CBC The National’s lead story last night was on the Bank of Canada’s rate increase and how the banks are getting more aggressive with their rates as all mortgage lenders are chasing fewer and fewer mortgage customers.

The CBC’s Havard Gould came in to meet with RateSupermarket.ca and discuss how this is impacting Canadian consumers.

You can view the full video from last night’s broadcast here.

The Bank of Canada has just announced that it’s increasing the target for the overnight rate, it’s key interest rate, for the third straight time by 0.25% to bring it up to 1%. This means that mortgage lenders will also increase their Prime rates by the same 0.25% to 3.00%, resulting in variable mortgage rates also increasing by 0.25% as well.

This Bank of Canada rate increase follows the same 0.25% hikes on June 1 and July 20th and comes as the Federal bank wants to remove the exceptional fiscal stimulus that was put in place to fend off the global economic crisis. Right up to the rate announcement this morning, the market was split on whether Bank of Canada Governor Mark Carney would actually continue increasing rates after recent poor economic results showing slowing growth in US and Canada. Also, the latest inflation report showed that inflation was below the Bank’s 2% target, which was another reason that many thought the Federal Bank would hold off increasing rates.

You can view a summary of the Bank of Canada’s rate announcement results this year here.

Our Mortgage Rate Outlook Panel thought rates wouldn’t be increased due to the recent economic data that was published. It seems that the need to return to a ‘normal’ interest rate environment, the average Prime rate for the past 10 years is 4.79% versus 3.00% after this morning’s announcement, took precedent over the threat of halting Canada’s slowing economic growth, and the fact that inflation seems to be under control with no immediate risk of getting out of hand in the near future.

The Bank of Canada cited the following reasons for their move:

Around the world

At home

They went on to say that over the past few months as the Bank has started removing monetary policy stimulus (ie. started increasing interest rates from all time lows, which was needed to battle through the global economic crisis), financial conditions have deteriorated slightly, but the economy is still moving ahead with the help of these exceptionally low rates. Even though inflation is within target the Bank wants to return to a ‘normal’ rate environment and let the private sector lead Canada back to strong economic growth.

They ended the announcement by saying that any further increase in interest rates will need to be considered very carefully due to the uncertainty of both the global and national economic recovery. Many expect they will now pause, review the impact of these hikes for the rest of the year and then revisit increasing rates in 2011.

This was the big question, as Governor Carney does not want to keep increasing rates and effectively put the brakes on growth and send us back into a recession rather than treading that fine line and hike rates, keep inflation at or under 2% while the economy keeps growing. That’s a very tough job, and hard to do. We’ll see how this turns out.

RateSupermarket.ca’s panel of financial gurus expect mortgage rates will remain level during September

TORONTO, Sept 2, 2010… RateSupermarket.ca, consumers go-to shop for comparing Canadian mortgage rates offered by banks, mortgage brokers, and credit unions, has announced the results of their Mortgage Rate Outlook Panel for September 2010.

Canadians should expect both fixed and variable mortgage rates to hold steady in September.

Fixed mortgage rates: Unchanged (with downward bias)

Canadian consumers were handed a treat when fixed mortgage rates dropped back down to historic low levels in August. Our Panel of experts believe September will be very similar with a small possibility of further downward movement.

Increasing concern in both Canada and the US on the strength of an economic recovery has dampened the Canadian bond market and put a lid on fixed mortgage rates for the time being. As well, banks are fighting for fewer new mortgage clients as housing sales slow down, and with less borrowers out there the competition will heat up; a perfect environment for price cutting.

Variable mortgage rates: Unchanged

We’ve seen economic predictions change very quickly over the past few months and it’s happened again. The Bank of Canada was widely expected to increase rates once more next week and then pause while they reviewed the impact of these hikes. However, recent news about slower economic growth and lower inflation is giving Governor Mark Carney good reason to not increase interest rates, and our Panel expects variable mortgage rates to stay where they are.

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:

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is an independent, impartial resource that is not affiliated with any mortgage lender or broker. It is the only resource in Canada that allows visitors to compare the whole mortgage market in the country. RateSupermarket.ca also compares insurance products, credit cards and GIC rates.

A think tank released a report today outlining the possibility that Canada’s housing market bubble could be heading for a big burst. RateSupermarket.ca’s President, Kelvin Mangaroo, was asked to discuss this on CTV News today with anchor Dan Matheson.

Laurie Campbell, executive director of Credit Canada, Photo from The Globe and Mail

The Globe and Mail did a story yesterday on the new credit card regulations coming into effect later this week and included RateSupermarket.ca in the article.

The three main new credit card regulations coming into effect on September 1st, 2010 are:

The consumer debt charity Credit Canada also list some great tips on how to avoid falling into credit card debt.

Congratulations – your new mortgage contract has been signed.

After the task of researching mortgage rates, speaking to a mortgage expert, weighing the options for fixed versus variable, length of term and payment schedules, gathering the appropriate documents and negotiating the details, you can now sit-back relax and forget about your debt for another 3-5 years.

Well, not exactly. Don’t start brushing your new mortgage under the rug just yet. There is one more very important piece to the mortgage puzzle that should not be forgotten – mortgage insurance.

After your mortgage has been approved, you should consider protecting yourself against the event that you are unable to make your payments. It’s natural not to want to think about this, but if something were to happen, you and your family will be glad you did.

To navigate the tricky world of mortgage insurance, we’re talking to Craig Ferguson, a licensed insurance broker with over 20 years of experience. He has a wealth of knowledge and hates to see Canadian consumers get taken advantage of by insurance agents selling unnecessary or overpriced products. We like his style.

RSM: Thanks for talking with us Craig. Why don’t you start off by telling us about the difference between default insurance and mortgage insurance?

Craig: When it comes to insurance, the terms alone can be confusing enough! Mortgage loan insurance or mortgage default insurance is typically required by lenders when you are buying a home or looking for mortgage refinancing and have less than a 20% down payment based on the property’s value. Mortgage insurance is typically offered by your bank or lender and it’s a form of mortgage protection if you are unable to pay your mortgage.

The bottom line is both products protect the lender, not the borrower’s family. There are other products out there, such as mortgage life insurance coverage that can better protect the borrower.

RSM: Can you tell us a bit more about the specific downfalls of mortgage insurance?

Craig: Well, I think there are 3 main points to cover here. Firstly, it’s expensive; second, you may need to re-qualify more often then you think; and finally, the application form leaves room for errors that could have serious consequences. Let’s look at each of theses issues in turn.

Mortgage insurance is expensive for a variety of reasons, one being the potential length of risk. If a plan covers 25 years versus say ten, the risk to the insurer is greater, and is reflected in a much higher cost. Given that the most common amortization period for a first time mortgage is 25 years, most people will take out a mortgage insurance plan that covers that period of time. It may seem great to have a 25 year plan, but reality does not match theory.

For the second point, the argument often made for mortgage insurance is that it will cover the outstanding mortgage balance for the duration of the mortgage. But this may not be the case.

In today’s economic climate, the odds of staying with one lender and/or one mortgage are unlikely. When a mortgage loan is paid off, renegotiated or refinanced, the mortgage insurance terminates at that point, and the borrower is faced with the challenge of re-qualifying for the coverage again. This is the case even if they were to stay with the same lender!

This presents the issue of increasing rates upon mortgage refinancing, and no protection if health issues make re-qualifying a problem.

And the final issue, since mortgage insurance is designed as an “easy application” product, it may only have six to ten very loaded health questions. Should the applicant answer “no” by mistake, when he/she should have answered “yes”, it could result in a claim being denied. And, this is why you hear of so many stories of mortgage insurance not paying out.

RSM: So what should consumers do in order to protect their mortgage?

Craig: A product that addresses all of the fallbacks of mortgage insurance is life insurance. This can be a cheaper alternative to mortgage insurance and offer additional benefits.

RSM: What are the benefits of life insurance?

Craig: The main benefit of life insurance is money when needed. It’s as simple as that. Other benefits include:

That’s just to name a few.

RSM: At what stage should someone look at protecting their mortgage? And how much coverage should they look to purchase?

Craig: This question is a good one, but shouldn’t it really be: at what stage should a person look to ensure protection of his or her family? It’s often a myth to assume a paid off mortgage results in easy street.

For example, let’s say we have a husband and wife, both working, and pulling in equal shares of income (not uncommon in today’s society). Let’s assume net after tax income is $5,000 per month.

Say their mortgage payment is $1000 per month, representing only 20% of the family’s net income. But usually, at the end of that month, there is little left over (again, not uncommon in today’s society). This would suggest that the loss of a loved one representing 50% of the family’s money each month would not be satisfied with the removal of only $1000 of total expenses. Where’s the other $1,500 coming from?

There’s a reason the banks operate on debt ratios – they understand that there are greater expenses than a mortgage that a family needs to consider. The banks and lenders act responsibly, but do we as borrowers think the same way?

You could look at covering the mortgage, or you could look at how much insurance is really needed. Most often, term insurance is a low cost way to not only save money over the cost of mortgage insurance through the lender, but the best bang for your buck to ensure your families lifestyle is protected.

And the time for this is really “yesterday”.

RSM: What is the difference between whole and term life insurance? And which option is best?

Craig: Whole Life insurance is designed to provide coverage for life, with, usually a guaranteed premium, but that is not always the case. Term insurance, provides coverage for set periods with a guaranteed premium (say for 10 or 20 years), and a guaranteed renewal premium at a higher rate. But, most term plans are flexible because they also allow for “conversion” to a whole life plan without providing a health check at that time. The rate will then be the rates for the age at conversion to the permanent (whole life) plan.

Which should you choose? It really boils down to need first, solution second.

For example, a doctor has at his disposal a prescription pad, and can order any drug he chooses for a given patient. Do all patients get prescribed the same drugs? Of course not.

The doctor should first assess the patient’s health, determine where it hurts, and look to provide a long-term goal to address the health issues.

Similarly, the insurance broker must assess the financial risk of the client. He must determine the amount of life insurance needed to cover off a good percentage of income over time (usually to retirement), and also consider pension fulfillment needs, which we should discuss more, perhaps in another session.

People without drug coverage need to pay out of their own pocket, and doctors usually make decisions on what to prescribe based on ability of the patient to pay the bill. The same consideration should be made for life insurance.

First, the amount of insurance to protect the client should be determined, and only then should the affordability of the plan type be addressed.

In my experience, based on need, clients that have mortgages, families and several years to retirement, should look at the lower cost, higher payout of term life insurance. And in most cases a ten year term is a good option.

RSM: So a ten year term policy is the best option?

Craig: It is important to understand that insurance needs change as life changes. For that reason, the average life insurance plan, whether bought as whole life or term tends to change every 5 to 7 years.

The extra premium paid to the insurer during that period (if the term was longer than what you held the plan for) would be lost. So the best option is to buy the plan that best represents the closest term before your needs change.

If you’ve had a whole life plan or say a 20 year term plan and have changed to another plan of insurance then you are a case in point. The additional premiums that you paid could have gone towards paying down your mortgage.

RSM: What health checks are required for life insurance coverage?

Craig: When you apply for a personal life insurance plan, the insurance company will ensure your health is good by conducting a form of checks and balances. They will often order a doctor’s report if there are any grey areas and also cross-reference the answers to the application. Depending on age and amount applied for, there will be a nurse called to perform other tests and ask questions related to health history. Additional health or avocation questionnaires will also be used to paint the proper picture. The process is relatively painless yet thorough in ensuring full disclosure.

The insurer is more likely to challenge the applicant up front for health conditions that may not even be known to the applicant, but in doing so, this ensures that at claim time there is little to be challenged. Often the insurer will suggest results are sent to the family doctor to be discussed and dealt with. A mini-physical is a complimentary byproduct for those that refuse to visit the doctor regularly.

Very important to the integrity of the process, there is less likelihood that the applicant’s answers alone will form the basis for the contract. That is the protection you want, trust me! I like to call it being put through the ringer for your own good. The technical term is called pre-claims underwriting.

Creditor/mortgage insurance is riskier because the process looks more closely at you only at claim time. The term is aptly named post-claims underwriting. It’s unfair to challenge insurability after the fact. Despite the fact that premiums have been paid in good faith, the coverage your family relies on may be at risk of not being there.

RSM: What types of questions do you recommend consumers ask an insurance agent before they make a purchase?

Craig: The first and most important is to ensure the agent can justify the reason for the amount of insurance suggested.

Second, did the agent take into account other insurance already in force, and make recommendations as to why they should be kept, or why they should be discontinued.

Third, and this is off topic but an important part of insurance planning, did the agent consider what would happen if you live? In other words, what if you were to become disabled? Is the agent concerned with ensuring your income will continue in all circumstances, disability or death?

If you’ve found a good insurance agent, you should expect to pull out all of your insurance documents including employee benefit books and pension statements.

Insurance selling should be in direct proportion to insurance planning.

RSM: Thanks for your insights Craig!

Next time, RateSupermarket.ca will talk to Craig about insurance requirements for the self employed.

Craig Ferguson Insurance Services has been providing Individual & Group Insurance solutions since 1991.

Mortgage shoppers have even more reason to celebrate this month as fixed mortgage rates have dropped again. For the 4th time in the past month many of the big banks including RBC, TD and CIBC have dropped their 4 and 5 year fixed rates by 0.10%.

Fixed rates are heading lower as their main influence, Government bond yields, continue to dive as the benchmark 5 year bond yield is down 5.3% just today to 2.028 at 10.30am on August 24, 2008. With the spread between bond yields and fixed mortgage rates increasing, looking at historic spreads, there is room for fixed rates to fall even further.

Interestingly, RBC and TD only issued press releases saying their discounted fixed rates were heading lower while the posted 5 year fixed rates were decreased on their websites.

Could this be a shift where the big banks start to advertise more based on rate? The first signs of this was a few months back when BMO had a big marketing where they were proactively advertising their 5 year discounted 5 year fixed rate in print, TV etc. This was a change in direction for a of big bank mortgage lender to advertise on rate. Another change in strategic direction is CIBC’s now long-running campaign incentivizing home owners to ‘Switch’ to CIBC with higher air miles and cash back.

Where customer loyalty is the ultimate goal amongst the big banks pushing for a greater ‘share of customer’s wallet’, CIBC actively asking customers to switch shows a change in direction in the market and hopefully a change in Canadian consumer behaviour. Many home owners can save money by simply comparing the market and seeing what other offers are out there to access lower mortgage rates and we hope to help this trend continue.

Here are the latest fixed mortgage rate changes:

RBC fixed mortgage rates changes

TD fixed mortgage rates changes

CIBC fixed mortgage rates changes

You can compare mortgage rates here to see how these stand against brokers and credit unions.

Well some good news today for first time home buyers and home owners as fixed mortgage rates dropped again as RBC, CIBC, Scotiabank and Laurentian Bank announced the latest mortgage rate changes of -0.10% for most fixed rates. These new lower rates take effect today, August 17, 2010.

This comes on the heels of the latest CREA report that showed national home sales and house prices declined significantly last month. Seasonally adjusted home sales activity across Canada declined 6.8% from June and down 30% than July 2009.The Prairies and Quebec were level while BC (-14%) and Ontario (-8%) accounted for 85% of the change across the country.

Year to date transactions are still up 5.6% compared to the first 7 months of 2009, although it’s believed that many transactions were brought forward due to HST in BC & Ontario as well as lower mortgage rates. This gap is expected to close and eventually decline through the rest of the year. CREA’s President commented, “Activity may remain at lower levels for some time, but ultimately we expect a more stable market to emerge, with demand coming back into line with economic fundamentals.”

Average home prices in Canada in July 2010 was $330,351 (+1% year on year) edging up one% from the same month last year.
Supply has also increased based on the number of months of inventory it would take to sell houses listed on MLS based on the current sales rate, as this stands at 7 months last month which is up from 4.5 months last year.

Fixed mortgage rates are heading lower as Government of Canada bond yields have been declining recently. We’ve seen the benchmark 5 year bond yield drop by 14% in the past month and 6.6% just in August.

You can read about what our Mortgage Rate Outlook Panel of experts believe mortgage rate trends are heading.

Here’s a run down of the updated rates by bank:

RBC fixed mortgage rates changes

CIBC fixed mortgage rates changes

Scotiabank fixed mortgage rates changes

You can these bank compare mortgage rates against the rest of the market here.

TORONTO, Aug 5, 2010… RateSupermarket.ca, Canada’s rate comparison website for personal finance products such as mortgages, insurance, credit cards and GICs has announced the results of their Mortgage Rate Outlook Panel for August 2010.

Canadians should expect lower fixed mortgage rates as lenders respond to dropping bond yields, while variable mortgage rates should increase following the Bank of Canada’s rate announcement at the beginning of September.

Fixed mortgage rates: Down

The majority of our panel members believe fixed mortgage rates will decrease in August, and during the first few days of the month we have already seen this happening. As mortgage lenders react to lower bond yields, their continued strong demand for residential mortgages is increasing competition for mortgage customers.

Dr. Ian Lee, Director of MBA Program at Carleton University summarizes this scenario well: “There is an excess of mortgage funds and lenders chasing a decreasing number of mortgage borrowers”. This increased competition is likely to be good news for mortgage shoppers resulting in price cutting and lower fixed mortgage rates.

Variable mortgage rates: Up

Expect variable mortgage rates to remain level in August, but to increase at the beginning of September following the next Bank of Canada rate announcement. The Central Bank’s most recent Monetary Policy Report indicates that an increase in the Bank’s trend-setting overnight lending rate in September is likely.

Despite the weak US job numbers and soaring unemployment in most of Europe, the Bank predicts a gradual reduction in monetary stimulus in Canada. With only three Bank of Canada meetings remaining till the end of the year, it is likely that the September announcement will push interest rates up.

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

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is an independent, impartial resource that is not affiliated with any mortgage lender or broker. It is the only resource in Canada that allows visitors to compare the whole mortgage market in the country. RateSupermarket.ca also compares insurance products, credit cards and gic rates.

RBC announced today that they’re dropping their fixed mortgage rates by 0.10%, which is effective for tomorrow August 4, 2010. This brings down their benchmark posted 5 year fixed mortgage rate to 5.59%. This rate decrease is mainly in response to the drop in the five government bond yield of almost 8% just in the past week. We expect the other major mortgage lenders to follow suit later this week.

We saw the best five year fixed mortgage rate for a quick close (ie. the deal must close within 45 days) drop to 3.89% this week as well.

Here is the full list of all the fixed rate decreases

You can check to find the lowest 5 year fixed rates in your local here.