Category Archives: rates

Is financing getting tougher for the self employed?

It seems that more and more Canadians are self employed.

The self employed tend to have less steady income then full time employees and as a group it can be more difficult to get a mortgage or refinancing.

As a self-employed website developer who had recently restructured his business, Greg Schmidt knew that refinancing his mortgage wasn’t going to be a piece of cake.

“I had a little bit of a line of credit built up from shifting the focus of the business and my car lease had come up for being bought out, so I needed money to take care of that,” said Mr. Schmidt, a single 42-year-old who owns a home in Toronto that includes an apartment for income. “It turned out the best way to go was to do a new mortgage, increase the amount of the old one and take care of those costs.”

However, when he approached his bank, he was told “the numbers didn’t work for them.”

Read the full article in the Globe and Mail.

Paying debt with debt

This Globe and Mail article starts like this:

A new poll suggests that most Canadians are quite comfortable with using debt as a financial strategy – at a time when debt loads have risen to alarming new highs.

Shouldn’t that be the other way around?  Canadians are quite comfortable using debt as a financial strategy and that has driven debt loads to alarming new highs.

The survey shows 9 out of 10 respondents would consider borrowing money to pay for an unexpected $2,000 cost.  Yeah, that’s right: $2k. These people appear to have little or no financial buffer.

While 55 per cent said they were extremely or very confident they could raise the cash, 92 per cent said they’d consider borrowing to come up with some of the cash.

Less than half – 45 per cent – said they’d never faced a debt problem.

The poll results come as Canadian debt-to-income ratios sit at a record 152 per cent and top officials issue warnings to start paying down debt before interest rates rise.

The findings suggest consumers have been unmoved by warnings that rates will inevitably rise and that the resulting financial burden could sink some households.

“It’s frightening to see that Canadians have become totally blasé about debt – it’s becoming their new ‘normal’ and they’re numb to this dangerous trend,” says Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos & Associates Inc.

“For many, the use of debt to not only pay for big ticket items like cars, but also to cover day-to-day living expenses, has become commonplace.”

Now compare this to the USA in 2006 where household debt grew at a record level, but a housing boom had also boosted networth.  Some were concerned about unsustainably high house prices, but Ben Bernanke said that he would not prick asset bubbles.

And he didn’t.

In fact the US government did everything in its power to prevent house prices from collapsing.  They pumped money into the system, drove down interest rates and came up with all sorts of programs to prevent people from losing their homes.

You may be surprised to find out what happened to house prices in the US since then, especially the ‘hot’ markets like Florida, Arizona, California and Nevada.

Can’t burst a bubble that isn’t there

Some people are freaking out about a housing bubble in Vancouver.

Relax.

Tsur Sommerville of the UBC CUER Sauder school of business says there is no bubble and I bet the developers who sponsor the school would agree.

So it’s unanimous, no bubble.

But if you want a giggle check the spelling on the URL.. Sponsers? well I guess they study economics, not spellonomics.

Anyways, Tsur says no bubble in Vancouver.

“You can’t burst a bubble that wasn’t there,” said Somerville. “But you can have prices above where they should be and it not be a ­bubble.

“A bubble isn’t just defined by high prices,” he said.

Somerville identified a housing “bubble” as conditions akin to what was happening in 2007.

“It didn’t matter what the condo looked like or what it’s going to look like or who was building it, people were lined up around the block and snapping it up,” he said. “They were saying, ‘I’ll take 12, please.’ That’s more of a bubble environment.”

So there you have it.  We had a ‘bubble environment’ in 2007, but right now there is no bubble because very little is selling so we’re safe from a bubble that could burst.  We have prices that are above what they should be, but no bubble.

Read the full article in The Province.

Mortgage rates rise at RBC, more to follow?

Looks like RBC just upped two of it’s mortgage rates by one fifth of a point.

What will we do without our record low mortgage rates?

It’s probably just a minor fluctuation, but other banks are expected to follow as bond yields have edged up in the last month.

So if you want to do a rate lock in now might be the time.

Helmut Pastrick of Central One Credit Union explains:

“Sentiment has improved with respect to Europe and the economic outlook,” Pastrick said. “The economic news was quite negative for a period of weeks and now it is somewhat less negative.”

RBC’s posted rate for a three-year, fixed-rate mortgage will go up 0.2 percentage points to 4.05 per cent. Meanwhile, an RBC special-offer rate for five-year closed mortgages rises to 3.69 per cent.

The rise in the cost of funds for banks will mean other lenders will probably also raise their rates, or absorb some of the cost increase to hold onto or gain market share,” Pastrick said.

Read the full article over at the Vancouver Sun.