CIBC had no choice but to follow suit and join the other 4 major banks in their recent rate discounts.  Now all 5 major banks are offering great pricing to the Canadian mortgage market, only further benefiting consumers and helping to retain their rate savvy customers.

Here are the features for their new posted rates:
-          10% prepayment
-          Increase payments by 100%
-          Amortization of up to 30 years
-          Rate hold for 60 days

All of the above listed features are available for both the four year 2.99% and the seven year 3.99% newly released rates.

You can view all of CIBC mortgage rates here or compare the best mortgage rates near you.

The Bank of Canada announced this morning that interest rates will remain unchanged for the 11th consecutive time over the past 15 months.  The last time the BOC made a change to the overnight lending rate was in September 2010 with a moderate increase of 0.25 per cent.

The overnight rate currently sits at 1 per cent. The Bank Rate is  1.25 per cent and the deposit rate is 0.75 per cent.

The news is really no news at all, given that nearly all industry professionals and top economists were anticipating no change. But what should be of interest to consumers is the justification behind the decision.  Here’s why the Bank of Canada is keeping interest rates where they are.

Europe

• The outlook for the global economy is getting worse.
• The recession in Europe is expected to be deeper and last longer than originally anticipated.
• The BOC was coy in suggesting they had faith Europe could get a handle on the situation: “although this assumption is clearly subject to downside risks”.

The U.S.

• The U.S. grew more than expected at the end of 2011, although this is not likely to last.
• The U.S. recovery will be more modest going forward due to continued household deleveraging and negative effects from Europe.

At Home in Canada

• When it comes to the Canadian economy, little has changed.
• It is estimated that GDP grew by 2.4 per cent in 2011 and is expected to grow by 2.0 per cent in 2012 and 2.8 per cent in 2013.
• Similarly to the U.S., we experienced slightly better growth in the second half of 2011 than anticipated, which is expected to be more modest going forward.
• Little is expected from net exports in 2012, due to moderate foreign demand, increased competition and a strong Canadian dollar.

Inflation

• In 2012 inflation should remain level.
• Total and core inflation is expected to reach 2 per cent by the third quarter of 2013.
• The BOC recognizes that several significant upside and downside risks are prevalent in the inflation outlook for Canada, but they believe they have a handle on the risks and will be able to maintain their key mandate of keeping inflation under 2 per cent.
• With inflation in check there is little reason to believe that we will see a rate increase any time in the near future.

Consumer Debt Levels

One of the more worrying comments made by the Bank of Canada at today’s announcement was their forecast for consumer debt levels. With rates near all time lows more and more Canadians are taking advantage of the very favourable financing conditions.  This is expected to continue and grow.

“Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further.” says the BOC.

A Note of Caution to All Home Owners

Today’s announcement means that your bank’s Prime lending rate will not change, which in turn means that variable mortgage rates will not change.  If you are on a variable rate mortgage, take advantage of this low rate environment and pay down more of your mortgage principal now.  You will be glad you did when rates increase in the next few years.

It’s the time of year when we shake off the old year and look ahead to guess what the new one will bring. 2011 was a mixed bag of economic drama: real estate, stock market, jobs and other indicators seemed down as often as they were up. It was an uncertain year money wise.

What about 2012? The verdict is mixed, the debt crisis in Europe being the pivotal factor. If these nations can get a grip on their monetary problems, the rest of the world should see gradual growth. If things slip into meltdown, we could be looking at a global double-dip recession.

In Canada, the numbers over the last month or so look promising and predictors seem to be leaning towards the former, more positive, scenario — with the debt crisis worsening in early 2012 but improving by mid-year. Here’s what’s up for the year:

Economic Growth

Our economy is going to grow this year, but not by leaps and bounds. Expect about 1.9% growth in GDP, according to the Bank of Canada. RBC is forecasting as much as 2.5% growth.

At the end of 2011, the BOC had expected GDP growth in Canada for Q3 to hit 2.0%.  Actual growth turned out to be 3.5%. And in Q4 they expect 0.8% growth, while most analysts think Q4 growth in Canada was about 2%.

Only time will tell if we will once again surpass the forecasts.  And if so, for how long can  it go on?

Interest Rates

Low, low, low! With all this uncertainty, and inflation numbers looking very low, there are few plans here or south of the border to raise rates. Some are saying we won’t see a rise in the overnight rate of 1% until 2013.

Until the worldwide economy has truly stabilized, you’ll be able to get those dirt-cheap mortgage rates and loans, so enjoy them a little longer.  Experts predict that once rates start to raise at the end of 2012 or in 2013, the increase will be slow and steady, going up 1-3% by the end of 2013.

To keep on top of interest rate changes, check out the Mortgage Rate Outlook Panel for a monthly prediction on whether or not rates will go up, down or stay the same in the short term.

Real estate

The predictions, of course, depend on where you live. Experts are saying the high-flying Vancouver and Toronto markets are overvalued and we should see a correction. But with high gas prices and job growth focusing on cities, there’s still a lot of interest in living in our biggest centres.

One thing the experts seem to agree on is the oversupply of condos in these cities. They’re expecting a dip in prices and buyers getting pickier about location, square footage and outdoor space.

Check out Melanie’s post from yesterday to find out more about what’s in store for Canadian’s when it come to home prices, home sales and housing starts in 2012.

Currency

With ongoing problems in the US and overseas, economists are predicting weakness in the US dollar and the Euro throughout the year. As a result, the Canadian dollar is expected to stay high in 2012.

Employment

The jobs story has been much worse in the US than it has been here. Already in late 2011 the US jobless rate moved down and is around 8.6% right now. Experts are predicting a modest descent through 2013 to around 8%.

Here, our situation is better, and we’re hovering around 7.4% unemployment right now. It’s predicted Canada will see a jobless rate of about 6.9% by mid 2013. Better news still: those experts think wages will start to rise and skills shortages will make looking for a well-paying job easier for some.

Regions

The prairies are so hot right now. Alberta and Saskatchewan have low employment rates and high growth, and those are expected to continue into 2012.

All in all, I’d say it’s not quite time to break out the champagne over the economy. 2012 promises to be another roller coaster ride of ups and downs, but those who can manage their money wisely and keep their debt to income levels in check, will come out on top.

For a while now we’ve been reading headlines about how interest rates are at “historic lows.” Which is great news for anyone with a variable-rate mortgage, line of credit debt, or who is looking to negotiate for things like car loans or fixed-rate mortgages.

But what’s the other extreme? How high have – and could – interest rates go, and what would it mean to your savings if they did?

Here’s a quick walk through the history of interest rates in Canada and abroad.

Interest Rates – High Times

If you’re not old enough to remember the recession of the early 1980s, your parents certainly will. In 1981, mortgage rates peaked at more than 20 percent. (That’s not a typo.)

Many people whose mortgages were up for renewal during that period found themselves signing up for mortgage rates that were twice as high as they were just five years prior. Some resorted to paying hefty upfront fees to get private lenders to offer them rates in the mid-teens.

The rates stayed in the double digits until the mid-1990s, when they began their gradual, more or less downward decent to today’s posted rates. (You can take a look at the history of how Bank of Canada’s trend-setting Bank Rate has risen and fallen here.)

Sounds bad, doesn’t it. Well it was. Here’s how those numbers add up in terms of monthly payments. Let’s say you have $200,000 outstanding on your mortgage, and you’ve opted for a five-fixed rate, payable once a month. Look how significantly your payments increase as the interest rate escalates.

• Based on a 5.29 percent mortgage (which is the 5 year fixed posted rate for most of the big banks) you’re looking at $1,196.45/month.
• Double that to 10.5 percent and you’ll pay $1,856.66/month.
• Double-down again to an interest rate of 21 percent, the high back in 1981, and your monthly payment jumps to $3,378.97.

Although it’s unlikely that rates will hit the likes of 15-20 percent again, we may very well see 5-7 percent in the long run.  That type of a jump may still be 2-3 times higher than your current mortgage rate.  Do you think you could afford paying nearly three times as much as you do today for your mortgage, and still afford those other essentials like heat and groceries?

What to do Today?

First off, don’t stretch yourself too thin. If you are house shopping, don’t forgot that mortgages are long-term commitments and lots of things can change over the duration.

While we can all hope and pray mortgage rates don’t climb into double-digits again, it’s a safe bet they will rise at least a few percentage points above where they are right now. So factor that in when calculating all your carrying costs so you don’t find yourself facing an eviction notice soon after your policy comes up for renewal.

Many mortgage professionals are now advising that people signing up or renewing mortgages today should opt for the fixed rate products. The logic being that since the Bank of Canada’s prime rate (that the other banks base their mortgage rates on) is pretty much guaranteed to rise, it may push variable rates much higher than the best fixed rates currently available.

Ultimately, that’s a call for you to make based on your guess on how high the rates could climb and your comfort level with risk. Truly risk-averse borrowers may even want to lock in to a 10-year term (there are some currently posted 10-year rates below 5 percent) and buy themselves a decade of stability.

Regardless of the type of product you choose, here are two ways to minimize your risk, and the total cost of borrowing over the life of the mortgage.

1. Make bi-weekly instead of monthly payments. Instead of paying $1,196.45 once a month as in the scenario above, change your payment schedule to a bi-weekly payment of $552.21 and save yourself thousands of dollars in interest over the life of the mortgage. (The bi-weekly payment is slightly less than half of a monthly payment, but you end up making an extra payment each year – 26 bi-weekly payments version 12 month ones – so you’re paying down the principal sooner.)
2. Make lump-sum overpayments. Most (though not all) mortgages allow you to overpay up to 20 percent of the original mortgage amount every year. This money is applied directly to the principal (unlike your monthly payments which are divided between paying interest and principal). So taking your bonus or some other unexpected windfall and applying it to your mortgage can lead to significant long-term savings and help you pay off the mortgage earlier.

Interest Rates – Around the World

Think moving out of country would help? Not likely. While you may find cheaper digs in some of the more rural parts of the U.S. or U.K. – both of which offer interest rates comparable to our own, urban centres like New York, San Francisco, and London have some of the highest real estate prices and cost of living in the world.

Head down under to Australia and you’re looking at posted rates around 7 to 8 percent, which seems downright cheap compared to the 11 to 13 percent going rates in South Africa.

And while Hong Kong’s 2 to 3 percent mortgage rates might seem enticing, you have to remember that you’d be buying in a city where real estate can cost up to $10,000 a square foot. (Again, not a typo.)

Surprise!  The Bank of Canada kept their target for the overnight rate at its current level of 1%, the 9th straight time it’s done so since the last increase on September 2010.  Well, let’s be honest, it really wasn’t a surprise, the decision was widely expected by industry experts.

The supporting commentary on the global and national outlook was more important this time around as the markets and economists were waiting to hear the Bank of Canada’s outlook on growth.  More details will be supplied with the release of the Monetary Policy Report tomorrow, October 26, 2011.  This also means that Canadian prime rates will not change either.

The Central Bank’s press release addressed downside risks several times including global and national threats that will slow down economic growth:

“Financial market volatility has increased… The combination of ongoing deleveraging by banks and households, increased fiscal austerity and declining business and consumer confidence is expected to restrain growth across the advanced economies.”  

An increasing concern is that Europe is expected go into a brief recession, with no indication of how brief this could be.  The US will see weak GDP growth until next summer, and then hopefully bounce back soon afterwards.  Growth in Japan and China is expected to slow due to weaker international demand, reducing inflation pressure on other countries.

At home, the forecasted recovery of the Canadian economy has gotten worse since the summer, and this is expected to continue until the middle of 2012.  Consumer and business demand is expected to be the main growth driver.  The Bank of Canada expects the national economy to grow by 2.1% in 2011, 1.9% in 2012, and 2.9% in 2013.

The threat of inflation has subsided and is not expected to return to the 2% target until the end of 2013.  As a result, there is not much the Central Bank can do, given their main mandate is to keep inflation under control. Check.  Job well done.

This is one of the reasons there has been recent news that the Harper government is considering expanding the Bank of Canada’s current narrow focus on containing inflation to a broader mandate.  Finance Minister, Jim Flaherty, and Bank of Canada Governor, Mark Carney, are set to acknowledge that more flexibility is needed to ensure the Canadian economy has stable growth in the future.

It was no surprise on Wednesday morning when the Bank of Canada announced that they would maintain their Key Overnight Lending Rate at 1.0 percent.  The announcement means that major banks will keep their Prime Rate consistent at 3.0 percent, which means variable mortgage rates will also stay where they are

The Bank of Canada highlighted a number of reasons for keeping interest rates low, including:

• The European sovereign debt crisis is getting worse
• Global growth has slowed
• Financial market volatility has increased sharply
• The US is not recovering fast enough from the recession

High levels of household debt and unemployment will force US consumers to cut back on spending, further halting growth in the world’s largest economy.

On the home front, the BoC painted a bleak picture: Canadian economic growth stalled in the second quarter; lower wealth and incomes will likely moderate the pace of investment and consumption growth; and, the Canadian dollar continues to be a burden on Net Exports.

Plus, we should expect the economic situation to worsen in the event that global financial conditions continue to deteriorate.

Therefore, there is still a need for monetary policy stimulus (aka super low interest rates) to make it easier to borrow and spend money so our economy can continue to grow.

The next BoC meeting will take place on Oct 25^th, followed by the release of the updated Montary Policy Report on Oct 26^th.

It’s been a wild two weeks on the markets. Triple digit swings have left investors wondering where to put their money.

It started with the U.S. debt downgrade on August 5^th. Now all eyes are on Europe again and for all the wrong reasons. The Euro zone countries are crippled by a continued threat that member nations will default.

Investors have already rejected any idea for the E.U. to further intertwine their nations by issuing Euro bonds. They want a fresh shot of money injected into the economy to get markets moving again. Just like what the U.S did when it raised its debt ceiling at the beginning of the month.

Another case of throwing good money at bad.

So, the world hangs on as the leaders of France and Germany meet to discuss a solution. Investors need just a glimmer of hope that the end of this ongoing debt drama is near.

Believe it or not, Canada is well poised to weather this second economic storm. Some are even calling this latest round of debt worries a bump in the road.

Canada’s Finance Minister Jim Flaherty says the uncertainty may have some adverse effects on our economy, but the country is well positioned to deal with the “global headwinds.”

But Prime Minister Stephen Harper’s not waiting around to find out if that’s true. He’s just returned from a 4-country Latin America trade mission, to find new ways for Canada to do business.

Out with the U.S and in with Brazil, Honduras, Columbia and Costa Rica.  The U.S devaluation has sent a flood of money to emerging countries. Investors are desperately looking for alternate places to put their money and diversify their portfolios away from the U.S.

And Canada is no different.

But it’s a tough road, to get trade deals at the same levels that Canada has with the United States.

For example, U.S GDP in 2010 is estimated to be $14.7 trillion. The four Latin American countries Harper visited had a combined GDP of  $2.5 trillion last year.  Harper has a lot more touring to do if he wants to make up any lost American business.

But one thing Canada has going for it, is its continued strength in real estate. The housing boom continues to move the market along. Despite dooms day predictors that prices are out of control, on average Canadian’s home values continue to rise. Year over year home prices are up 9.3 percent. And that makes people feel good about the economy and comfortable in their spending.

In addition July housing starts climbed to their highest level since April 2010. Something not expected to happen for at least 2 years.

On top of this, economists are now saying interest rates will be held at 1 percent until at least 2012 encouraging more people to get into the housing market.

Here’s the reality check.

Yes, Canada is much better off then the U.S. We have an economy that is growing slow and steady.

But Canadians are still in a record amount of debt. A lot of it is bad consumer debt. And we are still not putting money away for a rainy day, so to speak.

Every Canadian should take inspiration from Harper’s trade tour. We all need to start diversifying our investments, and building savings if we don’t have any.

This, bump in the road, could still make you fall and scrap your knee, and we need to be prepared.

It’s a promise from Ben Bernanke. He will leave interest rates near 0 percent until at least 2013. For the first time ever, the head of the Federal Reserves admits the U.S. economic recovery has stalled and he will do anything to get it started again.

The world order has changed dramatically in the last seven days.

Since last week, the U.S has lost its triple-A status, global markets have plunged to their lowest levels since 2009 and our Canadian dollar has fallen dramatically.

When it comes to the economy it’s anyone’s guess.

The only thing that’s clear is the number of issues threatening to push the world into a global economic collapse. Right now, there are sovereign debt issues in several European nations. In the U.K., looting and riots have taken over the street. Experts say Brits are frustrated with the current economy and the chronic high unemployment there.

But, consistently low interest rates are forcing, people, corporations and governments to hang on to cash. If that money is flooded into the market the fear of rising inflation spreading across the globe increases. If gold prices are any indication, some people are expecting to get to a point where the costs of goods and services would spike out of control making it hard for people to afford the basics. This week gold was trading above $1800 an ounce, a new record for the precious metal.

This is what’s happening. The U.S. is printing more money to pay its creditors. Eventually the greater money supply will drive up the price of goods and services and because the U.S. is the world’s reserve currency countries around the world could suffer. Because what happens to the Greenback impacts everyone.

Canada is in a precarious position. As long as cheap money remains in supply the U.S economy can’t move forward. And as long as the U.S. economy is stalled the Fed can’t raise interest rates and neither can the Bank of Canada. Being out of step with U.S. rates would guarantee a dramatic slow down in Canada, because it would be too expensive for businesses to operate here.

In order for a rate hike to happen, businesses have to show they are hiring again, debt to income levels have to shrink and the U.S. has to regain its triple A status.

The situation is devastating and for the first time ever there is room for a new economic super power to rise from the recession. The reaction in the markets has been exaggerated; because there are many publicly traded companies that do not deserve to have their values depleted so quickly.

But, I still stand by my previous opinion that the cheap money party will come to an end, eventually. The current situation is simply buying more time. Anyone in debt can take longer to pay back loans and not default on their debt. Bernanke realizes the economic recovery is fragile and keeping rates low will encourage people to continue spending and stimulating the economy.

Every single Canadian can make steps to protect themselves. Save more money, consolidate your loans and pay down debt. It’s so simple yet we all forget to do it. Whether a second recession is here or not, the threat of difficult economic times remains. As much as governments are responsible for cleaning up a country’s fiscal house, we need to clean up our balance sheets as well. As individuals there’s nothing we can do to stop a possible economic collapse, this time the issue is the debt of countries, not the debt of people. But we can do a lot to protect ourselves and that starts with our own home economics.

Rubina
Writer for RateSupermarket.ca

RateSupermarket.ca’s Expert Panel Believes Rates will Stay Low until the Fall

TORONTO, June 10, 2011… RateSupermarket.ca, Canada’s go-to website for comparing mortgage rates and credit cards, has announced the results of their Mortgage Rate Outlook Panel for June 2011.

You can’t rush a recovery – no matter how hard you try.  With some of the world’s largest economies still struggling, the Bank of Canada is waiting patiently before making a move to increase interest rates which will also cause variable mortgage rates to rise.  Fixed mortgage rates, on the other hand, will stay low as homebuyers retract from the market.

Fixed mortgage rates: Unchanged

We’ve seen lower fixed mortgage rates over the past few weeks, and our Mortgage Rate Outlook Panel believes this mortgage rate trend will stick around.  Home sales are slowing, warnings continue about over leveraged consumers and bond yields have dropped.  As the demand for mortgages continues to soften, expect to see enhanced competition from lenders for new customers.

Variable mortgage rates: Unchanged

It was no surprise that the Bank of Canada held its key overnight lending rate at 1 per cent at their last meeting on May 31st.  Our Panel believes we might be in for a few months of inactivity from the Governor before we see another increase.

Although Canada’s economic performance warrants higher interest rates, if we make a move ahead of the pack we’ll risk a spike in the Canadian Dollar and a negative impact on manufacturing and exports in general.  So as the US and Europe struggle with unemployment, sluggish recovery and debt, Canada will sit and wait for the right time to move.

To read all the detailed commentary from our panel members, please visit:

http://www.ratesupermarket.ca/mortgage_rate_outlook_panel/

About the Mortgage Rate Outlook Panel

The panel includes some of the country’s top mortgage experts, and helps Canadian consumers make informed decisions by offering a short-term outlook for fixed and variable mortgage rates.

This month’s panel members:

-      Dan Eisner, MBA. AMP. President,  Verico True North Mortgage

-      Dr. Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University

-      Elisseos Iriotakis, President, SAFEBRIDGE Financial

-      George Hugh, President, Taurus Mortgage Capital

-      Mark Kocaurek, Senior Vice President, Treasury & Lending (Chief Lending Officer) of ING DIRECT Canada

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is the largest independent and impartial rate comparison service for personal finance products in Canada.  Founded in May of 2008, their easy to use comparison engine provides much needed transparency to the Canadian financial market and allows visitors to quickly find the best rates.  Over 1M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, credit cards and GICs.

The Bank of Canada met this morning and as many experts predicted, including our Mortgage Rate Outlook Panel members, the key overnight lending rate will stay where it is at 1%.  This means that the Prime Rate is also unchanged at 3%, and that variable mortgage rate holders don’t have to worry about payment increases just yet.

This is the sixth consecutive interest rate meeting resulting in no change.  The last time the Bank of Canada increased rates was in September 2010 by 25 basis points (there are 100 basis points in a percentage).

Here’s a highlight of the reasons behind maintaining current interest rate levels:

• US growth has been modest (as our largest trading partner this will directly hamper our rate of economic growth)
• Although inflation is sitting above 3%, this isn’t being viewed as a concern.  The high energy prices are short term and the CPI (Consumer Price Index) is expected to return to the target level of 2% in mid 2012.
• The strong Canadian dollar will also help to keep inflation in check (this decreases net exports and drops import prices)
• On the global front, growth in Europe is picking up but risks are still prevalent.  Specifically the BoC says: “The disasters that struck Japan in March are severely affecting its economic activity and causing temporary supply chain disruptions in advanced economies.”
• Back on home soil, the Canadian economy grew at an annual rate of 3.9 per cent in the first quarter, which is pretty good and on par for what they expected in the April Monetary Policy Report.  Although this level of growth is not expected to continue throughout the year.

The next rate announcement is scheduled for July 19th.  At this stage the jury is still out on whether or not the Bank of Canada will increase rates in July or hold off until September. Our Mortgage Rate Outlook Panel is bound to have some thoughts on that over the coming months, so stay tuned.