would include the HST for a total Purchase Price.

Copyright 2010 TMG The Mortgage Group Canada Inc. All rights reserved.