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Does It Make More Sense to Rent or Buy?

Tue, 08 May 2012 13:13:00 GMT

Ben Rabidoux

Globe and Mail Update

Published Friday, May. 04, 2012 6:17AM EDT

Last updated Monday, May. 07, 2012 3:19PM EDT

In the first of his weekly columns for Globe Investor's new month-long Home Buying site, housing bear Ben Rabidoux looks at whether now is better to buy or rent.

Not too long ago I received an e-mail from a young couple in their early 20s who had just made the decision to purchase their first home after renting a house for the past three years.

“It was a no-brainer for us. It was either keep renting and throwing our money away or buy and start building equity.”

At the time, they had been renting a two-bedroom bungalow in a small Ontario town. Their rent had gone up by about 5 per cent over three years, while local housing prices had appreciated by 20 per cent or more in the same period.

“Does it concern you at all that house prices have risen so much faster than rent,” I asked.

“Not at all. Our town is growing. People want to live here. Small town, nice people, close to the water ... Why wouldn’t house prices go up?”

Their experience has been mirrored in most cities in Canada. House prices over the past decade have substantially outpaced rental growth. You can see the pattern in these charts comparing rent and home price increases in major Canadian centres:

The same pattern is widespread even in most smaller communities

Should it concern us when we see house prices rising much faster than rents for a prolonged period of time? Interestingly, in 2004, the Federal Reserve Bank of San Francisco released a report warning of a serious overvaluation issue in U.S. real estate. This proved to be a remarkably prescient warning as the market peaked two years later, then began its unprecedented decline. What tipped them off to the existence of a housing bubble in the U.S.? Believe it or not, it was the fact that house prices had grown so much faster than rents for a prolonged period of time.

Why do rents determine fair value of a home?

We need to step back and look at the issue of home prices in a completely different way. All of the usual factors that people tend to associate with rising house prices, namely rising population, income growth, limited supply, and the general desirability of a particular city or area, should affect the price of renting a home as well as buying a comparable home.

Let’s consider just rising population amid a relatively stable supply of residences. This creates demand for dwellings in general, pushing up house prices, along with the rent that a landlord could charge. But not every factor drives them up equally. In fact, there are two main factors that can cause the value of a house to rise faster than the rents that a comparable dwelling would command.

The first factor is cheap and readily available credit. Since houses tend to be bought on credit, but rents paid out of income, when credit is cheap and readily available, it can, for a time, push house prices up much faster than rents. But this is not sustainable in the long run as ultimately even house prices are constrained by the growth in the incomes that support mortgage payments. With interest rates hovering near historic lows and with mortgage debt at all time highs, it’s easy to see that this fact is at play here in Canada.

The second factor is what economists call the "ownership premium." When people look favourably upon real estate as an investment, the price of houses can increase faster than rents for a time. Said another way, when there is a cultural shift towards owning a home, and an associated stigma towards renting, it can cause people to make irrational financial decisions such as purchasing a home when an equivalent home can be rented for substantially less than ownership costs. This is particularly the case in Canada’s larger cities.

Our home ownership rates have risen across all demographics, and we now have the highest proportion of homeowners in our country’s history (roughly a 70/30 split). At the same time, surveys by RBC and the Canadian Association of Accredited Mortgage Professionals (CAAMP) have consistently shown that people view home ownership as the best way to build long-term wealth. Home ownership is consistently rated higher than investing in stocks, bonds, or mutual funds as the best way to build wealth. The notion of housing as a means to riches and renting as “throwing your money away” is a relatively new, and in some cases, dangerous mentality.

In many cities, it makes far more sense financially to rent a dwelling and build your equity by saving the difference between your rent and your ownership costs. Unfortunately, it is phenomenally difficult for many prospective new buyers to think logically about this due to the prevailing stigma against renting and the pressure exerted by well-meaning friends and family to “stop throwing money away on rent.” As I like to remind people, the majority of new buyers are still renters; they’ve just gone from renting space to renting money.

The growth in prices relative to rents tells us that unsustainable factors are at play. Temper your expectations! A decade of house price appreciation like the past is exceptionally unlikely and the chances of significant price corrections are high and rising, particularly in places like Vancouver and the Toronto condo market.

Analyst and strategist Mr. Rabidoux covers Canadian macro economic trends with a focus on housing and consumer credit. He also has a website, TheEconomicAnalyst.com

Mortgages: Nail the Right Term Length the First Time.

Fri, 04 May 2012 16:34:00 GMT

Robert McLister

Globe and Mail Update

Published Wednesday, May. 03, 0002 12:00AM EST

Last updated Friday, May. 04, 2012 7:56AM EDT

Canadian Mortgage Trends editor Robert McLister kicks off his first in a weekly series of columns for the month for The Globe's Home Buying site with this look on the best - and worst - mortgages terms out there.

Finding a good mortgage rate online is a cinch. Anyone who has ever looked for rate comparison sites knows the Internet is packed with them.

But determining the best mortgage term – the length of the mortgage contract – is trickier because up-to-date term comparisons are hard to find.

Although mortgage terms are often overshadowed by the intense focus on mortgage rates, it pays to put a lot of thought into term selection. It’s the No. 1 factor in determining how much interest you’ll fork over to a lender.

If you pick a closed mortgage with the wrong term, you’re stuck with that rate until maturity, unless you cough up a penalty to break the mortgage. Worse yet, if you choose a “no-frills” mortgage – one with lower rates in exchange for more restrictions – you’re often barred from leaving your lender for the duration of the term, unless you sell the property.

Mortgage terms fall into two groups: Long-term rates, such as four-, five-, seven- or 10-year fixed terms; and short-term rates, which include variable, one-, two- or three-year fixed terms.

Choosing between these terms is not about predicting rates. It’s more about identifying risks and estimating the probabilities of these risks adversely impacting you.

If you are trying to decide which term is best for you, start by making an honest assessment of your financial position and future plans.

A long-term mortgage makes sense if:

A 25- to 30-per-cent-plus payment increase would cause you financial stress. (That’s the payment hike that a short-term borrower might face if rates rise as economists project.)
Your “emergency fund” covers less than six months of living expenses
You have minimal equity and net worth
There’s a chance your earnings could drop due to job instability, a highly variable income, upcoming retirement, an educational leave, an extended care leave, etc.
You’re heavily invested in long-term fixed income, which creates more risk to your “personal balance sheet” if you’ve also got a short mortgage term and rates surge
You want greater certainty when projecting cash flow on an income property

A short-term mortgage may be the way to go if:

You expect to pay off large chunks of your mortgage or sell your home within the next three years
You have a short remaining amortization (e.g. 5-6 years or less)
Your credit is subpar and you need a non-prime mortgage just long enough to rehabilitate your credit so you can qualify with a prime lender
You need to refinance in coming years to access your equity for a life event, education, investment purposes, business use, etc
You strongly believe that rates won’t rise in any meaningful way over the next 12 months, you can afford to be wrong, you’ve found a short-term rate that’s far lower than long-term rates, and you can make higher-than-required payments.

Let’s suppose you’ve decided a long-term mortgage is right for you. The next question is: Which one?

The answer changes as rates change and at this very minute, it’s almost too close to call. The five-year fixed (currently around 3.24 per cent) and the 10-year fixed (currently 3.89 per cent) are running neck and neck in terms of value.

Assuming you have a 25-year amortization and make payments as if you had a 10-year fixed term, a five-year mortgage will save you $3,259 in the first 60 months, for every $100,000 of mortgage.

By comparison, a 10-year term saves you interest if five-year fixed rates rise more than 1.60 percentage points in five years.

What are the odds of rates climbing 1.60 percentage points? Well, if you believe Bank of Canada warnings and economic forecasts, you shouldn’t bet against it. In the last three interest rate cycles, five-year rates have climbed an average of 2.46 percentage points, albeit for a short time only. So if your financial footing isn’t as stable as you’d like, the 10-year is probably worth the extra “insurance” cost for the peace of mind.

I’ve excluded the comparable math on four- and seven-year mortgages because their pricing simply isn’t good enough at the moment.

If you’ve examined your financial position and found that you’re better suited to a shorter term, the best value currently is a three-year fixed. That is based on the hypothetical assumption that rates will increase moderately starting late this year or early 2013. It also assumes you won’t need to discharge your mortgage early.

You can find three-year mortgages on the street for roughly 2.89 per cent today. This is less than you’d pay with most variable rates and it gives you three years of rate protection.

After three years, you can renew into the best value at the time. You could then choose a variable mortgage, if variable-rate discounts improve – as some people are predicting.

The options laid out above are a glimpse at how a mortgage planner might determine your ideal term. There are, of course, countless other criteria and lots of exceptions.

You’ll find simple mortgage calculators all over the Internet, but there are few good tools to identify the best term. So spend some time researching this and consider bouncing your situation off someone with experience before settling on a strategy.

Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at Mortgage Architects. You can also follow him on twitter at @CdnMortgageNews.

For tips, stories, videos and live chats about what's going on in the real estate market, check out the Globe's Home Buying section for daily updates.

Renewing Your Mortgage? Be A Hero.

Wed, 02 May 2012 13:39:00 GMT

By Rob Carrick
From Thursday's Globe and Mail

As five-year terms come due at lower interest rates, savings can be plowed back into the principal

Let's see whether the many people who bought a house in 2007 show the appropriate killer instinct when renewing their mortgages this year.

Surveys indicate that about one-third of mortgage holders are actively trying to terminate their mortgages early by making extra payments. But we need to do more now, before the economy rallies and rising interest rates start making it more expensive to finance the cost of a home.

This is where the people who bought five years ago come in. Those who opted for a five-year fixed-rate mortgage will have to renew at some point this year, which means they face a choice. They can either let today's vastly lower mortgage rates reduce their monthly payments, or leave their payments where they are and use the differential to accelerate the pay down.

Long-time mortgage broker Vince Gaetano of MonsterMortgage.ca has been urging his renewal clients to go with the second option. "The story we try to present to the client is: 'How soon do you not want to have a payment any more?' "

To make his case, Mr. Gaetano lined up some facts and figures on the mortgage market for 2007 and now. Five years ago, the global financial crisis had yet to flare up and Canada's housing market was reporting what were then record sales.

A majority of buyers were going with five-year fixed mortgages, for a couple of reasons. First, discounted variable-rate mortgages were going for close to the same rate as a discounted five-year mortgage with a fixed rate. Second, it was widely thought that interest rates were headed higher.

As a result, Mr. Gaetano said, about 70 per cent of buyers were going with five-year fixed rate mortgages.

He recalls that, in June of 2007, a well-discounted five-year mortgage went for 5.79 per cent. Today, the very best rate for a five-year mortgage is 3.29 per cent.

Let's say you started with a $300,000 mortgage in 2007. Mr. Gaetano said that if you chose a 30-year amortization, your monthly payments would have been $1,745 and your balance on renewal would be $278,184. If you moved into a new five-year fixed rate mortgage at 3.29 per cent, your monthly payments would be $1,358, which would save you a very significant $387 a month.

Mr. Gaetano's numbers show that if you pocketed that money and went with lower payments, your mortgage balance on renewal five years from now would be $239,087. If you kept your payments level, thereby paying down an extra $387 a month against your principal, the balance on renewal would be $213,914. The lower your mortgage amount on renewal, the quicker the loan will be paid off and the less interest you'll pay.

High personal debt loads in Canada have caused concern at the Bank of Canada, the Department of Finance and, outside the country, the International Monetary Fund and the Organization for Economic Co-operation and Development. It would be a clear sign that Canadians are getting the message on debt if they used all available opportunities to pay their mortgages down quicker.

The actual experience in this area is encouraging. The 2012 RBC Home Ownership Poll indicates that 14 per cent of Canadians made double-up mortgage payments (your regular payment plus an additional amount equalling as much as one extra payment), 13 per cent made one-time lump-sum payments and 7 per cent applied a bonus, gift or inheritance against their mortgage balance. A mortgage market survey released by the Canadian Association of Accredited Mortgage Professionals last November suggested that 36 per cent of mortgage holders are making voluntary additional payments.

"You are seeing a significant minority who value [mortgage prepayment] features and are taking advantage of it," said Jim Murphy, CAAMP president.

The CAAMP survey also found that in cases where people were renewing their mortgages at a lower rate, 24 per cent voluntarily increased their payments. We could do better than that, especially among the people renewing mortgages they arranged in 2007.

These people presumably have seen their pay rise somewhat, and they've learned how to juggle the cost of running a house along with other expenses. Most importantly, they're fortunate to have got into the market before the price runups of the past few years.

No one's in a better position to show the killer instinct about mortgages than the class of 2005. Don't let us down at mortgage renewal time, guys.

________

How often do mortgage holders make extra payments so their mortgages will be paid off ahead of schedule? Here are some answers from a survey done for the Canadian Association of Accredited Mortgage Professionals. The stats suggest more people in recent years have been trying to pay off their mortgages early.

Time period	Increased payment	Made lump-sum payment	Increased payment frequency	One or more additional efforts
2000-05	13%	15%	3%	31%
2006-11	16%	19%	6%	37%

Source: CAAMP Annual State of the Residential Mortgage Market survey, November, 2011

Pay Off Your Mortgage Faster

Mon, 23 Apr 2012 13:38:00 GMT

Most homeowners would love nothing more than not to have to put that mortgage cheque in the mail every month. Trying to pay off your mortgage ahead of schedule is not something to be undertaken lightly. You must make sure you are financially secure, with no other significant debt, and have money in reserve for emergencies.

There are also compelling arguments for not paying off your mortgage ahead of schedule. For instance, you may want to enjoy your money now. By allotting less of your income toward your mortgage, you have more money available for vacations and other uses. Or you could use the money for home improvement, which can make your home more comfortable and valuable when you are ready to sell.

In your haste to be rid of your monthly mortgage burden, you cannot afford to mortgage your financial future. Make sure you will be able to finance your children’s college education and your own retirement.

However, if you are in a debt-free financial position where you can pay off your mortgage more quickly without sacrificing other aspects of your life, there are ways to accomplish this. Naturally, you will have to consult your mortgage broker to see what you can and cannot do. Here are a few of the more popular options.

1. Increase your payment schedule. Bi-weekly mortgage payments have become increasingly popular as a way to pay off a mortgage more quickly. This will allow you to make 1 extra full payment per year and will end up saving you thousands of dollars in mortgage interest while cutting years off of your loan. Signing up for a bi-weekly or accelerated mortgage payment program will not only help you save money and cut the term of your loan down but it they will also help you build equity into your home faster.

2. Make lump sum payments. Depending on the terms of your mortgage agreement, you may be able to make lump-sum payments at specific times. For example, you could earmark your bonus check of $5,000 to pay off part of your mortgage. A lump-sum payment is applied directly to your outstanding principal if there is no outstanding interest owing. This saves you money over the course of your mortgage.

3. Shorten the time frame of your loan. You could elect to refinance and change your 35 year mortgage to a 15 year mortgage. Bear in mind, though, that your monthly payments will be considerably higher.

4. Increase your payments. If your financial situation has improved and you are making more money, you may be able to make higher payments or balloon payments. Most loans will allow you to increase your payments in this manner with certain restrictions.

5. Refinance at a lower interest rate, but pay the same amount each month as you did before. If you maintain a 35-year mortgage, but the interest rate drops from 6.25 percent to 5.10 percent, the money you were paying in interest can now be applied to the principal.

Remember, the first step is to make sure you can afford to pay off your mortgage more quickly. If you can, talk with your mortgage broker to find out which of these strategies is best for you. Laurie and Scott are available to meet with you to arrange a strategy to suit your needs (250 862 1806) or visit our site to manage your own mortgage.

Understanding Mortgage Options

Tue, 10 Apr 2012 12:59:00 GMT

Congratulations! You’ve decided to begin your search for a new home, or perhaps you’ve already found the home of your dreams and are ready to make an offer. It’s now time to consider your mortgage options. But with so many different choices available, how can you select the right kind of mortgage for your needs?

To help you make an informed decision, Canada Mortgage and Housing Corporation (CMHC) offers the following answers to some of the most common questions Canadians have about choosing a mortgage:

What is the difference between conventional and high-ratio mortgages?

A conventional mortgage is a loan for up to 80 per cent of the purchase price (or market value) of a home. With a conventional mortgage, the buyer supplies a down payment of at least 20 per cent, and mortgage insurance is usually not required. If your down payment is less than 20 per cent of the purchase price, however, you will typically need a high-ratio mortgage. High-ratio mortgages normally have to be insured against payment default.

What are fixed, variable or adjustable interest rates?

When you choose a mortgage, you have to decide whether you want the interest rate to be fixed, variable or adjustable. A fixed rate is locked-in for the entire term of the mortgage. With a variable rate, the payments remain the same each month, but the interest rate fluctuates in accordance with the overall market. For adjustable rate mortgages, both
the interest rate and the mortgage payments vary based on market conditions. Talk to your broker to find out which option is right for you.

Should I choose an open or closed mortgage?

With a closed mortgage, you pay the same amount each month for the entire term of the mortgage. Closed mortgages can be a good choice if you want a fixed payment schedule, and you don’t plan on moving or refinancing before the end of the term. An open mortgage allows you to pre-pay a lump sum or even the entire loan at any time without a penalty. An open mortgage can be a good choice if you’re planning to sell your home in the near future, or if you want the flexibility to make lump sum payments.

What about the term, amortization and payment schedule?

The term is the length of time (usually from six months to 10 years) that the interest rate and other conditions of your mortgage will be in effect. Amortization is the period of time (such as 25, 30 or 35 years) over which your entire mortgage debt will be repaid. Lastly, the payment schedule sets out how frequently you will make payments on your mortgage – usually monthly, biweekly or weekly.

If you have any further questions regarding mortgages please contact Scott or Laurie at (250) 862 1806.

Tips For Buying a Home.

Sun, 25 Mar 2012 15:07:00 GMT

You are about to invest in your most valuable asset. Below are our top 8 recommendations to make you more confident as you start your home buying journey.

1. Your Credit Rating

Getting your finances in order is probably the most important step you should take. You must know exactly what your credit reports say about your financial history before you apply for a mortgage, because the reports play an important
role in the mortgage approval process and in determining the interest rate and other loan terms that a lender offers you.

2. Understanding How Mortgages Work

Get familiar with the mortgage laws, structure and options. That way, you will be able to decide on the right loan and lender – crucial to your home buying success. It is up to you to determine which lender is best for your needs, and it is always a good idea to have at least a bit of background about the loan process before you make your final decision.

3. Getting a Mortgage Pre-Approval

Do you know how much house you can afford? Probably not, unless you have talked to a mortgage broker. Pre-approval helps you in other ways. Consider this scenario. A home seller gets two similar offers. One is accompanied by a letter that states the buyer is pre-approved for a mortgage in the amount of the offer. The other has no supporting documents. Which offer do you think the seller will consider first?

4. Sorting Out Your Needs and Wants

Buying a home isn’t as difficult as you might think, even if you’re short on funds. But the process will go a lot smoother if you get familiar with your real estate market and narrow down your wants and needs before you start looking at houses.

5. Preparing to Work with Real Estate Agents

Real estate agents represent buyers, sellers, or both. It’s essential to understand agent duties and loyalties before you make that first phone call.

6. The Great Home Search

The Internet is a great tool – you can spend endless hours searching the public version of the Multiple Listing Service website. You can also pick up House For Sale magazines and read classified ads in local media. You might even plan an afternoon drive to preview neighbourhoods. These are all excellent ways to see what is available out there.

7. Home Inspection

Deciding whether or not you want to buy a house involves a look at its structure and its features, but there are many other topics that are every bit as important to your purchase. Appoint a professional to conduct the home inspection. Study what kind of house it is and consider its market value.

8. Making the Offer

There is no one set of instructions that can cover all the differences in real estate laws and customs that exist throughout, so it is important to meet with your agent, attorney or advisor to fine-tune your offer and take care of all the contractual considerations

New Tax Credit for First-Time Home Buyers Will Stimulate Market.

Wed, 22 Feb 2012 21:47:00 GMT

New tax credit for first-time home buyers will stimulate market

By BRIAN MORTON, Vancouver SunFebruary 21, 2012

A new tax break for first-time buyers of new homes will help stimulate the construction industry and create plenty of new jobs, an industry executive said of Tuesday’s 2012 provincial budget.

Photograph by: Gerry Kahrmann, Vancouver Sun

A new tax break for first-time buyers of new homes will help stimulate the construction industry and create plenty of new jobs, an industry executive said of Tuesday’s 2012 provincial budget.

“This is welcome,” Greater Vancouver Home Builders’ Association president and chief executive officer Peter Simpson said of a temporary bonus for first-time homebuyers that will be effective until March 31, 2013, and is worth up to $10,000.

“They have a difficult time getting into the market and typically get assistance from the bank of Mom and Dad. So this helps property virgins get on the first rung of home ownership and helps stimulate construction.

“For every home start, there are approximately three full-time jobs each year.”

The bonus, a one-time refundable personal tax credit, is equal to five per cent of the purchase price of the home to a maximum of $10,000.

The bonus will be reduced based on a buyer’s or couple’s net income. For single people, the bonus is reduced by 20 cents for every dollar in net income over $150,000 (it’s reduced to zero at $200,000 net income). For couples, the bonus is reduced by 10 cents for every dollar in family net income over $150,000 (it’s zero at $250,000 family net income).

The bonus, which includes detached houses, duplexes, townhouses, condos, mobile homes, floating homes and cooperative housing units, is based on homes where the HST is now payable.

In a budget briefing, Finance Minister Kevin Falcon said the incentive will help people get into the market.

“We hear from people that talk about the challenge their children or their grandchildren are having getting into their first home,” Falcon said.

“And the biggest hurdle is usually the down payment you’re required to come up with. We believe a $10,000 contribution towards those first-time purchasers of new homes is a great contribution, a great way we can help your children or your grandchildren get into their first home and at the same time receive the dual benefit of supporting the new home construction industry over the next 12 months when it’s forecast across the country to be slowing.”

Urban Development Institute executive-director Maureen Enser agreed, saying the homebuyer bonus was an added bit of good news for the home construction industry on top of the government’s announcement last week raising the HST-rebate threshold to $850,000.

“In the Lower Mainland in particular, where housing is very expensive, both measures together make it easier for people to consider a new home [purchase] for a family,” Enser said.

She added that the maximum $10,000 bonus for first-time buyers with net income under $150,000 should stimulate some potential buyers to move off the sidelines and look for homes, particularly in the Lower Mainland.

“[About] 13 per cent of new housing is priced below $525,000, and 50 per cent is between the $525,000 and $850,000 range,” Enser said, so the measures combined help bring down the cost of new housing at both ends.

However, Simpson was less happy about the budget’s lack of any significant tax relief for the home renovation industry, noting that B.C. homeowners will spend more than $7.6 billion in home renovation, improvement and repair this year.

“We’re still left with the issue of the underground economy, with people delaying their decision to renovate their home by waiting for the HST to disappear [on April 1, 2013],” said Simpson, who added that the home renovation tax credit of up to $1,000 a year for seniors to help them remain in their homes longer will not have a big impact on renovators.

Vancouver-based home renovator Todd Senft agreed with Simpson, saying he’d hoped for new relief but now believes the lack of tax breaks in Tuesday’s budget will force many people to put off renovations and go to the underground economy — where renovators with less credentials undercut legitimate contractors.

“That’s disappointing,” Senft, owner of reVISION Custom Home Renovations Inc., said.

“I’m glad they paid attention to new-home builders, but that doesn’t help us. People will wait a few months and save a few thousand dollars.

“It [the home renovation industry] is steady right now and the year has started moderately. But it will be a tough grind this year. I’m hoping more [homeowners] don’t head to the underground economy to save money. The savings by doing it under the table are massive.”

Meanwhile, Business Council of B.C. president Jock Finlayson said the 2012 budget is generally very positive for B.C.’s economy.

“We would give it high marks overall. It’s not perfect, but we think it will be well received in the business community and financial markets. [And] it reinforces the province’s strong fiscal position and aims to [return B.C.] to a balanced operating budget. It maintains most of the tax advantages of B.C.

“And the forecasts are credible, as we see it.”

However, B.C. Federation of Labour president Jim Sinclair called the budget a continuation of policies that have put more money in the pockets of the richest British Columbians and B.C. Liberal insiders at the expense of working and middle-class families.

“British Columbians have a right to ask why in tough times we’re giving grants to CEOs to buy vacation homes in Whistler, while they’re telling health care workers and teachers that they have to take a pay cut. I think this is a poor excuse by a desperate government to try to capture the right wing.”

Sinclair said the budget speech acknowledged that front-line workers in B.C.’s public sector had already foregone billions in income due to real wage cuts over the past two years, while cabinet ministers and senior managers got double-digit pay hikes. “It’s simply not fair.”

Iain Black, president and CEO of the Vancouver Board of Trade, said his overall grade for the budget is a B. “We’re dealing with a government with very difficult global economic conditions to deal with and yet it managed to carve out some careful, strategic moves for B.C.”

Kevin Evans, CEO of the Industry Training Authority, also praised the budget for providing tax credits for the shipbuilding and ship repair industry to help employers hire apprentices.

Shachi Kurl, director of provincial affairs, B.C. and Yukon, for the Canadian Federation of Independent Business, said the budget appears to be on track to balance the budget by next year, but raises the unwelcome spectre of corporate tax increases and fails to honour the commitment to eliminate the small business tax rate.

Deloitte tax policy expert Lisa Zajko said the retention of the 2.5-per-cent small business rate and the provisional one-precentage point increase to the corporate tax rate — from 10 per cent to 11 per cent effective April 1, 2014, if the economy falters — are not surprising. “The wait-and-see approach to the corporate tax rate increase is a safe move but may affect B.C.’s competitive position in the future if Alberta and Ontario keep their rate at 10 per cent, without entirely foregoing the prior work toward cutting corporate tax rates.”

bmorton@vancouversun.com

Where Are Interest Rates Headed?

Wed, 01 Feb 2012 20:26:00 GMT

The answer to that question, depends on where you look. Most experts look at the economic indicators to give them some direction. The data tells them, we are far from a recovery. Canada is still facing job losses and a sluggish economy. In the past, before raising interest rates, the Bank of Canada will wait for the gap to narrow between current GDP and GDP if the economy were at full capacity. Also for unemployment figures to stabilize.

Most economists believe rates will increase 2 - 2.5% over the next 5 years. But the forecast, is for rates to remain relatively flat, for the next twelve months. The Bank of Canada has held rates unchanged for the last 16 months and most economists believe we won’t see a change until 2013.

Last week, BMO came out with a special five year rate at 2.99%. This lead its competitors to match rates. The rate is a fantastic deal but comes with some restrictions in repayment and available amortizations etc. This drop in rates has spurred other lenders to drop their longer term rates, such as the 7 and 10 year terms to under 4%. What should a home owner do with rates this low?

If you assume that mortgage rates increase by 2% in the next 5 years, then it is far better to pay a little higher rate now and look at a 10 year term. This will provide stability over the long term and also increase your equity. For those who are currently maxed out on other expenses, this could be a winning strategy in the long run. We have a calculator, which will analyse and provide some guidance on exactly which product is right for you. Please call for a free consultation with no obligation (250-862-1806 Laurie or Scott).

Financial Implications of Living Longer.

Wed, 12 Oct 2011 17:48:00 GMT

It's a fact that Canadians are living longer today than ever before and while this is great because we'll have more time to spend with loved ones—it's a bit alarming from a finance and savings perspective.

Data suggests that retirement years have stretched from 13 to 20 years—or a 54% increase. This means that a proportionate increase in savings is required to ensure your savings can fund the retirement lifestyle you had in mind.
How can we fund this longer retirement? “The easy answer is either through an increase in contributions, or higher returns on your investments,” says Bob Gorman, Chief Portfolio Strategist for TD Waterhouse.

“However, in reality that can be difficult: people have a natural tendency as they age to make lower-risk investments, which can reduce the chances of higher returns.”

Getting an early start on retirement savings and making regular contributions is probably the best way to ensure you have savings in place when it's time to stop working. Bob Gorman offers tips to get started—or to help maximize your
current retirement investments:

Make sure you have a plan.

Know what your goals are and determine what financial steps are needed to get there. An experienced financial advisor can help you build a custom plan suited for your personal situation, as well as help you manage it.

Contribute regularly.

Monthly contributions can help you reach your total annual contribution goal. Investigate taking advantage of payroll deductions for an RSP if offered by your employer. If short of funds, consider a loan for your RSP contributions.
The tax deferred compound growth on your investments could potentially outweigh the interest costs.

Evaluate your investment portfolio regularly.

Analyze your asset allocation and assess if it’s appropriate for your required return, time horizon and risk tolerance, as well as if you’re on track to meet your goals.

Retirement Priorities

Fri, 07 Oct 2011 19:04:00 GMT

Golf, travel and relaxation may all be part of your retirement plans—but mortgage payments probably aren't. With a mortgage to pay down and retirement to save for, many boomers are faced with a decision about where they should direct their funds.

Does it make more sense for baby boomers to prioritize paying-off the mortgage or to max out investments and RSP contributions? The answer to this question depends on many factors and an expert at your bank can help you analyze your specific situation. TD Canada Trust offers the following general guidelines:

If retirement is still a long ways down the road, it can make sense to invest and take advantage of the power of compound interest over time. Further, you can put money into an RRSP, and then pay down your mortgage with any tax refund you may get.

If you are close to retirement, then the benefit of contributing to an RRSP, outside of reducing your immediate income tax liability may be minimal, and paying down debt can be a better option.

If you have extra money to put towards your mortgage, there are strategies that can help you be mortgage free faster, including:

Increasing the frequency of your payments
Increasing the amount of your payments
Making a lump-sum payment
Choosing a shorter amortization period

“If you want to be mortgage free as soon as possible but are nervous about increasing payments should your financial situation change, explore flexible mortgage payment features,” says Farhaneh Haque, regional manager, mobile mortgage specialists at TD Canada Trust. “If you decide to pay more towards your mortgage throughout the term, you may be able to reduce payments later to suit your lifestyle.”

If you're approaching retirement with a mortgage, speak to your mortgage broker or financial advisor to find the balance of debt repayment and investing for your future.

Happy Thanksgiving!

Fri, 07 Oct 2011 19:10:00 GMT