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Finance

Big bank predicts rate hike

 
The end of record-low rates is nigh, according to one major bank, which has taken a stance and predicted when the Bank of Canada will raise its long-standing overnight rate.
 
“Firming price pressures and strengthening labour markets are consistent with a gradual path to normalizing interest rates,” TD Bank’s quarterly economic forecast, released Thursday, states. “We see the Bank of Canada beginning to raise its overnight rate in mid-2015.”
 
The overnight rate has been held at one per cent since September 8, 2010.
 
“The Bank remains neutral with respect to the next change to the policy rate: its timing and direction will depend on how new information influences the outlook and assessment of risks,” the Bank of Canada said in its most recent statement about the overnight rate, released in early September.
 
TD Bank, however, predicts the short term rate will hit 2 per cent by the end of 2016. The bank believes even a slight increase will put a limit on household spending, as debt-to income levels are still around 165 per cent.
 
Of course, it wouldn’t be an economic forecast if the bank didn’t mention the current state of the housing market, which it still holds a conservative stance on.
 
“In the near term, the housing market and household debt levels present an upside risk to the forecast,” the statement says. “Borrowing rates remain at record lows and housing momentum has stayed strong. Over the medium term, we still expect a cooling trend, consistent with a gradual increase in both trend inflation and interest rates.”
 
 
If you would like to set up a complimentary strategy to discuss your mortgage plan, please call 250-862-1806. or email [email protected].




Power-save your way to a down payment

Part 2 of 2  to read Part 1, click here.
 
 
5.  Dial down your vacations.
 
New York is out.  Maybe Buffalo.  For West coast, maybe Seattle instead of Hawaii.  Use sites like Airbnb (aribnb.ca) to find cheap accommodations instead of staying in a pricey hotel.  Or stay home and use some of the money you saved on hotels to try some nice restaurants in your town.  This is a good practice for when you own a home and find that fancy vacations are unaffordable with out going into debt.
 
Summer vacation somewhere in the U.S.:                       $2500
Minus cost of a Staycation:                                              $  500
 
One-year savings:                                                            $2000
 
 
6.  Put a $100 price limit or less on birthday presents
 
Extravagant presents are fun to both give and receive.  But they're a luxury for people who are more financially settled than someone who is madly saving for a house down payment.
 
Yearly cost for a couple of buying presents for various occasions:        $1000
Minus using the $100 present limit:                                                        $  500
 
One-year savings:                                                                                   $ 500
 
 
7.  Cut your cable, TV and landline.
 
Almost like heat and electricity, an Internet connection is essential.  But a home phone is dispensable if you have a smartphone, and cable TV can be replaced with Netflix, watching shows online and using HDTV antenna.  Also, try buying up DVDs of movies and TV shows seasons at a garage sale, or find a store that sells used DVDs, CDs and videogames.
 
Yearly cost of cable and home phone:                                            $1200
Minus approximate cost of a Netflix subscription:                           $  110 
 
One-year savings:                                                                           $1090
 
 
8.  Halve your spending at Restaurants and Bars.
 
Studies of Generation Y spending habits show that going out to eat and drink is big.  Hey, everyone needs a hobby.  But this one is too expensive for people who are set on buying a house.  Aim to eat out less often, and rather that pay marked-up restaurant or bar tabs, grab some leftovers and a beer from the fridge.
 
Annual cost of spending $250 monthly:                                          $3000
Minus half the annual cost:                                                             $1500
 
One-year savings:                                                                          $1500
 
And one more thought: Ask for a raise at work!
 
 
The total savings per year from this week (6-8) is $5090 and last week (1-4) $13,750 for a total per year of over $18,840.  That is a 5% down payment on a $376,000 home!
 
 
If you have any questions about saving for your downpayment or anything else related to mortgages please call 250 862 1806 or email me at [email protected].


Power-save your way to a down payment

 
Part 1 of 2
 

1.  Move in with your parents or in-laws

Explain that you're thinking strategically in moving back home.  The quickest way to get into the housing market is to maximize savings, which is difficult to do when you're paying the cost of rent in a big city.  You'll pay your parents a token amount of rent, but most of your savings will go directly into your house down payment fund.  Tell your parents to think of the grandchildren you'll be raising in the house you're saving for!

Yearly rent at:                                          $9600 ($800/month)
Minus token rent payments to parents:   $2400
One year savings:                                   $7200

 
2.  Move down one level of rental
 
If you have a two-bedroom apartment, try going down to one bedroom.  Or, trying squeezing into a bachelor apartment.  You could also look at moving to a cheaper part of town, as long as it won't jack up your commuting costs.  Get rid of stuff that won't fit in your new, smaller place, or store it in your parent's basement.  Don't spend money on a storage unit.
 
Yearly rent at :                                       $9600 ($800/month)
Minus yearly rent at:                              $7800 ($650/month)
 
One year savings:                                 $1800
 
 
3.  Sell your car and take the bus
 
You'll be saving on fixed costs such as parking, insurance, gas, maintenance and possibly car payments, and you'll be protected against the risk of financially catastrophic four-figure repair bills.  Rent a car or use a car-sharing service for those times when the bus won't cut it.  A cheap bike will help you save on bus fare.

 
Estimated annual cost of gas, insurance, maintenance and parking:              $5000
Minus estimated annual cost of a bus pass and occasional car rental:           $1500
 
One year savings:                                                                                            $3500
 
 
4.  Stop buying lunch
 
A pain, but worth it.  You'll have to think ahead by either picking up the right groceries to make your own lunch, or by scooping up after-dinner leftovers.  Healthier than your food-court lunch, which you're probably sick of anyway.
 
Estimated cost of buying lunch at $8 or so per day:                                      $2000
Minus cost of spending about $15 per week for stuff to make your lunch:    $  750
make your lunch:
 
One year savings:                                                                                          $1250
 
 
With these four habits you will be saving $13,750 per year.  Stay tuned in two weeks for another 4 ways to save more.
 
 
 
 


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How much mortgage should you carry?

There are several things to consider when deciding how much home to buy.

 

1.  Draw up a budget including the new mortgage payments.

While the rules used by most lenders require that the mortgage payment along with property taxes and heating costs not exceed 32% of your household income, this is not suitable for every borrower.  I have had some clients who do not have other loans or debts and so can afford a much higher payment while other clients, enjoy going out frequently and so this may be too high a payment for them to manage.

So even though your bank or mortgage broker may tell you based on the lender's or insurer's guidelines that you qualify for a certain sized mortgage based on your income, you need to look at your own budget needs.  I good guideline is your current rent.  How easy is it for you come up with the rent and still have money for other expenses?

The monthly, weekly or bi-weekly payments can also fluctuate if you are in a variable rate product as interest rates change,  so be sure you have some extra money at the end of your month.  With a fixed rate term you could also be looking at an increase in your payment when your mortgage comes due if rates have risen since you locked in.  One way I protect my clients from this, is through an email system which alerts them when rates are going up and sets a plan to protect them from payment shock at maturity.

 

2.  Reconsider the old idea of buying a starter home now and moving up down the road.

The larger home slightly outside of town although cheaper than the same sized house in town, may have all sorts of extra costs for many homebuyers.  You need to look at the entire situation.  For example, are the extra gas costs to commute into work really worth it?  Yet buying a bigger home now could be a better decision if you know that you will be graduating to a larger home anyway.  Everything from property tax and transportation costs should be at least considered.  A $50,000 difference in selling price between two homes may not be that much if you are sure that you will most likely be spending more time in a larger home.

 

3.  Don’t get carried away comparing mortgage rates.

I find that banks and brokers have done a poor job of educating consumers about what to ask as far as the mortgage is concerned, so we have made it all about price.  The products vary so much from lender to lender that it is so important to understand what you are getting.

In particular most of my clients are not aware of collateral charges. Many banks such as RBC and TD Canada Trust register mortgages as collateral charges which the banks tell clients allows them more ease in taking out a line of credit from the house, yet this type of charge cannot easily be transferred to another lender at maturity without costs.

This also happens when you take out a line of credit with your bank.  The balance of a line of credit is re-advancable unlike a regular mortgage and so cannot easily be moved from one lender to another if the rate offered at maturity is not competitive.

The lenders are finding these collateral charges are increasing their retention of business at maturity.  But is it really in your best interest?

 

4.  Prepayment options can save you thousands.

The ability to prepay extra on your mortgage.  For example:  20% of your outstanding balance on any payment date and increase your payment by 20%, can save thousands of dollars over the life of the mortgage.  Sometimes the lower advertised mortgage rates restrict these extra payments.

 

You are always best to deal with an Accredit Mortgage Professional (AMP) who has your best interests in mind.  Please feel free to call 250 862 1806 or email mtggal@okanaganmortgages com.



Read more Home Finance articles




About the author...

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business for 17 years starting as a lender with Royal Trust. She later worked at the Royal Bank as a Mortgage Consultant and 11 years ago became a Mortgage Broker. As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products. Laurie has a Bachelor of Education degree from UBC.

Contact her at 250-862-1806 or by fax 712-0209 or visit:
http://www.okanaganmortgages.com/

Visit Laurie's blog at: http://www.okanaganmortgages.com/blog.html




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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.


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