I cannot stress the importance of a mortgage pre approval.  Not only does it confirm the obvious which is the maximum amount you can borrower but by working with a experience mortgage adviser you can work through different scenarios such as cash flow payments, product options, Can I increase my borrower power by paying down some debts and reducing down payment, will I need add a co signer, shall I go short or long term depending on my time horizon in the property etc etc.  There is allot more to a mortgage pre approval then the loan amount.

I would always suggest working with a experienced mortgage broker for your mortgage pre approval.  Yes I am a little biased because I am a mortgage broker but I do believe they give you the best options.  The general banks can be limited to what they can do.  If the bank employee is experienced then yes maybe they will take the time to work through different scenarios but most of the time they enter the information you give them into a computer and spit out whatever numbers comes out.  I cannot tell you the amount of times I have being able to increase a clients  mortgage approval by 50K to a 100K by working through different ideas and options after they were pre approved by their bank.

Do yourself a favour and always get mortgage pre approved before you go house shopping and don’t just get one from the internet.  Seek out a experienced mortgage broker and work with them.  You don’t need 2 or 3 mortgage brokers if you trust the one you are with.  Most of the time they have access to the same rates.  It is the relationship and how they manage the overall process that will make them trustworthy.

I attended a formal investment dinner last night given by one of my investment adviser colleague’s.  Basically there were 20 people or so invited to a 5 course dinner (which was amazing by the way) and while we ate a very knowledgeable investment analyse spoke about the state of the Canadian economy,  Direction of the United Sates economy, Europe, interest rates, current investments and so on.  We were all each allowed to ask one question which the presenter answered or discussed.  My question was on the direction of interest rates in Canada and effect on Real Estate.  From what I gathered as long as the US interest rates remain low Canada will have to follow suit.  This of course cannot go on forever (US expects rates to stay flat until at least 2014) but it is a guide for Canadian rates now and for the near future.  Because Canada is so intertwined with the US (largest trading partner) for trade etc we cannot afford to move our rates higher as the effect will be a higher  loonie which in turn would damages our manufacturing companies and other industries that trade with the US.  So in a nut shell keeping a eye on the direction of US interest rates will be a good indicator on where Canadian interest rates are headed for the short term at least

Economists are unanimous that Carney will hold back from raising borrowing costs on Tuesday when he and his policy council announce the new target interest rate.

It’s been at one per cent since September 2010, and had been even lower since the recession — leading to some of the lowest borrowing costs in Canadian history.

With the U.S. rate likely on hold until 2014, economists say it may be many more months before the Bank of Canada moves off one per cent, fearing that further widening the gap in the cost of money between the two countries will send the loonie into the stratosphere.

Last week, all 12 members of the C.D. Howe Institute monetary policy panel, comprising private sector economists and those in academia, were in agreement there should be no change to interest rates.

“They (central bank) are very concerned about the household debt situation and the strength of the housing market, and the overall stability of domestic spending, and it just isn’t consistent with an overnight rate below inflation,” said Douglas Porter of BMO Capital Markets, a member of the C.D. Howe panel.

“But unfortunately they face this eternal tension of a healthy domestic economy and a shaky external environment.”

As long as the U.S. continues to struggle, despite the occasional encouraging signal, and the European debt problems remain unresolved, the Bank of Canada will be loathe to add negative drag to the domestic economy by tightening lending conditions, he explained.

Where Carney may make news this week is an upgrade to economic growth expectation for this year.

In a recent interview, the governor talked about “firmer” conditions and better than expected momentum in the U.S. recovery. Since, Statistics Canada reported employment grew by a massive 82,000 jobs in March.

In the last monetary policy review in January, the central bank estimated the economy would expand by a modest 2.0 per cent this year and 2.8 per cent next.

Analysts expect the bank to raise 2012 growth a notch to the consensus economic forecast of 2.1 per cent this year, or perhaps slightly higher.

Just how much higher may influence when Carney feels comfortable about doing what he appears anxious to do, and that is bring interest rates back to normalized levels.

Although still a minority view, three of the 12 members of the C.D. Howe panel think the governor should nudge the policy rate up to 1.25 per cent as early as June 5, and five believe it should come in October.

“Some members urging a higher overnight rate over the coming year took a more optimistic view of global prospects,” the think-tank said.

“For the most part, however, the tendency toward a higher rate target stemmed from concern that Canada’s growth is too tilted toward housing and fuelled by rising household indebtedness.”

At 151 per cent of disposable annual income, Carney said recently Canadians have never been so indebted.

The chief concern, he said, was a shock to house prices or higher rates that would reduce household assets and increase financing charges, leaving little in consumers’ pockets for purchases that stimulate the economy.

While he said he was prepared to intervene in an emergency, Carney noted more direct policy actions, such as a further tightening of mortgage rules, would be preferable and effective

A $300,000.00 mortgage at a interest rate of 3.40% for 5 years over a 25 year amortization would have a mortgage payment of   $1482.02.  Mortgage balance after 5 year term is up $258,364.25 with 20 years amortization remaining.

The same mortgage on an accelerated bi weekly payment of  $741.01 would leave you with a mortgage balance of $250,224.97 with 17 years and 2 months  amortization remaining.

The same bi weekly mortgage with a $100.00 increase in mortgage payment bi weekly $841.01 would leave you with a mortgage balance of mortgage $236,074.11.  The amortization remaining would be 13 years and six months.

The amortization is based on the life of the mortgage i.e. if you kept this payment habit up using the same rate you would pay down your mortgage in that amount of time.  You can see the impact on the mortgage balance by just taken a bi weekly payment frequency and or a $100.00 payment increase.  Remember every dollar you put towards your mortgage goes directly to principle.

An insured mortgage (borrowers with less than 20% down) guarantees the lender loan payback in case of default by the borrower.  Under the Bank Act financial institution can only loan up to 80% of the purchase price of a property.  By having the mortgage insured borrowers can borrow up to 95%.

Consensus is that borrowers qualifying on regular income  and credit will not be effected too much by the changes.  However self employed clients and insured rental properties could be effected more as their loans are considered high risk.

The good news is that CMHC is not the only mortgage insurer in Canada.  Genworth which is a private company is the second largest mortgage insurer in Canada and currently has no plans to cut back on its funding growth.  However with the largest provider of mortgage insurance looking to slow down the amount of mortgages it insures this will definitely have an impact on the Canadian mortgage market and real market as a whole.

To switch or transfer a mortgage to a new lender is not allot of work.  If it is a straight switch where only the existing mortgage amount is being transferred there is no legal signing involved.  If there is new money be added to the mortgage so the mortgage amount is changing then a lawyer will need to register the new mortgage.  Either way it is no more than 1 hour’s work for the client.  If you can save thousands of dollars over the term for 1 hour’s work then I think it is well worth it.

The mistake allot of borrowers make at renewal time is accepting the terms and conditions sent out by their existing lender without comparing with other lenders.  Your mortgage broker can compare mortgage rates and terms for you and let you know if there is a better offer available that makes sense to switch.  A report recently released by CMHC stated that 85% of Canadians sign off on their renewal agreement with the same lender without checking for better terms and conditions.  Given the fact that most banks will send out renewal agreements without offering competitive discounted mortgage terms in the renewal agreement the borrow is losing out on thousands of dollars in savings over the term and the bank is making thousands of dollars in profit by not having to offer a competitive mortgage interest rate.

If you have a mortgage coming up for renewal within the next 6 months send me an email or give me a call.  I can provide you with current mortgage options available to you.  Mortgage rates can be held for 120 days or even six months in some cases.  This is great way of protecting you against a rate increase.

The bonds are “covered” because they are backed, normally, by high quality, or low loan-to-value ratio, mortgage loans. Canadian banks originate mortgage loans, and sell them to a bankruptcy-remote special purpose vehicle, which in turn sells bonds, typically with five-year terms, to foreign and domestic investors. The stream of interest and principal payments on the mortgage loans backs these contractual covered bonds.

The cover pool is always overcollateralized, meaning that the face value of the mortgage assets exceeds the value of the bonds they back; Canadian practice limits overcollateralization to 10% of the bond issue. The issuing bank’s full faith and credit gives the bonds dual cover.

This belt-and-suspenders approach to security strengthens the confidence of bond buyers. For instance, when the Royal Bank of Canada first came to market in 2007, with a cover pool comprising uninsured residential mortgages, the bonds sold at a low yield spread over comparable duration sovereigns. And when in February this year Moody’s Investors Service announced a potential downgrade of the parent company’s credit rating, it later clarified that RBC’s covered bonds would retain, even in the event of a bank downgrade, their Aaa rating.

So far, so good — the covered bond structure ensures that banks are exposed to the risks of the loans they write, letting them sell the bonds they back at very low yields. This securitization model, with its short intermediation chain — in contrast to “originate-to-distribute” mortgages and the structured securitizations and derivatives built around them, which went so wrong in 2008 — distributes risks to informed investors who are able and willing to bear them, rather than centralizing risks within the financial system. That is a good outcome, which also shows how markets can evolve to deliver a sound housing finance system.

Yet, owing to government-backed mortgage insurance, the future might continue to look rather like the past, with rising taxpayer exposure to bank lending and borrowing.

Since 2007, Canadian banks have increasingly come to the covered bond market with bonds backed, in whole or in part, by mortgages individually insured by the Canada Mortgage and Housing Corporation. This insurance cover boosts the surety of the bond pool, and marginally lowers the banks’ cost of capital and, arguably, perhaps lowers the cost of homebuyers’ mortgages. But an otherwise functioning financial market also gains government and taxpayer participation, and risk exposure, to uncertain net benefit.

There is more. CMHC also offers, and many banks buy, portfolio or “bulk” insurance for bundles of otherwise uninsured mortgages, which in turn are placed in bond cover pools. This cheap insurance is an additional guarantee, and banks save typically 10 basis points or more on their insured bond issues.

The popularity of bulk cover is one reason why CMHC is now pushing toward its $600-billion legislated cap on the extent to which the agency can back debt with a government guarantee. And the belt-plus-suspenders-plus-insurance raises questions, such as the extent to which taxpayers should guarantee bank lending to foreign bond buyers who might otherwise be satisfied to bid for uninsured covered bonds. Bondbuyers seeking a sovereign guarantee have access to government of Canada treasuries and long bonds, which are a similar, competing investment.

In turn, that is why Ottawa will be considering limiting — perhaps even to zero — the extent to which covered bond pools may be stocked with portfolio-insured mortgage bundles.

Other components of a legislated, as opposed to contractual, covered bond framework may be warranted, such as standards for replenishing bond pools. Over the life of, say, a five-year covered bond, some of the mortgages that back it will go bad, and others will age out of the pool — they need to be replaced by mortgages of similar or higher quality.

And that is where things can go bad. An example from the 1890s makes the point, when one of several farm mortgage crises rolled across the U.S. Mortgage companies began to fail, and as their capital came under pressure, they restocked cover pools with bad mortgages, and removed good ones, violating their bond programs’ trust agreements, and spreading their financial illnesses to investors at home and abroad, who thought they had secure collateral.

No one would suggest such a scenario among domestic banks today, but the incident sufficiently resembles the 2007-08 collapse of mortgage securitizations that it deserves attention. A sound regulatory and legislative framework, including disclosure standards for asset replenishment, common practices and audit standards, can all help the Canadian covered bond market develop.

Even better, housing finance has a route that may help it evolve toward lesser reliance on taxpayer guarantees, and with confidence. And that would be a good thing.

Financial Post
Finn Poschmann is vice-president, research, at the C.D. Howe Institute.

I won’t comment on other industries (I’ll leave that to their own pros) but I will talk about the industry I’ve been working in for the last 30 years. The trend is definitely swinging toward “green” products and options. This is good. The problem is when people and companies jump on the bandwagon just to make a quick buck. It’s what some call “greenwashing.

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When I first started commenting on the home-inspections industry, I would characterize it as a lot of cowboys but not a lot of sheriffs. The same could be said about the green movement.

Because it’s new, there are a lot of regulations and certifications being developed. The problem is knowing which ones are legitimate. What are the regulations today that will define the green standard of tomorrow?

It’s still a moving target. So I’m more inclined to talk about something I know does the job for both the homeowner and the environment — and that’s energy efficiency and durability. Building an energy-efficient home is becoming standard, and I like this, because it’s asking more of builders as well as homeowners.

It’s a way of thinking that says it’s better to invest in more insulation than a granite countertop. It’s cool to have solar panels and a green roof. These features are becoming the new eye candy of the modern home.

Do I like green? Yes. But I don’t like greenwashing. And for me, the smarter and greener option will always be something that proves its “green-ability” on a consistent basis. And that’s energy efficiency and sustainability.

Let’s look at the facts: The cost of energy is rising, and there’s no sign of it leveling off at any point. We have energy-performance labels that tell potential buyers exactly how energy-efficient elements of the house are.

What does this mean for homeowners? That an energy-efficient, durable home will appeal to anyone living on a fixed income and/or thinking of selling his home in the future.

We’re going to see more builders offering energy-efficient packages and upgrades. We’re going to see more homeowners choosing renovations that will bring their homes to higher performance levels and make them more durable. And we’re going to see an increase in demand for experienced and skilled renovators who know how to do this — the right way.

As builders and renovators, we need to mix the old construction theories that worked with new technologies, and get rid of the middle era that didn’t work. Look at passive houses. These homes represent some of the best kinds of energy-efficiency options, because they use the environment to their advantage.

Unfortunately, not everyone can afford to buy the latest and greatest in energy-efficient homes and upgrades. These options may deliver significant savings, but the initial investment isn’t cheap.

For example, if you wanted to add a solar-power system to your home, a two-inch plastic pipe going from the attic to the basement will need to installed. Roof trusses need to be able to safely sustain the extra weight. You’ll also need an anchorage system properly sealed through the roof. Then you’ve got the cost of installing the system itself. This is an expensive investment that most homeowners can’t afford.

The good news is there are a few options that don’t require a lot of restructuring to make a home more energy-efficient. It’s just a matter of incorporating smart, simple, eco-friendly solutions that deliver real positive changes in the future, such as:

1. Increase and/or replace old insulation in the attic with one that has a higher R-value (at least 60). Make sure there’s good ventilation in the attic and seal off any areas of heat or energy loss, such as windows and door frames.

2. Go for Energy Star-rated appliances whenever possible.

3. Install a programmable thermostat that regulates the temperature of your home between day and night, whether you’re home or not.

4. Replace older toilets with low-flow ones to save, on average, 30% to 50% of the water normally used.

5. Install a domestic hot-water recovery system that re-captures heat gathered from hot water used during dishes, showers, etc., and uses it to preheat the water going into the hot water tank.

Homes need to be more energy-efficient and environmentally sustainable if we want to build for the future. In fact, I think we have a responsibility to build homes you can buy when you’re young and grow old in. We used to build that way. We can build that way again.

The BMO 5 year fixed mortgage is not a traditional 5 year fixed rate mortgage product.  It is what we call in the industry a No frills mortgage.  These type of mortgages are available throughout the year from whole sale lenders but never get any attention from the media (I guess the whole sale lenders do not pay the media enough money) or from the mortgage brokers or other mortgage sales people.  Reason being they limited features.  Main features are

• With BMO Only available for three weeks beginning March 8^th .  They run as specials through the year at different times for short periods of time.
• A Lower Maximum Amortization:
  25 years versus 30-40 years elsewhere
• Less Lump-sum Pre-payment Ability:
  10% maximum per year on anniversary date (compared to 15% to 25% at any time with traditional mortgages).
• A Smaller Payment Increase Option:
  Up to 10%, once per year (compared to 15% to 25% at any time with traditional mortgages)
• A Locked Term:
  The Low-rate Mortgage is fully closed unless you sell the property, refinance (with BMO only), or early renew into another BMO mortgage. In other words, unless you sell, you’re not leaving BMO for 5 years, like it or not.  Traditional fixed rate mortgages although closed are always open on either three month interest or Interest Rate Differential (IRD) penalty so there is always a way out for the client.  With No Frill mortgage you are locked in with no out clause unless you sale the property.

Current discount  rates available

1 Year Fixed Rate 2.74%

2 Year Fixed Rate 2.95%

3 Year Fixed Rate 2.89%

4 Year Fixed Rate 2.99%

5 Year Fixed Rate 3.29%

10 Year Fixed Rate 3.89%

Variable 2.90%.

A national measure shows housing became more affordable in the fourth quarter of last year, the second improvement in a row, Royal Bank of Canada’s quarterly release showed Wednesday. It found all housing categories became more affordable, led by the two-storey home category.

The measure comes amid a debate over whether some Canadians are overextending themselves by taking out mortgages they can’t afford – particularly in hot markets like Toronto and Vancouver. Canadian household debt burdens, meantime, remain a key concern to economists.

The quarterly improvement in affordability was modest, but still enough to “dial back the deterioration that impacted the market in spring last year,” said Craig Wright, RBC’s chief economist, in the report.

“Continued low interest rates in 2012 will help keep housing costs at bay in the near term.”

The erosion of affordability levels in the first half of last year stemmed mostly from dramatic increases in a single market – Vancouver. In the second half of the year, though, this market became more aligned with the rest of Canada.

Vancouver remains – by far – the least affordable large city in Canada to own a detached bungalow. Toronto is next, followed by Montreal.

At this point, housing in Canada is as affordable as it was a year ago, and “only slightly” less affordable on average than it has been over the long term, Mr. Wright noted.

The bank’s affordability measure tracks the proportion of pre-tax household income that would be needed to service the costs of owning a home at current market values.

It comes on the same week the Canadian Real Estate Association predicted average home prices will fall 1.1 per cent this year, to an average of $359,100, before rebounding 0.9 per cent in 2013