Several of Canada’s big banks announced increases in their residential mortgage rates effective Tuesday.

Royal Bank, TD Bank and Laurentian Bank all raised the posted rate for a five-year fixed-rate mortgage by 0.15 percentage points to 5.54 per cent.

Royal Bank raised its special offer rate for a five-year mortgage by 0.15 percentage points to 4.39 per cent, while TD and Laurentian raised their special offer rates for a five-year fixed-rate mortgage by 0.15 percentage points to 4.29 per cent.

Most other special and fixed rates at the banks were also going up between 0.10 and 0.15 percentage points.

Fixed-rate mortgage rates are affected by the cost of borrowing in the bond market, where banks finance their home loan lending.

Source: The Canadian Press

Let’s just say it pays to shop around. So why don’t more people do it?

There is a perception that it’s difficult to switch banks, plus it will cost you some money to switch. Yes, it’s a hassle but for $5,000-plus, count me in. As for the costs, the bank you are switching to will often cover your legal costs. Even if it doesn’t or say you face a discharge fee of $300, that’s small price to pay upfront.

Mr. McLister says if you change the terms of your mortgage and refinance, it could cost you as much $700 to switch, something you would have to do if you have a home-equity line of credit or have a collateral charge on your mortgage.

Farhaneh Haque, regional manager of mobile mortgage specialists with Toronto-Dominion Bank, says her bank starts calling customers as much as 120 days before renewal to discuss options.

“This all about relationships, they are not going to up and leave for a five-basis-point difference,” Ms. Haque says.

She’s right. A 0.05 percentage point is not a great reason to sever your relationship. But renewal time is a great time to test your relationship with your bank and get it to show you some love — or a better rate.

Source: Garry Marr, Financial Post

When it comes to mortgages – it’s a good idea to shop around.

Before signing with a broker, be sure to ask how much of their business goes to their top lenders. If you’re dealing with a broker that sends two-thirds of their business to one or two lenders, then you have to ask why. You want to make sure that the reason is to benefit you.

Another way to compare rates is to call your bank’s mobile mortgage specialist. These agents work on commission with low overhead costs, and often offer a better rate than the bank staff.

But don’t fixate on the mortgage with the lowest interest rate without determining whether other options, such as a flexible payment schedule, fit your needs well.

Here are some other mortgage shopping pointers:

1. Find good advice

Rising rates and penalties can make it hard to escape a poorly planned mortgage. Make sure you’re getting recommendations based on projected amortization comparisons, historical research and your personal needs. Try to find a mortgage professional who has at least two years of experience. If you’re dealing with a broker, look for someone who has closed $10-million in the last 12 months and is on the “status” lists of several major lenders (for better pricing).

2. Work your bank

If you deal with a bank directly, never accept the first offer. Always come prepared with research on competitors’ rates, which are easily found online. Ask a mortgage broker to run a comparison, even if only for a second opinion.

3. Assess your needs

People hate penalties and love open mortgages, but they are often poor value, unless you break your mortgage within 180 days, Mr. McLister says. Closed variable-rate mortgages have much lower rates, and even when you factor in the three-month interest penalty for early termination, closed variables are cheaper when held for at least six months.

4. Forgo needless frills

Lump-sum prepayment privileges often come with higher rates. That’s wasted money for the 82 per cent of Canadians who don’t make lump-sum prepayments in a given year. If you’re not going to maximize your annual prepayment allowance, ask if cheaper mortgages exist with less generous options.

5. Don’t be a fibber

Never lie about the rate you’ve been quoted. You’ll often be called on it by bankers and brokers who study and know the competitive landscape. Moreover, when a mortgage professional senses you’re lying, it’ll become a defensive relationship that doesn’t serve your best interests.

Source: Dianne Nice, Globe and Mail

Canadians appear split on whether fixed- or variable-rate mortgages are the way to go, even though most anticipate higher interest rates within a year, according to a new survey.

Canadian Imperial Bank of Commerce released survey results Thursday that showed 39 per cent of respondents say they would choose a fixed-rate mortgage at this time, while 32 per cent would pick a variable mortgage and 25 per cent were undecided.

A clear majority of the respondents — 61 per cent — said they think interest rates will be higher a year from now, while 24 per cent said they anticipate no change. Just three per cent said they think mortgage rates will be lower.

“The divergent opinions on whether to go fixed or variable underscores what our advisers see every day in their meetings with clients — choosing the right mortgage depends on your personal financial situation, and there’s no single answer for everyone,” said Colette Delaney, CIBC’s senior vice-president for mortgages, lending and insurance.

The data came from a phone survey conducted by Harris/Decima of more than 1,000 Canadians between April 28 and May 1. The results are considered representative of the population within 3.1 percentage points, 19 times out of 20.

With the Bank of Canada now widely expected to hold off on a rate hike until the end of summer, house prices in Canada are likely going to stay hot for a few months longer.

The central bank will again leave its benchmark lending rate unchanged at 1% at its regular policy announcement on Tuesday, according to the unanimous result of 22 economists surveyed by Bloomberg News.

With signs the U.S. and global economies have entered a soft patch and the European debt crisis continuing to roil, most economists do not expect the bank to raise its overnight target rate until at least September. That would mark a full year on hold for the bank, which last raised rates in September 2010.

The upshot is, these ultralow lending rates will continue to a fuel a Canadian housing market that appears in full spring bloom. Average prices hit $372,544 in April, up 8% year over year for the third straight month, led by a supercharged vancouver market.

“It will lead to more strength in housing in the near term than anticipated, and the slowdown in housing will be more of a 2012 story,” said Derek Burleton, deputy chief economist at TorontoDominion Bank, in an interview.

TD and economists at Royal Bank of Canada and Bank of Montreal have recently pushed their expectations for a hike back to September. TD and Royal forecast the rate to settle at 1.75% by the end of the year, while BMO does not expect it to rise past 1.50%.

Mr. Burleton figures homes are at least 10% overpriced. Extending a low-borrowing environment into the prime sum-mer shopping season would encourage more prospective buyers to take the plunge, creating even better pricing opportunities for sellers.

However, Phil Soper, chief executive of Royal LePage real estate Services, said recent price increases have been driven by intense foreign investment in vancouver, especially from newly cash-rich investors from China, and not low interest rates.

“Much of it is concentrated in a few neighbourhoods, which have attracted Asian investors who use largely cash,” Mr. Soper said. “Also, there just aren’t enough homes for sale in Canada right now. An increase in the cost of buying would not impact the supply side at all. In general, the pent-up demand for housing that grew during the recession has been exhausted.”

Data from Re/Max Canada showed that 747 homes in the Greater vancouver Area sold for $2-million or more between January and April 2011, a 118% increase on 2010, the biggest increase by far. To compare, 435 homes sold for $1.5-million or more in the Greater Toronto Area in the same time period, a 9% increase on 2010.

“When you take vancouver out of the equation, the rate of house price appreciation is cut in half,” Mr. Soper said.

Doug Porter, deputy chief economist at BMO Capital Markets, agreed that vancouver has skewed averages.

“We aren’t calling for a massive correction on the market, but vancouver is a market unto itself, and it’s certainly at risk of a full-fledged correction in the years ahead,” he said. “But most other major markets don’t seem to have broken from fundamentals. The likely outcome is a long period of subpar increases or flatness for prices.”

Mr. Burleton said even the small rate hikes forecast for the end of the year are unlikely to have much of a material impact on the economy.

“I don’t see the impact being dramatic. We’re really talking about a quarter difference here, and part of the Bank of Canada’s job is being done by the high Canadian dollar, so there’s some wiggle room,” Mr. Burleton said. “There’s a good likelihood the increase next year will be accelerated to some extent to make up for some of the lost ground this year. Most of the action on the interestrate front will happen in 2012.”

Source: Eric Lam, Financial Post

Mortgage rates are near all-time lows but for the best deal, move to British Columbia.

The province has Canada’s most expensive housing but its residents are getting rockbottom rates thanks to a ferocious battle between B.C.’s credit unions and the banks.

B.C. home prices, vancouver in particular, have long outpaced the rest of the country. The Canadian real estate Association said nationally home prices were up 8.9% in March from a year ago, but take out B.C. and the percentage shrinks to 4.3%.

The credit unions are another factor behind the higher prices in the province -loans from credit unions are as low as 3.64% on a five-year fixed rate closed mortgage. Canadians in other provinces, even hard negotiators, are lucky to get 4.19% from big banks.

There are several niche products that go lower but they usually come with a catch.

“I think it’s possible it could become part of the story,” said Benjamin Tal, deputy chief economist with CIBC World Markets, about the cheaper money driving up prices.

Elton Ash, regional executive vice-president of Re/Max of Western Canada, said his son-in-law is thinking about paying a penalty to break his mortgage to get a lower rate.

“The cheap rates have been a factor in condo sales in vancouver and for first-time home buyers, not as much in larger homes,” Mr. Ash says.

The monthly payment on a 4.19%five-yearclosed$500,000 mortgage amortized over 30 years would be $2,431.65. Total interest over the mortgage period would be $99,250.85.

Lower the rate to 3.64% and see what happens. The monthly payment goes down to $2276.80 and the interest paid over the term drops to $85,956.42.

vancouver-based mortgage broker Robert McLister said he’s never seen the gap between banks and credit unions this wide. “The credit unions are flush with cash,” he said, referring to money deposited during RRSP season. That cash has to be deployed.

Part of the discrepancy is due to banks raising rates over the last month to match five-year government of Canada bond increases. “If their cost of funding [mortgages] goes up, the banks raise their rates,” the mortgage broker said.

But bond yields have dropped 30 basis points since April 11 and the banks have been slow to compensate for the situation, waiting to see if rates go back up. Mr. McLister says the banks raise rates more quickly than they lower them.

“We just have retail deposits and that’s what we use for funding,” says Norman Krannitz, vice-president of treasury of Coast Capital. “We looked at our deposits rates and they weren’t going up so we decided to ride it out. We love the business we are getting.”

The discounting is widespread among B.C. credit unions. vancouver City Credit Union is offering 90 basis points off prime for a five-year variable rate product, compared to 75 basis points from the banks. It will also go as low as 3.64% on a five-year fixed rate product if you bring two pieces of your banking to them.

“The money business is generally a commodity business. There is generally very little difference in price,” said Richard Seres, vice president of marketing with Vancity.

Before you get too jealous, there are good deals in other parts of Canada but also less willingness from consumers to stray from established banks.

“We had a succesful RRSP and we raised a lot of cash. It’s such a competitive marketplace we have had to stay significantly below the banks,” said Jack Vanderkooy, chief executive of Toronto-based DUCA Financial Services Credit Union Ltd. His credit union offers a five-year 3.89% fixed rate mortgage, lower when you consider profit participation. Someone with a 4% mortgage last year borrowed at 3.7%, counting profits.

John Turner, director of mortgages with Bank of Montreal, said it comes down to lending costs for banks. “In general terms, our rates are competitive,” he says.

Fair enough, but not today. And not in British Columbia for sure.

Source: Garry Marr, Financial Post

Canadians can now get their individual Financial Fitness Score to help discover how financially fit they are courtesy of Genworth Financial Mortgage Insurance Company Canada (“Genworth Financial Canada”) and the Canadian Association of Credit Counselling Services (“CACCS”).

This new Financial Fitness Score, the first of its kind in Canada, is available online at www.financialfitness.ca. The score is based on attitudinal and behavioral questions that were developed from financial fitness data collected in a survey sponsored by Genworth Financial Canada and CACCS. The tool helps people determine how well they are managing their finances and provides useful information that is based on their fitness level.

“Having a firm understanding of what it means to manage your money is so important to peace of mind”, said Henrietta Ross, Chief Executive Officer of CACCS.  “It’s quick, easy and free, but so rich in value. Understanding your score and what you can do to improve your situation is very empowering.”

The fitness tool is just one of a series of initiatives provided by Genworth Financial Canada in collaboration with CACCS and was launched as part of their recent Homeownership Education Week events that included live seminars and webinars on various financial topics.

“Providing this financial fitness evaluation is an extension of Genworth’s commitment to helping Canadians get a better understanding of their finances,” said Debbie McPherson, Senior Vice-President, Sales and Marketing of Genworth Financial Canada. “As The Homeownership Company, we help Canadians achieve their homeownership dreams responsibly and providing education is an important first step”.

A recent report by Canada’s Task Force on Financial Literacy concluded urgent action needs to be taken to strengthen financial understanding in Canada. Genworth Financial Canada supports this recommendation and is continuing to work with the CACCS to offer helpful financial resources for Canadians.

Get your Financial Fitness Score today by visiting www.financialfitness.ca.

Source: GlobeAdvisor.com

Starting a new business can be a challenging period for your finances. It may be tempting to utilize some of the equity in your home to fund the startup.

“Of course, the entrepreneur is an optimistic person and they’re trying to plan their business for success. They need to be aware failure is something that could happen,” says Chris Gordon, financial advisor at Edward Jones in Mississauga. “More often than not, the reasons for failure are internal, in other words, failures of the business in terms of the experience or knowledge of the entrepreneur as opposed to anything that happened in the economic environment.”

Mr. Gordon suggests exploring other avenues for funding before risking your home for a new business venture.

“Other sources of finance might be a straight business loan or asking your friends or family for money. Depending on the size of the venture, there may be venture capital or angel investors,” Mr. Gordon says. He notes that in Canada there are a variety of federal and provincial programs that the business may be eligible for in terms of loans, grants, subsidies and also intellectual capital or advice.

If, after taking financial and legal advice, you decide that you will use your home to back your business finances, Mr. Gordon says any joint owner of the property, for example your spouse, should obtain independent legal advice so they are aware of the risks.

The type of business you are running, your liability and your cash flow will all help determine whether it is better to obtain a line of credit against your home or to remortgage the property.

“A home equity line of credit is for short-term borrowing. It allows you to get away with interest-only payments, to borrow and pay back very easily,” says Kelly Wilson, a mortgage broker with Invis in Ottawa. “If you’ve got good cash flow coming in, you can make regular deposits without having to limit yourself to particular payments. That will in turn save you interest.”

Ms. Wilson says if you require the money for a longer period, for example if you are paying a lump sum into a shareholder arrangement, then a mortgage against your property may be more cost effective.

“If the loan wasn’t going to be paid back for a long time and there was a certain amount of money coming back to me on a monthly basis, I will generally look at taking a mortgage,” Ms. Wilson says. “The financing is less expensive than a line of credit. A variable rate would be as low as 2.15% versus lines of credit which are generally 3.5% to 4%.”

Mr. Gordon says business owners must check if the loan can be called in at short term or no notice. He says that it is important to have separate accounting of personal and business income and expenses, especially if you are deducting the loan interest against the business income.

“The business owner should make sure they consult with the financial planning, tax and legal professionals if they don’t have that expertise themselves,” Mr. Gordon says. “Plan the venture for success but also to keep in mind the consequences if things don’t go well and make sure that that’s not going to be disastrous for their personal finances.”

Source: Helen Morris, National Post

‘Tis the “mortgage season” and people have begun coming out of winter hibernation to begin the hunt for that perfect home. But affordability remains a challenge, especially considering that in January, the federal government made regulatory changes that have altered the playing field for Canadian home hunters.

Most notably, the maximum amortization on a Canada Mortgage Housing Corporation-insured mortgage decreased from 35 to 30 years. This means buyers hoping to minimize their regular payments by paying over a longer period will now have to manage larger payments over fewer years. Longer amortization periods reduce monthly payments, but increase the interest paid over the life of the mortgage, making it harder to build equity.

So, how do you afford a home now that your payments will be larger than for a 35-year mortgage? Here’s some simple financial help.

Track your budget

Knowing your monthly expenses and what you can give up to enable you to make your mortgage payments will paint a clear picture of the amount of mortgage debt you can handle. Be aware of what’s going out and coming in regularly, including debt obligations. A mortgage is a significant, long-term financial commitment and it’s important to first have your finances in order.

Talk to a good financial advisor

A good financial advisor will take time to understand your needs, wants and most importantly, your reality. As a neutral, third-party, they’ll draw on their expertise to analyse your financial landscape and determine what you can handle in terms of a mortgage, while ensuring you remain on track to meet your other financial goals.

Save, save, save

You may want to purchase that dream home today, but saving as much as you can towards your down payment will help you in the long run. The larger your down payment, the smaller your mortgage, which means less interest and smaller regular payments. Also, consider the Home Buyers’ Plan (HBP) if you’re a first-time buyer. The HBP lets you to withdraw up to $25,000 tax-free from your RRSP to purchase or build your first home. It allows you to benefit from tax sheltering while helping you with your down payment.

Hunt for the best rate

A lower interest rate will save you thousands of dollars over the long term. Crunch the numbers to ensure you can afford your payments based on current rates and future, potentially higher rates. This is particularly important in today’s market where rates are still low (and attractive) but may rise. Your credit score and debts affect your rate so work to keep the former up and the latter down so you’ll be in a strong position when rate hunting.

Sign up for what you can afford

Unless your uncle is Donald Trump, mortgages are a significant financial responsibility, even under the best of circumstances. Ultimately, it’s up to you to ensure this financial weight is manageable. Even if you qualify for an $800,000 mortgage over 30 years, you don’t need to use it all if the monthly payments are going to strain you. You may need to wait a little longer to buy that perfect home. But you would have made a smarter decision in the end.

Kathy McGarrigle serves as Chief Operating Officer for Coast Capital Savings.

A window closes today, March 18th, for people who want to increase their housing affordability by stretching the length of their mortgage. The 35-year amortization for CMHC-insured mortgages (those with less than 20 per cent down) expires today, two and a half years after the federal government eliminated the 40-year amortizations and zero downpayments.

In other mortgage news, the Bank of Montreal celebrated St Patrick’s Day by going green on an eco-mortgage offering. The bank is offering a 3.89 per cent five-year fixed rate for Canadians whose homes meet BMO’s energy-efficiency criteria. For more information, go to <a href=”http://www.bmo.com/home/personal/banking/mortgages-loans/mortgage/special-offers/green-mortgage” target=”_blank”>BMO/ecosmart</a>.