The Globe and Mail
Paul Brent
Published on Wednesday, Nov. 11, 2009 2:27PM EST
Last updated on Thursday, Nov. 12, 2009 11:28AM EST

When it comes to insurance, there are three almost universal truths: Canadians hate thinking about it, begrudge paying for it and the majority of us don’t have anywhere near enough of it.

The first two attitudes are easy to understand. Insurance is a downer. Besides that whole “death or dismemberment thing,” you are betting against the future health of yourself and your loved ones. And then you have to pay for it, when that cash flow could be put to “better” use paying down the mortgage, starting an education fund for the kids or replacing the rattling family beater.

“Nobody likes insurance. Generally when you mention insurance, people want to grab the waste paper basket and throw up into it,” said Brian Poncelet, who is an insurance specialist and independent certified financial planner based in Mississauga.

Like others in the field, Mr. Poncelet starts with the assumption that young families are seriously underinsured when it comes to covering the earnings of the breadwinners, even if they had group insurance through their employers. He also takes the approach that most twenty and thirtysomething families have limited ability – or desire – to buy additional insurance.

Because of that reality, he finds ways to pay for additional coverage within the family budget. One surprising source: existing insurance policies. A good example is raising the deductible on home insurance, as Mr. Poncelet did on his own policy, bumping it from $500 to $5,000 and freeing up $500 annually which can be put towards insurance against the loss of income. “Same thing with auto insurance,” he said, noting people generally carry a pricey low deductible on an aging vehicle that in many cases would not be worth committing to expensive repairs.

When sitting down with a “typical” young family with two kids and a house, insurance adviser Andy Hall of Mitchell Sandham looks first at the home. “First and foremost is protection of their biggest investment, which is their home.” Besides contents and property insurance, he is a big believer in mortgage insurance (more on that later).

Mr. Hall, like other experts, finds most people he sees do not carry enough life insurance to cover the loss of income of a family breadwinner. Group insurance, “usually one-and-a-half to two-times salary” is generally not enough to cover current and future liabilities. First of all, let’s look at the group policy covering someone with a $50,000 annual salary. “Everyone thinks it’s two-times $50,000, it isn’t,” he said. “It is two-times your actual [take home] pay. The other thing is that benefits paid through a work policy are taxable, benefits paid through a life insurance policy are not.” As well, that group insurance can quickly disappear with job loss.

While mortgage insurance is a valuable component of a family’s financial plan, where to buy it from is at least as important as the terms of the policies, says Mr. Poncelet. “A lot of people buy mortgage insurance through a bank which is a big No No.” While it may be convenient to obtain mortgage insurance from the same place that you obtain your mortgage, families can inadvertently cancel their insurance when they move their mortgages to a different lender. As well, the bank-offered policies are a bad deal because the payments stay the same even through the principal being insured falls shrinks over time. “If the person is healthy, it will be cheaper and they can get more coverage” with a non-bank insurer, Mr. Poncelet concluded.

When it comes to life insurance, Mr. Poncelet advises that not all policy types are created equal. He believes people should only buy Term policies which offer the option to convert to Permanent policies and that people should look to convert Term policies to Permanent insurance whenever possible because the incidence of chronic or serious conditions will make it harder to obtain insurance in a more-infirm future. “They may not be able to get any more insurance anywhere.”

While people may approach insurance as a commodity, prices vary widely so buyers are encouraged to either shop around themselves or use a broker who can quote rates from a number of insurers. “When it comes to life insurance, critical illness, long-term disability and long-term care insurance, there are more providers than most people know,” said Frank Wiginton, a certified financial planner with TriDelta Financial Partners. “If you are not dealing with an independent financial broker you may not be given the option or you may not be shown the other companies’ options.”

As a financial planner first and foremost, he believes insurance needs have to be looked at as part of an overall family financial plan that includes retirement goals, investments and education needs for children.

How much is enough?

While insurance professionals say most of us are under-insured, the reality of tight budgets and resistance to insurance makes it tough to convince families to buy more.

Mr. Poncelet gives the example of a married couple in their mid-30s with two young children as a representative example. The couple approached him about mortgage insurance for their $200,000 mortgage. Both the husband and wife, with a combined income of about $140,000, have two-times salary insurance through their employers but he convinced them to both take out 20-year Term policies with a death payout of $500,000 each. “It is still not enough,” he said, estimating that both should have taken out million-dollar policies each to maintain their current standard of living for a 15-year period if one of the main breadwinners were to die, effectively doubling their premiums to $100 monthly per person.

“For a lousy $50, if something happened [they] would have another half million dollars,” Mr. Poncelet said.

Special to The Globe and Mail

Homeowners hoping to avail of Ottawa’s $1,350 home renovation tax credit are being warned that deadline day is approaching on the program.

Under the terms of the initiative set to be halted on 1 February 2010, homeowners can spend up to $10,000 on qualifying items or work to earn the maximum renovation credit.

Qualifying expenditures include repairs, alterations and preventative maintenance for a home or apartment suite owned by the applicant. labour, materials and equipment rental costs are all covered under the tax credit system.

Ottawa homeowners are being urged to take advantage of the tax credit ahead of the expected increase in labour and home repair costs due in July 2010 when Ontario adopts the harmonised sales tax.

Source: http://www.mortgagebrokernews.ca/news/ottawa-renovation-tax-credit-window-set-to-close/38492
Wednesday, 11 November 2009
Robert Carry

The Canadian housing market could finally be recovering, according to recent data from the Canada Mortgage and Housing Corporation (CMHC).

Housing starts in October were up to 157,300 units from 149,300 in September, according to the data, indicating that things could be headed towards a buyer’s market.

“The improvement in housing starts in October is attributable to improvement in the multiple starts segment,” said CMHC chief economist, Bob Dugan. “Despite a small decline in single home starts in October, the level of single home starts remains at its second highest level since October 2008.”

Urban starts were also up 5.2 percent to 139,900, and CMHC forecasts new home constructions for 2010 will also go up from 150,300 to 164,900.

Source: http://www.mortgagebrokernews.ca/news/a-recovery-in-the-making-cmhc/38556
Thursday, 12 November 2009

While variable-rate mortgages continue to beat out fixed-rates when it comes to cost savings, the gap between the two is likely to become closer due to the economic environment, a new bank report says.

“Fixed rates were advantageous during only two recent periods – through the late 1970s and briefly in the late 1980s; in both cases, ahead of a period of rising interest rates, as is the case now,” the report by BMO economists Douglas Porter and Benjamin Reitzes said.

Variable rate products have proven the better option 82 per cent of the time since 1975, Porter and Reitzes wrote, and forecast that variables will continue to remain cheaper than fixed rate mortgages. This is in part due to the rising Canadian dollar, which has reduced the Bank of Canada’s short-term need to raise the key interest rate.

On the other side, the report argued the economic recovery – and the expected rise in interest rates next year – has potentially caused “one of those rare periods when a fixed rate turns out to be the superior choice.” It also pointed out that negotiated rates (as opposed to posted rates) make fixed and variable products closer to call.

Source: http://www.mortgagebrokernews.ca/news/38117/details.aspx
Monday, 26 October 2009

Financial Post  Published: Friday, September 04, 2009

Canada’s housing market will rebound strongly in the second half of this year and into 2010, the federal housing agency said yesterday. Housing starts will reach 141,900 this year and increase to 150,300 for 2010, said Canada

Mortgage and Housing Corp. “Improving activity on the resale market and lower inventory levels in both the new and existing home markets are expected to prompt builders to increase residential construction,” CMHC said.

Bob Dugan, CMHC’s chief economist, said, “Economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year. In the second half of 2009 and in 2010, we expect housing

markets across Canada to strengthen.”

Paul Vieira, Financial Post  Published: Tuesday, September 08, 2009

OTTAWA — Analysts appear to be unanimous in believing the Bank of Canada will hold its record-low policy rate steady at its meeting Thursday, and maintain its commitment to keep the rate at 0.25% until June 2010.

The only item to look for in the pending rate statement, they indicate, is any change in nuance or tone, and possibly further concern about the rise of the Canadian dollar.

“The fact that the major economic data has largely evolved in line with the Bank of Canada’s forecasts suggests (the central bank) is likely to reiterate its conditional statement to keep the overnight rate at 0.25% until the end of the second quarter of 2010,” said Charmaine Buskas, senior economics strategist with TD Securities.

“And with no expected change to the overnight rate, all the focus will be on the nuances in the statement. It is likely to be very similar to the July 21 statement.”

For the record, 21 economists in a Bloomberg News survey anticipate no change in the Bank of Canada rate, nor do the 11 members of the C.D. Howe Institute’s monetary policy council.

The C.D. Howe said the Bank of Canada should stick to its mid-2010 commitment, adding that growth prospects remain uncertain as council members questioned how sustainable Canadian exports growth abroad will be, with “the dependence of U.S. and Chinese growth on government stimulus being a particular point of concern.”

ROB CARRICK – Globe & Mail

September 15, 2009

It was a little less than a year ago that the global financial crisis began to hit home, which is to say that mortgage rates spiked higher.

Now, the cost of mortgages is coming down. If you’re buying a home or renewing a mortgage, it’s time to review your options.

Fixed-rate mortgages declined a little last week, but the most dramatic changes can be seen in variable-rate mortgages. For the first time in almost a year, it’s possible to get a variable-rate mortgage at the prime rate used by most major financial institutions, which is currently 2.25 per cent.

Pre-crisis, variable-rate mortgages came with discounts that ranged from 0.75 percentage points to as much as 0.9 points off prime. By late last fall, crisis conditions prompted lenders to start charging prime plus a full percentage point or more. Now, some lenders are starting to unwind their crisis-rate premiums.

“Variable-rate mortgages are all over the map right now,” said Gary Siegle, regional manager with the mortgage brokerage firm Invis Inc. in Calgary. “We’re seeing them right in the area of prime with some lenders.”

An example of a variable-rate mortgage at prime: ResMor Trust, a small player that deals through mortgage brokers, is offering four-year variable-rate mortgages at prime in all provinces except Quebec. The catch: You have to have your mortgage approved by Sept. 30 and close the purchase within 45 days.

Can variable-rate mortgages fall back to their pre-crisis lows any time soon?

“Definitely, 100 per cent, no,” said Robert McLister, a mortgage broker and author of the Canadian Mortgage Trends blog (canadianmortgagetrends.com). “Could they get a little below prime? Definitely.”

Okay, it’s strategy time. With prime at 2.25 per cent and fully discounted five-year fixed-rate mortgages going for something in the area of 3.9 to 4.1 per cent, you’re got some thinking to do if you’re buying a home or renewing a mortgage.

The variable rate looks tempting. Sure, the prime is going to rise in the medium term, but it’s expected to stay put until next spring at least. Even when prime does move higher, it will have to increase by roughly 1.75 percentage points to get to where today’s five-year mortgages are.

“The risk is obviously that rates go up a lot more,” Mr. McLister warned. “Rates went down four percentage points from December, 2007, through April, 2009. They could easily go up four – why not?”

Variable-rate mortgages allow you to lock into a fixed-rate mortgage, so there’s no reason why you have to ride interest rates all the way up. Still, you have to recognize that fixed-rate mortgages could be significantly more expensive by the time you decide to lock in.

An academic study of rates between 1950 and 2007 found variable-rate mortgages were the money-saving choice over five-year fixed-rate mortgages 89 per cent of the time. If you’re willing to ride rates higher for a while in hopes of longer-term savings on interest costs, then consider a possible approach suggested by Mr. McLister.

Instead of arranging a variable-rate mortgage now, go for a one-year fixed-rate mortgage. Then, when you’re renewing in one year’s time, you’ll move into a variable-rate mortgage that will ideally have a rate that is discounted below prime.

Fully discounted one-year closed mortgages today go for about 2.55 per cent, so you’re not paying much of a penalty at all compared with what variable-rate mortgages are pegged at right now.

Another suggestion from Mr. McLister is to consider a three-year mortgage, which offers an attractive blend of low rates and security against interest rate surges. Three-year mortgage typically go for around 3.39 per cent on a fully discounted basis, but he knew of one small lender offering 2.9 per cent through the mortgage broker channel.

The case for going with a five-year fixed rate is that rates are very cheap by historical standards. Rates were a little bit lower last spring, but they’re not as high as they were a month or two ago thanks to a pullback in bond yields that has trickled down to fixed-rate mortgages.

Mr. Siegle said over half of his firm’s clients are locking into a fixed-rate mortgage right now. “You can’t ever time the bottom of the market, but are these good rates that you can be comfortable with? A lot of people are saying, ‘yeah, they are.’ ”

With interest rates cut to a record low Tuesday and inflation nowhere in sight, Bank of Canada looks to boosting money supply

KEVIN CARMICHAEL

From Wednesday’s Globe and Mail

March 4, 2009 at 3:25 AM EST

OTTAWA – Bank of Canada Governor Mark Carney is rearming to fight a recession that is proving tougher than the central bank anticipated.

Mr. Carney cut the benchmark mark lending rate by half a percentage point yesterday, dropping the target for overnight loans to 0.5 per cent, the lowest ever.

By taking borrowing costs so close to zero, Mr. Carney effectively fired his last round of conventional monetary stimulus, forcing him to consider taking a more aggressive approach to easing credit markets.

The Bank of Canada said in the statement explaining its interest rate decision that it is “refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing.”

Such a strategy amounts to creating money, a radical thought for an institution that has spent much of its modern history trying to earn its credentials as a committed inflation fighter.

But inflation isn’t a threat at the moment.

The Bank of Canada said yesterday that consumer price decreases are accelerating even though the bank has dropped the overnight target a remarkable four percentage points since December, 2007.

Canada’s gross domestic product contracted at an annual rate of 3.4 per cent in the fourth quarter, marking the biggest collapse since 1991 and one that was worse than the central bank had predicted in January.

“The central bank is doing the right thing; they have to be aggressive,” said Barry Schwartz, vice-president of Toronto-based Baskin Financial Services Inc., which has about $275-million under management. “People are freaking out. No one is spending money, so the government has to do it.”

The Bank of Canada didn’t provide details of what a quantitative easing or credit easing strategy would look like, saying those will come in the central bank’s next quarterly monetary report on April 23.

Pierre Duguay, a deputy governor at the Bank of Canada, could elaborate on the central bank’s plans tomorrow in testimony at the House of Commons finance committee, which is studying credit conditions. More details also could come when David Longworth, another deputy governor, speaks to the Financial Markets Association of Canada in Toronto on March 12.

Generally, quantitative easing would see the central bank expand its reserves to buy a wide range of assets, while credit easing describes an effort to target specific markets.

Other central banks already are deploying these strategies.

The U.S. Federal Reserve is running several programs that swap cash for illiquid assets, such as securities backed by mortgages and student loans, and is considering buying government debt to lower market lending rates.

News reports out of London yesterday suggested British Prime Minister Gordon Brown’s government is poised to give the Bank of England permission to print money. The Bank of Japan is buying corporate bonds.

“One way for the monetary authority to show its long-run confidence is to buy some of these assets,” said John Helliwell, an economics professor at the University of British Columbia and former adviser at the Bank of Canada. “That will drive down the price of those assets, and hopefully people will go out and buy some more.”

The Bank of Canada hasn’t ruled out cutting the overnight target all the way to zero, saying the rate “can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.”

That means rock-bottom borrowing costs for at least a year, said Sébastien Lavoie, an economist at Laurentian Bank of Canada in Montreal.

In the statement, the central bank said the effects of its previous interest rate cuts will start to show up in the second half of the year.

At the same time, policy makers conceded that a rebound is contingent on calmer global markets and an end to the U.S. recession. “The Bank of Canada is going to keep the overnight rate at a very low level for a very long period,” said Mr. Lavoie, a former Bank of Canada economist.

Credit conditions easing, banks no longer struggling to raise funds to make loans
From Tuesday’s Globe and Mail
March 17, 2009 at 2:00 AM EDT

Canadian banks are turning down some of the funding that the government is making available to them, a sign that they are recuperating from the financial crisis.

The banks have stopped selling the government the full amount of mortgages they could under Ottawa’s $125-billion mortgage purchase program, the centrepiece of the federal government’s plan to help the industry.

“We actually don’t need a lot of funding right now,” a senior banker at one of the big five banks said yesterday. “All of the Canadian banks are pretty flush right now with cash.”

That’s not to suggest they aren’t facing problems, with consumers increasingly losing their jobs and unable to pay off their debts. But the banks are no longer struggling to raise funds to make loans – at least for now.

Credit conditions for Canadian banks have improved since late last year, as Canadians jittery about the stock market have left more of their money in bank accounts, giving them a ready pot of cash to fuel lending. At the same time, global credit markets have eased slightly as central banks have pumped billions of dollars into the financial system.

Federal Finance Minister Jim Flaherty announced the creation of the mortgage purchase program in early October, when it was extremely difficult for banks around the world to fund their lending operations.

He originally said Ottawa would buy up to $25-billion of mortgages from the banks, through Canada Mortgage and Housing Corp., to free up capacity for them to make new loans.

The purchases take place in periodic auctions that actually turn a profit for the government. Ottawa tells the industry how much it is willing to buy – for instance, $5-billion worth of mortgages held by the banks on their balance sheets – and then the banks each say how much they would be willing to pay, in the form of interest, to sell mortgages to the government. CMHC accepts the most profitable bids.

Bankers have been griping that the program, which is projected to earn billions of dollars for Ottawa, is expensive. But until last month, that hadn’t stopped them from selling all of the mortgages that they could into it, and pressing Mr. Flaherty to buy even more. Well into the new year, banks continued to have trouble raising medium-term funds.

Ottawa boosted the size of the program twice, most recently announcing in the federal budget that it would buy a total of up to $125-billion worth of mortgages. The program has been successful in leading to a reduction in mortgage rates for Canadians, with banks passing on their lower funding costs.

But in the last couple of auctions, the banks have not sold the full amount of mortgages Ottawa was willing to buy. The most recent one took place on March 11, when CMHC told the banks it would buy up to $4-billion worth. Banks sold it about half that, $2.1-billion.

That followed the Feb. 20 auction, when banks sold CMHC $2.3-billion worth after it said it would buy up to $7-billion from them.

There are a couple of reasons why the banks have lost some of their appetite for the government aid.

More Canadians are pulling their cash out of mutual funds and riskier investments and parking it in deposits, such as chequing accounts and GICs. Deposits are the largest source of funding for the banks. If stock markets recover, and customers shift their money back into mutual funds and equity investments, the banks could find themselves in need of funding help again, notes Toronto-Dominion Bank chief economist Don Drummond.

At the same time, the growth of banks’ loan portfolios is slowing. The soft housing market led to very weak mortgage originations in January and February, Mr. Drummond said.

Still, the slackening demand for government help does suggest that credit conditions have eased. The lack of take-up on the mortgage auctions “seems to point to the fact that the Canadian banks are not in a big liquidity crunch themselves,” said Marlene Puffer, a managing director at Twist Financial Corp.

That means the banks’ lending operations are not being held back by an inability to raise financing, she added: “Any constraints in terms of the banks lending are coming more from inside the banks than any constraints they’re facing in terms of raising capital.”

The Canadian Bankers Association said in an e-mailed statement that the mortgage purchase program is still an effective tool, noting that it’s already injected more than $53-billion worth of liquidity into the marketplace so far.

A spokeswoman for CMHC declined to comment yesterday, noting that the details of the auctions are confidential.

Buying a home should be a rewarding and enjoyable process, but only if you’re prepared and know how to avoid the most common home financing mistakes.

Get pre-approved
Pre-approvals are one of the easiest ways for home buyers to start off on the right foot. A pre-approval takes very little time and helps buyers establish a maximum spending limit. With that information, they can shop with confidence knowing what they can offer on a property. It isn’t necessary to use the whole pre-approved amount.

Know how long things take
Some steps in the home-buying process can’t be rushed and others need to be researched in advance. For example, you should have a real estate agent, lawyer and mortgage lender well in advance of making an offer. And some documentation may take time to gather and prepare.

Know your options
There are lots of mortgages, each with unique features. Investigate alternatives ahead of time so you don’t have to make a rush decision later. The pre-approval meeting is usually a good time to gather information and start exploring options.

Come prepared
Ask your mortgage representative for a list of all the documentation you’ll need and plan to get it well in advance. For example, you’ll need confirmation of your income and down payment, the MLS® listing and more. You will also need a copy of the Agreement of Purchase and Sale.

Ask for a list of closing costs
Closing costs are all the legal and administrative charges that accompany any real estate transaction. The most common are lawyer’s fees and land transfer taxes. And in some cases, home buyers are asked to reimburse the seller for prepaid property taxes or other household expenses.

- Courtesy of TD Canada Trust www.tdcanadatrust.com.