Tag Archives: interest rates

Meridian credit union offers 1-year mortgage at 1.69%

Meridian credit union just offered a one-year mortgage at 1.69 per cent.

Spring mortgage wars start early, as member-owned lender makes new low offer to homebuyers

Alternative lender Meridian has launched the first shot in the spring mortgage wars with a one-year fixed mortgage rate of 1.69 per cent.

“As we are quickly approaching the busy spring home buying season, this is the perfect time for people to evaluate their home buying options by getting a pre-approval now,” the credit union said in a release Tuesday announcing the offer.

The deal is the lowest mortgage rate currently on offer from any lenders, for any term, listed on RateSupermarket.ca. It also comes with a so-called 20/20 prepayment ability, which means the borrower is able to pay off 20 per cent of the principal in any given year. The borrower can also increase the monthly payment up to 20 per cent of the original payment plan each year.

Competitive market

The move is a first strike in the battle for market share in the upcoming spring buying season. The big banks have raised their mortgage rates incrementally over the past 12 months in some cases, even as the Bank of Canada has twice slashed its benchmark rate, and yields in the bond market — where the banks borrow from to get money to loan out to mortgage buyers — are also getting cheaper.

In recent years, mortgage lenders have been keen to cut their rates in the lead-up to the busy spring buying season in order to gain market share.

Meridian’s announcement came with a potshot against the big banks, who haven’t passed on the full extent of the last two central bank rate cuts to consumers by lowering their consumer rates by the same amount.

“Meridian is going against the trend set by banks and lenders of raising their fixed mortgage rates,” the credit union said in a release.

“As a member-owned financial institution, we are able to take advantage of the current bond and lending environment and pass those savings onto our members.”

The move also comes just ahead of a deadline announced last fall, that as of February 15, buyers of homes costing more than $500,000 must have a minimum of 10 per cent down. Right now the minimum is five per cent.

More than two-thirds of mortgage-holders opt for fixed-term loans, according to the most recent data from the Canadian Association of Mortgage Professionals.

The average price of a Canadian home rose 12 per cent in 2015 to $454,342 at the end of December, the Canadian Real Estate Association said.

 

Source: Pete Evans, CBC News Posted: Feb 02, 2016

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BREAKING NEWS: Bank of Canada holds key interest rate steady at 0.5%

Bank of Canada Governor Stephen Poloz twice cut the central bank's benchmark interest rate year in an attempt to stimulate the economy.

The Bank of Canada today maintained its benchmark interest rate at 0.5 per cent.

The rate affects the saving and borrowing rates that Canadians get from their lending institutions banks. The central bank cut its rate twice last year in an attempt to stimulate the economy.

Headed into the decision, economists were evenly split as to whether the bank would cut again or stand pat.

More to come

Source: CBC.ca

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Take advantage of low interest rates while they last

Interest rates are low enough today that it’s pretty cheap to get caught up on your savings. (istockphoto)

When I was young, I remember going to the bank to have my bank book updated by the teller. I would always appreciate seeing the “interest deposit” line every month. This week, our youngest son went online for the first time to view his bank account activity. There it was: an interest deposit made at the end of last month.

“Dad, the bank gave me some money,” he said.

“I know, Michael. Isn’t that great?” I replied.

“Sure, but it’s just four cents,” he said.

“Well, interest rates are very low right now,” I told him.

“So, with the amount of money I have today, it will take about 83 years before I have enough to buy a scooter.”

“That’s right, son. I tell you what. When you reach age 50 and you haven’t got enough for that scooter, I’ll give you the rest.”

The Bank of Canada’s key interest rate dropped to just 0.5 per cent last summer, so interest rates are just about rock bottom. This is bad news for those interest deposits each month, but good news for taxpayers. Consider one of these strategies today to take advantage of low interest rates while you can.

1. Borrow for RRSP contributions

It’s the time of year to think about making a contribution to your registered retirement savings plan (RRSP). The deadline for contributions that can be deducted on your 2015 tax return is Feb. 29, 2016.

If you have significant unused RRSP contribution room, it can make good sense to take out an RRSP catch-up loan to use up that room and create a sizable tax deduction.

Although you won’t be able to deduct the interest on a loan to contribute to your RRSP, interest rates are low enough today that it’s pretty cheap to get caught up on your savings. Try to pay back the RRSP loan within a year, but even a three- or five-year loan can make sense if it means a shot in the arm to your savings.

2. Refinance your bad debt

There may be two key problems with your current debt: The interest may not be deductible, and your interest rate might be too high.

Based on current interest rates, consider consolidating any high-interest borrowing (such as credit cards or non-secured loans) into one lower-rate loan.

If you can, make your interest deductible at the same time. How? If you have any cash or investments available, consider paying down your non-deductible debt with that cash or those investments (count the tax cost first), then reborrow to replace the cash or investments. As long as you use the newly borrowed money for the purpose of earning income, you’ll be able to deduct the interest.

3. Borrow to invest

Borrowing money to invest can create a tax deduction for the interest costs. This is valuable at a time when tax deductions are in short supply.

Borrowing to invest can also help you to accumulate wealth more quickly, and with interest rates so low today, the cost of using someone else’s money to grow your wealth is low. Now here’s a caveat: Borrowing to invest is not for everyone. Most importantly, you need a stable income and a long time horizon. I’ll talk more about this next time.

4. Consider employee or shareholder loans

Now is a good time to consider borrowing from your employer or your own corporation. Why? You may be able to borrow at low or no interest.

You’ll face a taxable interest benefit in this case, but that benefit today will be calculated at the very low 1 per cent prescribed rate currently in effect. And if you choose to use those borrowed funds for investment purposes, or to buy a vehicle for use in your work, you’ll be entitled to claim a deduction for the amount of the interest benefit. Speak to a tax pro about shareholder loans, because the rules are complex.

5. Make a loan to your spouse

It can make good sense to lend money to your spouse to invest if he or she is in a lower tax bracket than you. The income earned by your spouse can be taxed in his or her hands if you charge the taxman’s prescribed rate of interest on the loan – which is just 1 per cent today.

The best part is that you can lock in that rate of interest indefinitely. Your spouse should sign a promissory note as evidence of the loan, and should pay you any interest owing by Jan. 30 each year for the prior year interest charge.

Source: Special to The Globe and Mail Published Thursday, Jan. 07, 2016  by Tim Cestnick

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We’ve hit bottom, says industry analyst

Interest rates – and in particular mortgage rates – can’t go any lower, and the growth of lending has peaked or is close to peaking, says one industry analyst.

“Canadian interest rates have bottomed. Most particularly, mortgage rates have bottomed,” says Dr. Sherry Cooper, chief economist for Dominion Lending Centres. “With 70% of Canadian households already owning their own homes and housing affordability declining – with the bottoming in mortgage rates and the rise in house prices – lending activity will inevitably slow as will the rise in the price of homes, which has continued strong in Vancouver and Toronto, particularly in the single-family sector.”

The growth in mortgage lending has likely peaked, or will very soon, Dr. Cooper told MBN. Bank of Canada data backs up her observations, showing that the growth in the number of mortgages has slowed this year, although dollar volumes continue to accelerate owing to house price increases.
With the high price of homes pushing people into the rental market, higher lending rates will only speed up the process.

And in turn, place pressure on those already burdened with a lot of household debt.

“Roughly 10% of Canadian home-owning households have high enough debt servicing costs relative to income that they are vulnerable if mortgage rates were to spike,” says Dr. Cooper. “The Bank of Canada has expressed repeated concern about this constituency and the lenders are well aware and cautiously prudent.”

While a housing crash isn’t in the cards, there will be a slowdown in the white-hot condo building market.

“We will not experience a housing crash as some Cassandras have predicted for decades,” says Dr. Cooper. “We will, however, see a slowdown in the pace of house price appreciation, especially for the condo sector, where overbuilding is most evident.”

Source:  Donald Horne | 29 Oct 2015

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Low interest rates prompt savers to borrow to invest

Historically low lending interest rates are making the idea of borrowing to invest more appealing to some savers.

Kevin Stone is 28 years old and already has over half a million dollars of debt, including a mortgage and a loan to purchase farmland. But he’s not concerned, because that apparent burden is actually helping fuel his roughly $400,000 net worth.

He’s one of a number of Canadians taking a gamble and borrowing money at historically low rates not to fuel an excessive lifestyle, but to invest in the stock market. It’s a strategy one financial planner warns isn’t for everyone, and even seasoned investors can see things go wrong.

The Bank of Canada recently lowered its benchmark lending rate by 25 basis points for the second time this year. Canada’s major banks partially followed suit and lowered their prime lending rates to 2.7 per cent.

These changes caused the rates for already low variable-rate mortgages, as well as home equity and personal lines of credit, to fall.

The low rates prompted Harry, an Albertan in his 40s who requested his last name not be used for privacy reasons, to look at his $100,000 home equity line of credit, or HELOC, a different way.

He plans to use that money over the next several years to maximize his unused RRSP contribution room. He’s withdrawn funds from his HELOCbefore to pay for a few vacations, but this will be his first time borrowing the money for investments.

Harry plans to use his annual tax returns as large, lump-sum payments against the loan, while paying down the remaining balance at a low 2.2 per cent interest rate.

“I think the bigger risk is not using other people’s money to invest,” says Stone, who blogs about his money maneuvers at Freedom Thirty Five, where he doesn’t shy away from aiming to join Canada’s one per cent. “By taking on these debts today, I can have a longer time to build up my assets.”

Plans to borrow $20K this year

Last year, he made $75,000 — or more than his graphic designer salary, which pays $25 an hour — from his investments.

Kevin Stone

Kevin Stone plans to raise his HELOC limit to $30,000 this year to borrow $9,000 to purchase stocks. (Kevin Stone)

He’s shouldered tens of thousands of dollars of debt to help fund his stock market activity. Stone’s already racked up $60,000 in margin loans — they offer people money to invest using their shares as security — as well as pulled several thousand from his HELOC.

Stone plans to expand his HELOC limit by $9,000 and mine some other loan avenues to secure another $20,000 for investing this year.

Low lending interest rates are “absolutely” helping fuel his interest in this, he says.

“I’m continuing to make money that’s enough — more than enough — to cover the interest that I’m paying,” he says of the 3.2 per cent interest charge on his HELOC. For comparison, credit card companies typically charge around 20 per cent, but some rates edge as high as 30 per cent.

If interest rates climb above the return his investments yield, Stone says he’ll cash out some of his investment funds to repay his HELOC and other loans.

‘It can be a disaster’

While the strategy looks appealing on paper, it’s certainly not a good fit for everyone, says Jason Abbott, the principal financial planner atWealthDesigns.ca and a member of the Financial Advisors Association of Canada.

He’s borrowed money in this way before and his first attempt wasn’t too successful. He chalks it up to bad timing. Abbott invested the money in late 2008 “when the market had dropped substantially, but before it still had more to fall.”

Novices to investing are better off focusing on growing their net worth through more traditional methods, he says, because they don’t have the experience to handle this strategy.

A simple market correction can make the investment worth less than the loan, he says. Usually, a newbie will panic, sell and try to pay back the loan in another way.

Things can also go south if the person’s cash flow hits a setback and they can’t make their monthly loan payments.

I don’t ever want to be in the situation where I’m forced to sell something to pay off part of a line of credit.– Tim Stobbs, engineer and personal finance blogger

“It can be a disaster,” says Abbott, who hears from investors who attempted this four or five years ago and are still “under water” trying to recover.

Stone hardly considers this a risky business for a seasoned investor like himself, but concedes this type of strategy may not be for everyone.

He compares investing risk levels for different people to those of driving. Consider the risk to everyone on a busy road, he says, if a car has someone without a driver’s licence behind the wheel versus a Formula One competitor.

The Lewis Hamiltons of investing don’t have much to worry about, he feels.

For some seasoned investors with a higher risk threshold who can weather a market’s ups and downs over an extended period this alternative strategy can work, Abbott says.

He would still urge them not to throw their entire available HELOC funds into the stock market, but rather start small with a diversified portfolio to gauge their comfort levels. He only invested “a small amount” back in 2008, which made his initial loss easier to handle.

Even when properly implemented, this shouldn’t make up the core of an investment plan, he says. There’s always the chance things will not turn out as planned.

A more conservative gamble

Tim Stobbs, an engineer and personal finance blogger who has a $100,000 HELOC and $12,000 personal line of credit available to him, takes this more conservative approach.

Tim Stobbs

Tim Stobbs uses his HELOC to free up cash for help purchase investments, but he always pays it back within about three months. (Tim Stobbs)

“It did occur to me with these dirt cheap interest rates that I could go ahead and just pre-save a full year worth of investment in one fell swoop,” he says. But, he doesn’t want to go down the “slippery slope” of borrowing from his HELOC too much.

The most he’s ever withdrawn from his six-figure HELOC is about $5,500 — the former contribution limit for a tax free savings account.

It happens occasionally when a stock he’s watching becomes more affordable. He’s always paid back the borrowed money within a few months.

He’s not comfortable borrowing from a line of credit for any longer and recognizes people who make this system work to their advantage need to be in it for the long haul.

“I don’t ever want to be in the situation where I’m forced to sell something to pay off part of a line of credit.”

Source: Aleksandra Sagan, CBC News Posted: Aug 04, 2015 5:00 AM ET

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