Look Who's Talking .....And Borrowing

Canadian goverment debt has risen much faster than household debt since 2008

John Shmuel | Nov 1, 2012 10:44 AM ET | Last Updated: Nov 1, 2012 11:36 AM ET

Chastising Canadian households for their high levels of debt is a favoured past time of economists and policymakers in this country. But a new report from BMO Capital Markets argues that more of the chastising should be focused at government debt.

“In the past two years—when the hectoring of households began in earnest—public sector debt has risen much more notably than household debt,” said Douglas Porter, deputy chief economist of BMO Capital Markets.

Mr. Porter points out that since 2008, when the financial crisis broke out, government spending has risen much more quickly than household debt. Before that, rising household debt was actually on par to surpass government debt as a percentage of Canada’s gross domestic product. Check out the graph from BMO Capital Markets below:

 

 

To be fair, the blame can’t be placed solely on Ottawa. The Conservative government has reduced its budget deficit and debt-to-GDP at the federal level has stabilized in the last year. Unfortunately, however, provincial governments have not done the same. The chart below from BMO shows how other levels of government in Canada continue to see their debt levels rise:

 

The rise in provincial debt is happening even as provincial budgets are reporting smaller deficits. As Mr. Porter points out, it is not the budgets you need to pay attention to, but rather the bottom line build up of net provincial debt. And hidden in that debt build up are things like capital spending programs, which may not be immediately reflected in annual budgets.

All this is happening while households appear to be finally cutting down on debt.

“On the household side, there are plenty of signs that debt growth was moderating on its own accord, even before Ottawa’s latest tightening of mortgage rules in July,” said Mr. Porter. “Total household credit slowed to a 5.6% year-over-year pace in the third quarter, from 6.3% a year ago.”

And while Canadian debt levels are still unnervingly high — the latest data from Statistics Canada showed household debt-to-income hit a record 163.4% in Q2 — government debt is also uncomfortably high.

“Canada’s hefty current account gap (4.1% of GDP in Q2) warns that the economy is living beyond its means,” said Mr. Porter. “The current account—merchandise trade, services, and investment income—morphed from a steady diet of surpluses from 1999-2008 to a string of deficits of 3% of GDP or more, a level not seen since the early 1990′s.”

Of course, we all remember what happened to Canada in the 1990′s following the massive amount of debt the country built up, leading the Wall Street Journal to call Canada an “honorary member of the third world.”

With that in mind, Mr.Porter says it would be more productive for the debt debate in Canada to include governments as much as households.

“The focus should be less intense on households, and instead directed at the broader public sector,” Mr. Porter said. “After all, when governments point the finger at households, they should recall there are four more pointing back at them.”

 

 

Angela Kroemer, AMP

Mortgage Professional

TMG The Mortgage Group Canada Inc.

TMG Sharie Marie Mortgage Team

Local: 1.250.650.4182

TFP: 1.888.679.0190

Fax: 1.888.679.0192

akroemer@mortgagegroup.com

www.KROEMERmortgages.com

 

 

Mortgage prepayment: Know your options

Overview
Mortgage prepayment refers to paying more than the regular mortgage payments you have agreed to pay in your mortgage contract.
Examples of prepayment:

• increasing the amount of your regular mortgage payments
• making lump-sum payments to reduce your mortgage balance
• paying off your mortgage in part or in full before your term is over.

If your mortgage gives you prepayment privileges, you can save thousands of dollars in interest charges by paying down your mortgage faster.
However, if you have a closed mortgage, your lender will generally require you to pay a charge to make a prepayment that is more than your privileges allow.
Prepayment charges can be costly, so it is important to know when they can apply and how they are calculated. Prepayment charges are sometimes called penalties or breakage costs.
If you have an open mortgage, you can prepay any amount without paying a prepayment charge.
When you shop around for a mortgage, look carefully at the prepayment privileges and charges as you consider your options.

What are prepayment privileges?

Prepayment privileges are terms of your mortgage contract that allow you to pay an amount toward a closed mortgage on top of your regular payments, without triggering a prepayment charge.
For example, each year, your privileges might allow you to:

• make a lump-sum payment up to 15 percent of the original mortgage amount, and
• increase your regular payments by up to 15 percent.

Privileges vary from lender to lender. Generally, if you do not use a privilege, you cannot carry it over to the next year.

Example: Savings using prepayment privileges

Farah received a raise which allowed her to save $20,000. She wants to use it to make a prepayment on her mortgage at the beginning of the second year.

• Mortgage amount: $200,000, amortized over 25 years
• Prepayment privileges: lump-sum payment of up to 10% of original mortgage amount allowed once a year
• Assumptions: for this example, the interest rate will be 5.45% for the entire 25-year mortgage.
  (In reality, interest rates are only valid for the length of a fixed-rate term and will likely change.)

By using her privileges, Farah can make a lump-sum payment of $20,000. This prepayment will reduce the amount of interest Farah will pay over the life of the mortgage by more than $44,000. She will be able to pay off her mortgage over four years sooner.
You can use the Mortgage Calculator to find out how much you can save by making prepayments.

What are prepayment charges?

If you have a closed mortgage, you may be required to pay a prepayment charge if you:

• pay more than the amount allowed by your prepayment privileges
• refinance your mortgage – for example, if you want to borrow additional funds using the equity you have built up over time
• renegotiate your mortgage – for example, if you want to break your mortgage contract to take advantage of lower interest rates
• transfer your mortgage to another lender before the end of your term.

Prepayment charges are based on factors such as:

• the amount you want to prepay (or pay off early)
• the number of months left until the end of your term
• interest rates
• the method your lender uses to calculate the prepayment charge.

Your estimated charge will change from day to day since it is based on factors that change over time, such as the amount left to pay on your mortgage.
You may also have to pay an administration fee to make a prepayment

How will my prepayment charge be calculated?
These are the two most common methods for calculating a prepayment charge:

• Three months’ interest: an amount equal to three months’ interest on your outstanding mortgage balance.
• Interest rate differential (IRD): an amount based on the difference between two interest rates. The first is the interest rate for your existing mortgage term. The second is today’s interest rate for a term that is similar in length to the time remaining on your existing term. For example, if you have three years left on a five-year term, your lender would use the interest rate it is currently offering for a three-year term to determine the second rate for comparison in the calculation.

Your mortgage contract may state that the prepayment charge will be the higher of the two amounts that result from the calculations using the different methods.

Examples: Prepayment charge calculations

Note: The calculations in the examples below are simplified for demonstration purposes. Review your mortgage agreement or contract to find out exactly how your charge will be calculated.

Jim is considering breaking his mortgage to take advantage of lower rates. He wants to estimate how much the prepayment charge would be.

• Outstanding mortgage balance: $200,000
• Annual interest rate: 6%
• Number of months left in term: 36 months (or three years) left in a five-year term
• Today’s interest rate for a term of the same length: Jim’s lender is offering a 4% interest rate for a mortgage with a 36-month term

Method I: Three months’ interest

To estimate Jim’s charge based on three months’ interest, we can use this formula:

A × B ÷ 12 months × 3 months

• A: Outstanding mortgage balance
• B: Annual interest rate

Amount of Mortgage

Step 1: Identify the outstanding balance on Jim’s mortgage (A).

$200,000

Step 2: Multiply the outstanding mortgage balance (A) by the annual interest rate (B).

Write the annual interest rate as a decimal. For example, 6% = 0.06

$200,000 x 0.06
= $12,000
Step 3: Divide the answer by 12 months to get the amount of interest payable for one month.

$12,000 ÷ 12
= $1,000

Step 4: Multiply the answer by 3 months.

$1,000 x 3
= $3,000

Prepayment charge estimate based on three months’ interest

$3,000

Method II: Interest rate differential (IRD)

To estimate Jim’s charge based on the interest rate differential (IRD), we can use this formula:

A × (B – C) ÷ 12 months × D

• A: Outstanding mortgage balance
• B: Annual interest rate
• C: Today’s interest rate for term of similar length. Note: the lender may round up or down to the nearest term.
• D: Number of months left in term

Amount

Step 1 : Identify the annual interest rate on Jim’s mortgage (B).

6%

Step 2: Identify today’s interest rate for a term that is similar in length to the time left on Jim’s term (C).

4%

Step 3: Subtract the answer from Step 2 from the answer in Step 1 to get the difference in interest rates (B – C).

Write this interest rate as a decimal. For example, 2% = 0.02

6% – 4%
= 2% or 0.02

Step 4: Multiply this answer by the outstanding mortgage balance (A) to get the interest differential for one year.

0.02
x $200,000
= $4,000

Step 5: Divide this answer by 12 months to get the interest differential for one month.

$4,000 ÷ 12
= $333.33

Step 6: Multiply this answer by the number of months left on Jim’s
term (D). $333.33 x 36
= $12,000

Prepayment charge estimate based on interest rate differential:

$12,000

How is the prepayment charge calculated if you received a discount on your interest rate?

If you negotiated a discounted interest rate, the calculation of the interest rate differential will depend on the lender and the terms of your mortgage contract.

• Some lenders may use the posted (or advertised) interest rate at the time you signed your mortgage agreement and compare this to the current posted rate for the term remaining.
• Other lenders may use your actual discounted interest rate but also apply the discount to the current rate for the comparison. In this case, the difference in rates remains the same as if posted rates were used and the results of the calculation will be very similar.
• Some lenders may use your discounted interest rate for your existing term but will not apply the discount to the posted interest rate used for comparison. This will usually result in a lower prepayment charge.

How can you find out about your prepayment charges?

If your lender is a federally regulated financial institution, such as a bank, it must outline prepayment privileges and charges, along with other key details, in an information box at the beginning of your mortgage agreement.
By law, it must tell you how the prepayment charge will be calculated. It must also provide you with a description of the components used in the calculation of the charge. This information must be presented in a manner and written in language that is clear, simple and not misleading.
If the calculation is complex, your lender may provide a simplified example, illustration or method to help you estimate the prepayment charge.
Read your mortgage contract carefully to confirm these details before you sign. Ask questions about anything you do not understand.


How can you reduce or avoid prepayment charges?

• Shop around: Before you sign, look for flexibility in a mortgage, such as prepayment privileges.
• Make full use of your prepayment privileges: This way, any prepayment charges will be based on a lower mortgage balance. If possible, make a lump-sum payment before you break your mortgage.
• Wait until the end of your term to prepay: If your prepayment charge will be a large amount, consider waiting until the maturity date, when you can make a lump-sum prepayment without triggering any charges.
• Port your mortgage: If you are buying a new home, your lender may allow you to “port” your mortgage, or take your existing interest rate and terms and conditions, with you to your new home.

Questions to ask when shopping for a mortgage

• How much can I prepay without paying a charge or a fee?
• Is there a minimum or a maximum amount for a prepayment?
• When and how often can I make prepayments?
• Are there any conditions related to prepayments?
• If there are charges or fees, how much are they, and how are they calculated?

Canada’s Top 50 Rental Markets- Courtenay, BC Is One

Canada Mortgage and Housing Corp.’s latest survey of Canada’s rental markets yields some surprising finds and some long-term winners. Rental housing is a hot topic across Canada as house prices rise above what many people can afford, prompting first-time homebuyers to defer a purchase. Add in economic uncertainties, and both tenants and landlords want a property that makes the best use of their money.

For mortgage brokers this is great information . We know  there is enough interest in the rental market and we know that there are alot of people who rent, but with great guidance could afford to buy. Basically we have 3  main clients.
-  wants to buy for their own personal use
-  wants to invest in the housing market
-  wants to rent or does not know that they can buy

The community profiles look at trends in vacancies and monthly rents in each area; the charts and tables show how the communities stack up on a national scale.
A wealth of additional information for each province and what the statisticians term “Census Metropolitan Areas” is available online at www.cmhc.ca, but the following offers a glimpse of what lies ahead for 2012, based on what happened in 2011.

Alberta
Brooks
Calgary
Canmore
Edmonton
Grande Prairie
Lacombe
Lethbridge
Lloydminster
Okotoks
Red Deer
Wetaskiwin

British Columbia
Courtenay
Vancouver Island’s laid-back lifestyle helps support the rental market in Courtenay, which is moving from a resource-based economy to one driven by tourism and supported by the military base CFB Comox. A popular destination for retirees, approximately a fifth of the population is seniors. Vacancies in Courtenay have continued to tighten even as the rental stock as declined, and now average 3.5%. The market is stable, but the demand for new homes will continue to exert pressure on the existing purpose-built rental stock, primarily older buildings.
Fort St. John
Kitimat

Manitoba
Portage La Prairie
Thompson
Winnipeg 

 New Brunswick
Fredericton
Saint John

Newfoundland and Labrador
Grand Falls-Windsor
St. John's

Nova Scotia
Halifax

Ontario
Barrie
Belleville
Brantford
Cobourg
Greater Sudbury
Guelph
Kawartha Lakes
Kitchener-Cambridge-Waterloo
Meaford
Norfolk
Oshawa
Petawawa
Peterborough
Stratford
Thunder Bay
Tillsonburg
Toronto

PEI
Charlottetown

Quebec
Baie Comeau
Saguenay
Québec City
Saint-Hyacinthe
Salaberry-de-Valleyfield
St-Jean-sur-Richelieu
Trois-Rivières

Saskatchewan
North Battleford
Regina
Saskatoon

snippets from an article written by Peter Mitham


 Angela Kroemer, AMP
Mortgage Professional
TMG The Mortgage Group Canada Inc.
TMG Sharie Marie Mortgage Team

1.250.650.4182
akroemer@mortgagegroup.com
www.KroemerMortgages.com
Your Mobile Mortgage Professional in The Comox Valley

BMO- 2.99% Again

Thank you BMO for reposting that awesome rate again.

I don't have anything close to your advertising budget, so you posting that rate is helping me and my lack of advertising budget.
You see when you post that rate, it gets people talking and thinking about mortgages in general or their personal mortgage. When they start thinking, they start calling and wondering what this is all about. When they call me, I let them know there are better deals out there, sometimes not in rate but in flexibility and in the long run using my Lender could make the mortgage a less expensive option. Most people change their mortgage options within 3.5 years, so it is most important to have flexibility in your mortgage.

So lets break down the BMO offer

BMO 2.99% 5 year fixed
-amortization only 25 years-bigger mortgage payment
-prepayment only 10%-once a year you can raise your monthly payments up 10%, but they must stay raised for the whole year
-prepayment only 10%- only once a year you can pay off up to 10% of the orignal principal amount
-prepayment penalites will apply unless you stay with them
-you must qualify on the posted rate- which is higher and you may not qualify for the 2.99%
-rate is only held for a few weeks

Sounds like a great plan for your mortgage but in reality it is not very flexible and may cost you more in the long run if things happen in your life that you have no control over.(job loss, sickness) Example-- you have raised your mortgage payments up 10% for the year, which may be fine now, but if something happened and money is tight you are stuck with the bigger payment for the rest of the year. With the lender below, you can double up you payments any month and for just that month, giving you the flexibility of having a low mortgage payment with the option of doubling the payment at any time for as long as you like.

What my Lenders offer

Lender- 2.99% 4 year fixed or 3.19% on 5 year fixed or 3.99% on 7 or 10 year fixed

-amortization 30 year
-prepayment 15% on orignal principal on any date in $100.00 increments
-double up monthly payments on any date without penalty as many times as you like
-mortgage transferable to your next property
-you qualify on the sale rate.
-rate is held for months

This product is better than the BMO's product because of the flexibility it allows.

So BMO please keep this advertising campaign up, it only saves me money on my advertising expenses and brings more clients to me. Thanks




Angela Kroemer, AMP
Mortgage Professional
TMG The Mortgage Group Canada Inc.
TMG Sharie Marie Mortgage Team

1.250.650.4182
akroemer@mortgagegroup.com
comoxvalleymortgagestoday.com
Your Mobile Mortgage Professional in The Comox Valley

B.C. First Time New Home Buyers Bonus

NEW PROGRAM
as per government website


An eligible new home includes new homes (i.e., newly constructed and substantially renovated homes) that are purchased from a builder and that are owner-built. The bonus will be available in respect of new homes purchased from a builder where:

- A written agreement of purchase and sale is entered into on or after February 21, 2012;

- HST is payable on the home (e.g., HST will generally be payable if ownership or possession of the home transfers before April 1, 2013 - see further details below);
- and no one else has claimed a bonus in respect of the home.

The bonus will be available in respect of owner-built homes where:
- A written agreement of purchase and sale in respect of the land and building is entered into on or after February 21, 2012;
- Construction of the home is complete, or the home is occupied, before April 1, 2013; and
- No one else has claimed a bonus in respect of the home.

A substantially renovated home is one where all or substantially all of the interior of a building has been removed or replaced. Generally, 90% or more of the interior of the house must be renovated to qualify as a substantially renovated home (90% test).

Amount of the Bonus

MAXIMUM AMOUNT

The bonus is equal to 5% of the purchase price of the home (or in the case of owner-built homes, 5% of the land and construction costs subject to HST) to a maximum of $10,000.

PHASE-OUT FOR HIGHER INCOME EARNERS

The bonus will be reduced based on an individual's/couple's net income (line 236 of your income tax return) using the following formula:
- For single individuals, the bonus is reduced by 20 cents for every dollar in net income over $150,000 (bonus is reduced to zero at $200,000 net income).
- For couples, the bonus is reduced by 10 cents for every dollar in family net income over $150,000 (bonus is reduced to zero at $250,000 family net income).

Additional Information

APPLICATION PROCESS

Individuals must apply for the bonus through the B.C. government. Individuals can apply once application forms have been posted on the B.C. Ministry of Finance website later this year. Applicants will be required to submit documentation demonstrating eligibility for the bonus.

ELIGIBLE NEW HOME

The bonus is available in respect of new homes (i.e., newly constructed and substantially renovated homes) where HST is payable. HST will generally be payable on homes purchased from a builder where ownership or possession transfer before April 1, 2013. Potential buyers should consult with the builder to determine if the home will be subject to the HST.

For owner-built homes, the bonus will be based on land and construction costs subject to the HST. Eligible new homes will include:
- Detached Houses, semi-detached houses, duplexes and townhouses,
- Residential condominium units,
- Mobile homes and floating homes, and
- Residential units in a cooperative housing corporation.



For More Information
INCOME TAXATION BRANCH

Ministry of Finance
Province of British Columbia
Telephone: (250) 387-3332 or 1 (877) 387-3332
Email: ITBTaxQuestions@gov.bc.ca


< Angela Kroemer, AMP Mortgage Professional TMG The Mortgage Group Canada Inc. TMG Sharie Marie Mortgage Team 1.250.650.4182 akroemer@mortgagegroup.com comoxvalleymortgagestoday.com Your Mobile Mortgage Professional in The Comox Valley>

How To Get $100.00

Would you like to get one of theses crisp pieces of polymer? Anyone sending me a referral for a mortgage product and when the mortgage funds will get one of these. With the money you could buy them the best house warming gift ever. Or spend it on yourself. (anywhere in Canada)

So if you have friends and family that are sitting on the fence about buying a house, send them my way. We can fill out an application, find out the payments and get the home buying started.

Also, this is a great time to refinance your mortgage for a better rate. Even by paying the penalty you still could be saving money. We can explore this option, and if it does not save you money then you don't refinance, but at least you know.

One more option is to lock in to a low 10 year fixed rate.

Any questions?

Email or phone me.



Thank you
Angela Kroemer, AMP
Mortgage Professional
1-250-650-4182
akroemer@mortgagegroup.com
www.ComoxValleyMortgagesToday.com
TMG The Mortgage Group Canada Inc.
TMG Shaire Marie Mortgage Team

Comox Co-op makes ‘significant donation’ to Wheels for Wellness

Comox Co-op makes ‘significant donation’ to Wheels for Wellness

Wheels For Wellness helps 10000 people a year from the Comox Vally. They have a fleet of 15 vehicles.
There are 26 volunteers helping all year long.

What a caring organization.

Thank you
Angela Kroemer, AMP
Mortgage Professional
1.888.679.0190
akroemer@mortgagegroup.com
www.ComoxValleyMortgagesToday.com
TMG The Mortgage Group Canada Inc.

Is It Time To Get Locked In At The 10 Year Fixed Rate?

There is a great reason to get into the housing market right now. The 10 year fixed Mortgage rate is available for under 4%. Which is unheard of in the history of mortgages in Canada.

Depending on how the housing market goes in the next few years, will be the indicator if you can afford your payments. If you are getting into the housing market now with the low rates and locking in for 2, 4 or 5 years. Will you be able to afford the payments once you renew with higher rates?

If you choose the 10 year low interest rate now then you will have 10 years to pay on the mortgage and by the time you need to renew to higher rates , hopefully your house will have increased in value, making your equity in that house so much more. You will also have 10 years of payments and prepayments towards the mortgage.

Low mortgage rates give you low mortgage payments. If you have tried in the last 5 years to get a mortgage and were declined because of your earnings, then now would be a great time to try again.

Most Banks will not give you the lowest rate because they bundle up their mortgages and sell to investors. Please call a mortgage professional (me) to get the best rates for the 10 year fixed mortgage.






Thank you
Angela Kroemer, AMP
Mortgage Professional
1.888.679.0190
akroemer@mortgagegroup.com
www.ComoxValleyMortgagesToday.com
TMG The Mortgage Group Canada Inc.

CHIP Home Income Plan - Reverse Mortgage

Living in the Comox Valley is truly wonderful. So many things to do, so many things to see.
The downside to living here is everything is so expensive. It is okay while you are working and can make a decent wage, or for many people work extra hours to make extra money to do the activities they want.

But once you retire, well that is a different story.

Pensions don't increase at the speed that everything else increases. Was listening to the news the other day and medical went up, property taxes are going up, gas tax going up. Just how does a person on a fixed income make do if they cannot earn anymore money?

The other downside to living here is the medical. If you get sick, the reality is that you have to travel to Victoria to see a specialist, to get medical treatment that they do not do in the Comox Valley. The travelling can be several times a month or several times a year. That extra money for traveling eats into the cash the pensioner may have.

Also, our medicare is cutting down on the items it provides. Now everyone is faced with extra bills for the medical items that medicare will not cover anymore. Even if your doctor says you have to have them.

Stock market -- Thinking that your returns will be at least 5% and finding out that it is only 1%, if you had anything left after all those crashes. So much for that extra income in your retirement years.

The solution can be a CHIP Home Income Plan - Reverse Mortgage if you own your own home. It allows you to stay in your home while getting income from your home to help with all those extra expenses. In the last couple of years there has been an increase of pensioners looking to the CHIP program to get them extra income to live on.


SOME HIGHLIGHTS of the CHIP Home Income Plan - Reverse Mortgage are:



A CHIP Home Income Plan is a reverse mortgage secured by the equity in your home. Unlike a traditional mortgage in which you make regular payments to someone else, a reverse mortgage pays you.

The big advantage with CHIP is that you do not have to make any payments – principal or interest - for as long as you or your spouse live in your home.

A CHIP Home Income Plan is designed exclusively for homeowners age 55 and older. This age qualification applies to both you and your spouse.

You can receive up to 50% of the value of your home.

You can choose how you want to receive the money. CHIP gives you the option of receiving all the money you're eligible for in one lump sum advance, or you can take some now and more later, or you can receive planned advances over a set period of time. You can even combine a lump sum advance at the beginning with ongoing advances over time.

You receive the money tax-free. You can use the money any way you wish.

No payments are required while you or your spouse live in your home. The full amount only becomes due when your home is sold, or if you move out.

You maintain ownership and control of your home. You will never be asked to move or sell to repay your CHIP Home Income Plan. All that's required is that you maintain your property and stay up-to-date with property taxes, fire insurance and condominium or maintenance fees while you live there.

You keep all the equity remaining in your home. In our many years of experience, 99 out of a 100 homeowners have money left over when their CHIP Home Income Plan is repaid. And on average, the amount left over is 50% of the value of the home when it is sold.

Your estate is well protected. We guarantee that the amount to be repaid will never exceed the fair market value of your home at the time it is sold. If your heirs want to keep your home, they can repay the CHIP Home Income Plan from other funds.



If you would like to know more about the CHIP Home Income Plan - Reverse Mortgage, give me a call or email me.



Thank you
Angela Kroemer, AMP
Mortgage Professional
1.888.679.0190
akroemer@mortgagegroup.com
www.ComoxValleyMortgagesToday.com

TMG The Mortgage Group Canada Inc.