Posted on
January 25, 2012
by
Keith Vines
By Jonathan Chevreau, Financial Post
It was front page news recently when BMO's five-year mortgage rates dipped below 3% for the first time in its 190-year history. other banks followed with similarly sweet deals: RBC offered a four-year special 2.99% fixed-rate mortgage and a 3.99% rate on a seven-year term.
When a week later the Bank of Canada held the line on interest rates, it should have been clear these historically good times for indebted homeowners may continue for some time.
But is it an equally auspicious time to borrow to maximize retirement savings plans?
RRSP "top-up loans" are available for up to $22,000 to maximize this year's contribution, for those who lack the cash. The idea is to repay a big chunk of it with the resulting tax refund come April, then pay off the rest over the next six months, in time to start the cycle again a year from now.
But there's a bigger opportunity if you're among the many Canadians with tens of thousands of dollars in unused RRSP contribution room built up over previous years. Consider "catching up" with RRSP catch-up loans.
Most banks will happily lend good customers $50,000 or even $100,000 for the noble purpose of padding retirement accounts.
Unlike borrowing for non-registered (taxable) portfolios, interest on rrSP loans is not tax deductible. But if you believe the combination of reasonable stock valuations and low interest rates is compelling, it's worth considering. Even if you contribute the whole amount you don't have to deduct it all this year: you may want to deduct some of the contribution in future years if you're in a higher tax bracket.
Apart from the large tax refund RRSP catch-up loans may generate, there is potential for this investment to grow over time. Uncertainty in financial markets has kept a lid on stock prices. Financial educator Talbot Stevens says data since 1956 shows that when the Canadian market is down at least 10% one year, as in 2011, it often rises more than that the next. Borrowing to invest is safer when markets are down. But if you borrow for your RRSP, avoid the temptation to spend the refund: pay off the loan and/or re-invest the refund into the following year's RRSP contribution.
Under certain circumstances, RRSP borrowers can get rates al-most as low as their mortgaged counterparts. John Turner, national director of specialized lending for BMO Financial Group, says customers can get RRSP loans with rates as low as its prime rate of 3% if they invest in BMo products. If investing in non-BMO products, it's prime plus half a per cent, or a total 3.5%.
note that these are variable-rate loans so it's not quite analogous to the 5-year fixed rates of 2.99% homeowners are enjoying. "Given this rate and refund environment, most customers are opting for the variable rate," Turner says. It's not a requirement but most pay off their rrSP loans right away, he adds. These loans are fully open, with no restriction on repayments: payments can be bumped up or lump sums can be applied to pay down some or all outstanding balances at any time.
But what if you choose a larger catch-up loan that requires several years to repay? It would be nice to pay only 3% on a variable-rate loan but what if you believe rates will start rising in two or three years? Can you lock in an RRSPloan at a low rate that can be repaid over five years, just like homeowners? Yes, but at BMO the rate is quite a bit higher if it's an unsecured loan: a whopping 9% unless the loan is backed by real estate or non-registered investments. In that case, investors could get the same 2.99% fixed-rate over five years as homeowners.
The problem with straight mortgages is they have less flexibility if reborrowing. An alternative is BMO's HELOC (Home Equity Line of Credit), which it calls Homeowner readiLine. This lets you borrow both variable and fixed in a single instrument, which Turner likens to "dollar cost averaging for mortgages."
For small loans of $10,000 or $15,000 to be repaid in two years, Turner says it makes sense to go with variable at prime or prime plus a half. For such a short term, the security of opting for a fixed rate isn't worth it. rates are a bargain currently and the market some-what depressed.
Scotiabank's catch-up loan lets you repay over 15 years and lets you defer three monthly payments. CIBC's RRSP Maximizer Loan lets you borrow over terms of one to five years. At TD Canada Trust, RRSP loans start at prime plus 1% to prime plus 1.5%, says associate vice-president personal lending Shahz Beig.
not everyone is keen on RRSP loans. Jeffrey Schwartz, executive director of Consolidated Credit Counseling Ser-vices of Canada, Inc., thinks Canadians are too responsive to marketing pitches based on ultra-low interest rates.
It's worth noting you may be able to catch up on your RRSP without borrowing, if you also have a non-registered portfolio. You can "transfer-in-kind" securities to an RRSP (or a TFSA), but may have to pay capital gains tax if you have a profit on what the taxman views as a "deemed disposition."
- Jonathan Chevreau is the author of Findependence Day, from findependenceday.com
Posted on
January 19, 2012
by
Keith Vines
Long-term mortgage rates have dropped to the lowest point in Canadian history — and the stampede to lock in is expected to pick up.
Bank of Montreal became the first major Canadian financial institution to bust through 3%, with its 2.99% closed fixed rate mortgage for five years. Others are sure to follow.
If five years isn’t long enough for you, ING Direct has weighed into the current mortgage discussion with a 10-year fixed rate product at 3.89%. The added bonus of going longer than five years is that under Canadian law after half a decade you can break your mortgage for as little as three months’ interest.
TD Canada Trust, which had already lowered rates on six and seven-year fixed rate terms, now has lowered the four-year fixed rate to 2.99%. Farhaneh Haque, director of mortgage advice and real estate-secured lending at the bank, says the argument has never been stronger because there is no guarantee these deals will be available in two years. The two new deals from TD and BMO are limited time offers.
“Buyers have to evaluate if they want to stay in variable,” says Ms. Haque, suggesting even those with deep discounts might want to consider scrapping those deals to take advantage of the historical bargains.
It’s hard to argue against locking in, unless you are one of the lucky people with a variable rate mortgage tied to prime that came with a whopping discount. Some consumers have deals with as much 90 basis points off prime, meaning they are borrowing at 2.1%. That’s not the same as negotiating today when you’re only get 10 basis points off or 2.9%.
“You’ve got a dinosaur, you are living in Jurassic Park with something that doesn’t exist anymore. You can’t get that again,” says Vince Gaetano, a principal broker at Monster Mortgage, who suggests you keep the low rate and use the savings to pay down your mortgage as fast as possible. “You cut your mortgage in half and you don’t care as much what the interest rate is when you renew.”
Mr. Gaetano says keep on eye on some of the new products and stipulations that might include things like prepayment terms and amortizations.
Bank of Montreal’s new product demands you get a 25-year amortization, instead of the maximum 30 years, and will only let you pay 10% per year of the original mortgage amount. TD Canada Trust’s new four-year product will let you prepay 15% while ING Direct goes as high as 25% prepayment
Posted on
January 19, 2012
by
Keith Vines
Ratehub, January 16, 2012
The Bank of Montreal (BMO) made a splash last week with the announcement of its 5-year 2.99% fixed mortgage rate, the lowest in history. This follows months of lenders’ being able to access cheap mortgage funding in the bond market.
If you think 2.99% is too good to be true, you may be on to something. Although borrowers can access 2.99% (aka it’s not a ‘bait and switch’), the mortgage does come with its share of restrictions. The BMO Low-Rate mortgage is what is often referred to as a ‘no frills mortgage’, meaning it comes with a low rate but limited ‘frills’ or add-ons.
A typical mortgage has a rate hold of a few months (60-120 days), generous monthly and lump sum prepayment options (20% is the norm but the monthly allowance can reach 100%), and an amortisation period of up to 30 years.
The BMO Low-Rate 2.99% mortgage falls short of these stipulations.
1. The maximum amortisation period is 25 years. The actual maximum amortisation period on insured mortgages in Canada is 30 years, five years more than offered on the BMO mortgage rate. BMO is spinning this gap as a positive by focusing on the ability of borrowers to be mortgage-free in 25 years. However, this also means you will qualify for less mortgage and limit your affordability.
2. You are granted only 10%/10% prepayment privileges. This is less than with a standard mortgage and means you are limited in how fast you can pay off your mortgage should the desire or ability arise.
3. You cannot skip or double up a payment. An annual ‘skip a payment’ provision is an increasingly common feature with standard mortgages, and provides some flexibility if you are faced with financial hardship at any time over your mortgage term.
4. You cannot refinance or switch your mortgage to another lender for five years. This provision is perhaps the most restrictive because it is not uncommon for borrowers to break their mortgage early. You would want to be certain you are committed to the full five year term and do not expect your circumstances to change.
The BMO rate of 2.99% is undoubtedly very attractive, but beware the fine print. You should evaluate whether the cost savings of a slightly lower mortgage rate outweighs the cost of limited flexibility.
Posted on
January 17, 2012
by
Keith Vines
Here’s what the magazine says about Vancouver:
“Canada’s most adventurous metropolis is home to ten beaches, from the family-centric Jericho to the clothing-optional Wreck Beach, many of which offer commanding views of the Vancouver skyline and majestic North Shore Mountains. Sporty types prefer Kitsilano or “Kits,” a six-minute drive from downtown, for its free tennis and basketball courts, and its super-size heated saltwater pool.”
Posted on
January 13, 2012
by
Keith Vines
Vancouver Parks is a rudimentary app.
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Looking for info on Vancouver’s parks? There's an app for that.
Vancouver Parks—available free for iPhone, iPod Touch, and iPad—hit Apple's App Store in December. Released by the Vancouver park board, the app displays city parks on a map and lets you see which ones are near to your location.
You can also browse parks alphabetically, and bring up photos and basic details about each park, such as its address and facilities. For more information, the app links to each park's webpage.
Posted on
January 12, 2012
by
Keith Vines
Canada's housing market will continue to be strong this year real estate brokerage firm Royal LePage said Thursday.
Photograph by: Marcos Townsend, Gazette file photo
OTTAWA — Canada's housing market will continue to be strong this year, with rising property values expected in all major markets, real estate brokerage firm Royal LePage said Thursday.
The company's forecast called for prices across to country to rise 2.8 per cent by the end of 2012, after stronger gains last year.
Even pricey housing markets in Metro Vancouver and Toronto — where standard two-storey homes averaged $1.1 million and $629,188, respectively, in the last quarter — will see continued price appreciation in 2012, though the gain for Metro will be more muted, according to the brokerage firm's forecast.
Metro Vancouver is expected to see its average house price climb 2.3 per cent to $802,000 in 2012, while Toronto is expected to see a 2.6-per-cent jump.
"Widespread calls for a major real estate correction in 2012 simply can't be justified," Royal LePage CEO said in a statement. "The industry has significant momentum entering the year, and buoyed by the stimulative effect of very low interest rates, we expect the market to continue to expand — albeit at a slower pace."
However, Royal LePage said stronger gains will be seen in cities benefiting from commodity-based economies, such as Calgary, Regina and Winnipeg, where price gains will be in the range of four to five per cent.
According to the company, in the fourth quarter of 2011, the average price of a standard two-storey home was $375,427, up 4.2 per cent from a year earlier. The average rate of a detached bungalow was up 6.1 per cent to $344,392, while condominiums gained 3.6 per cent to $234,680.
Statistics Canada reported Thursday that its new housing price index rose 0.3 per cent in November, following on a 0.2 per cent increase in October, and was up 2.5 per cent year-over-year.
Price increases in Toronto, Oshawa and Montreal offset declines in Calgary, Metro Vancouver and the Ontario metropolitan regions of Sudbury and Thunder Bay, the agency said.
In Vancouver, Statistics Canada said some builders offered promotional pricing in order to sell units, which helped push new-home prices 0.3 per cent in November from October, and made the
Builders in the other areas reported lowering prices in order to stimulate sales and remain competitive, while price increases elsewhere were attributed to higher material and labour costs.
The Canada Mortgage and Housing Corp. has forecast the average price of a listed homes for resale to be $363,900 this year, up 1.2 per cent from 2011. The Canadian Real Estate Association predicted that the average price would be relatively flat at $362,700. Both forecasts were made in November.
By Derek Abma, Postmedia News
Posted on
January 5, 2012
by
Keith Vines
Metro Vancouver's housing market cools considerably after starting the year with a bang, according to report.
Photograph by: Ian Smith, Vancouver Sun
Metro Vancouver’s 2011 housing market cooled considerably after starting the year with a bang, according to a Real Estate Board of Greater Vancouver report released Wednesday.
“2011 started with very strong demand, especially in [Vancouver’s] west side, Richmond and West Vancouver, but then it peaked in June and closed the year with greater balance between sellers’ supply and buyers’ demand,” Greater Vancouver board president Rosario Setticasi said in an interview.
“[Prices] dropped about 1.5 per cent from June to the end of the year. But overall, the benchmark price for all residential properties increased 7.6 per cent for the year.”
According to the report, nine municipalities saw double-digit increases in the benchmark price of a single-family detached home over the last 12 months, with the overall price for all residential properties rising to $621,674 between December 2010 and December 2011.
Although comparisons can change considerably on a month-to-month basis, little Port Moody ended the year with the largest increase in the benchmark price for a single detached home, a 34-per-cent rise from December 2010 to December 2011 to $933,000.
At the other end of the scale was Squamish, where the benchmark price for a single family home dropped 7.3 per cent to $458,000 over the same period.
For single detached homes, Metro Vancouver saw prices increase year-over-year by 11.2 per cent to $887,000, while Vancouver’s west side rose 20.7 per cent to $1.99 million, West Vancouver, 15.8 per cent to $1.69 million, Richmond, 11 per cent to $1.1 million, and North Vancouver, 13.3 per cent to $978,000.
Metro Vancouver apartments rose in price 3.7 per cent to $401,000.
The Greater Vancouver board’s report concluded that total sales of all residential properties in 2011 reached 32,390, a 5.9-per-cent increase from the 30,595 sales recorded in 2010, and a 9.2-per-cent decrease from the 35,669 residential sales in 2009. Last year’s home sale total was 6.3 per cent below the 10-year average for sales in the region.
Meanwhile, the Fraser Valley’s real estate market in 2011 was below the 10-year average in property sales and above average in the number of new listings, according to the Fraser Valley Real Estate Board.
Fraser Valley board president Sukh Sidhu also said that there was a wide variation in pricing.
“For example, in my community of Abbotsford, sales of single family homes dropped by almost seven per cent compared to 2010, pushing prices down slightly, while in South Surrey/White Rock sales increased year over year by 45 per cent resulting in double-digit price increases.”
The Fraser Valley board processed 15,529 sales in 2011 compared to 14,891 the previous year, while the number of new listings remained about the same — 31,592 in 2011 compared to 31,437 in 2010.
The board said that although 2011 ranks the third slowest year for sales since 2002, it was only 10 per cent less than the 10-year average of 17,210 sales.
In December, the benchmark price of a detached home in the Fraser Valley was $522,998, an increase of 3.3 per cent compared to $506,145 in December 2010.
The trend toward slower price growth is expected to continue in 2012 as more listings temper demand.
“We’re expecting much less price growth this year compared to 2011,” Robyn Adamache, senior market analyst, Metro Vancouver, Canada Mortgage and Housing Corp., said in an interview. “We’re calling for about a two-to-three-per-cent increase in price growth in 2012, close to the rate of inflation.”
Tsur Somerville, director, centre for urban economics and real estate, Sauder School of Business at the University of B.C., agreed. “My sense is that flat or little growth [in prices] is likely.”
2012 will also be largely influenced by confidence levels in the global economy, and reduced levels of investment from China or Chinese immigrants, he said.
Somerville said renovations that don’t change the envelope of the home weren’t a major factor in the region’s price growth in 2011.
Posted on
January 3, 2012
by
Keith Vines
Canada's real estate market is strong compared with its global counterparts that are struggling, but the boom has lasted longer than in most other countries and shows signs of waning, a Scotiabank report said.
Photograph by: Jason Lee, Reuters Files, Vancouver Sun
Canada's real estate market is strong compared with its global counterparts that are struggling, but the boom has lasted longer than in most other countries and shows signs of waning, a Scotiabank report said.
"The Canadian housing market remains an outperformer among advanced nations, with real home prices up 4.8 per cent year over year in [the third quarter]," Scotiabank's Global Real Estate Trends report said.
"While the sector's continued buoyancy is impressive, monthly data through November suggest prices have levelled off since the spring, with conditions in the majority of local markets in 'balanced' territory."
The report credits "ultralow" interest rates with continuing to attract buyers, while economic uncertainty and some recent slowing in hiring are possible dampers on demand in Canada.
Canada is at the top of the 10 countries included in the Sco-tiabank report.
Five countries - the U.S., the U.K., Ireland, Spain and (to a lesser extent) Italy - show average house prices significantly lower than their peak values, while the other five countries - Canada, Australia, France, Sweden and Switzerland - still show average prices at or near record highs. The cycle of rising real home prices is long, lasting on aver-age 12 years, according to the Scotiabank report.
"Italy's boom was the shortest at eight years, while Ire-land and Sweden count 15 years. Canada's ongoing housing boom is in its 13th year," the report states.
Canada's house prices did not rise as steeply as those in other countries, with inflation-adjusted average home prices up 85 per cent since 1998, according to the report.
"Canada's residential real estate boom started several years later than many of its counterparts, with the economy still feeling the effects of the deep recession of the early 1990s and weak labour markets through mid-decade," the report states.
tsherlock@vancouversun.com
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