Finance Minister Joe Oliver has said he will not interfere with the housing market – or force banks to lower their interest rates, despite the Bank of Canada’s announced rate cut.

“I do not intend to interfere with the day-to-day operations of the banks,” Oliver said in an e-mailed statement Thursday, according to BNN. “I have no current plans to introduce new rules regarding residential mortgages.”

It appears that at least one big bank is holding off on cutting its prime rate and — with Oliver stating he won’t force the banks to do so — the other big banks may follow suit.

“Our decision not to change our prime rate at this time was carefully considered and is based on a number of factors, with the Bank of Canada’s overnight rate only being one of them,” said Alicia Johnston, a spokeswoman for TD, told CBC News.

Oliver has taken a soft line when it comes to mortgage rates and the housing market since taking office.

This past June, he responded to critics calling for more active participation from the government in reining in the housing market.

“I don’t think it’s the role of government to set interest rates or rates for mortgages,” Oliver said on Business News Network. “The rates are quite low and they’ve been coming down but a very small amount.”

Oliver expounded on his position by noting that CMHC has forecasted a soft landing and that the government will continue to monitor the market while also reducing the level of influence it will have going forward.

“We don’t believe that there’s a major problem at this point,” he said.

Source: MortgageBrokerNews.ca                           

If you ever have any questions about the mortgage industry or about your mortgage, refinance, etc. please get in touch with me.

John Dunford
jdunford@dominionlending.ca
514-949-5434

The Bank of Canada lowers interest rates and mortgages get cheaper, right? Not necessarily. Yesterday customers of TD Bank were told that there would be no rate cut for now as the bank bases those decisions on “a number of factors”. The other major banks have said that no decision has been made yet but that they are assessing the situation. Rates are already low of course and with banks under increasing pressure from regulation and the squeeze on profits from the low oil price they may not be too keen to pass on savings unless they have to. Experts say that the market will decide and certainly if one lender breaks ranks and cuts the cost of its home loans others will likely follow. Historically the banks have followed a BoC rate change but then the current economic conditions are not typical.

If you ever have any questions about the mortgage industry or about your mortgage, refinance, etc. please get in touch with me.

John Dunford
jdunford@dominionlending.ca
514-949-5434

Many of the jobs the US energy boom has created in the last few years are now at risk.

Their loss could drag the economy into a recession.

The Saudis could very well succeed in making a big portion of US and Canadian oil production 

disappear.

If you only paid attention to the mainstream media, you'd be forgiven for thinking that the US is going to 

get away from the collapse in oil prices Scot free. According to popular belief, America is even going to 

be a net winner from cheaper oil prices, because they will act like a tax cut for US consumers. Or so we 

are told.

In reality, though, many of the jobs the US energy boom has created in the last few years are now at 

risk, and their loss could drag the economy into a recession.

The view that cheaper oil automatically boosts US GDP is overly simplistic. It assumes that US consumers 

will spend the money they save at the pump on US-made goods rather than imports. And it assumes 

consumers won't save some of this windfall rather than spending it.

Those are shaky enough. But the story that cheap fuel for our cars is good for us is also based on an even 

more dangerous assumption: that the price of oil won't fall far enough to wipe out the US shale sector, 

or at least seriously impact the volume of US oil production.

The nightmare for the US oil industry is that the only way that the market mechanism can eliminate 

the global oil glut-without a formal agreement between OPEC, Russia, and other producers to cut 

production-is if the price of oil falls below the "cash cost" of production, i.e., it reaches the price at 

which oil companies lose money on every single barrel they produce.

If oil doesn't sink below the cash cost of production, then we'll have more of what we're seeing now. US 

shale producers, like oil companies the world over, are only going to continue to add to the global oil 

glut-now running at 2-4 million barrels per day-by keeping their existing wells going full tilt.

True, oil would have to fall even further if it's going to rebalance the oil market by bankrupting the 

world's most marginal producers. But that's what's bound to happen if the oversupply continues. And 

because North American shale producers have relatively high cash costs (in the $30 range), the Saudis 

could very well succeed in making a big portion of US and Canadian oil production disappear, if they are 

determined to.

In this scenario, the US is clearly headed for a recession, because the US owes nearly all the jobs 

that have been created in the last few years to the shale boom. All those related jobs in equipment, 

manufacturing, and transportation are also at stake. It's no accident that all new jobs created since June 

2009 have been in the five shale states, with Texas home to 40% of them.

Even if oil were to recover to $70, $1 trillion of global oil-sector capital expenditure-in fields 

representing up to 7.5 million bbl/d of production-would be at risk, according to Goldman Sachs. And 

that doesn't even include the US shale sector!

Unless the price of oil miraculously recovers, tens of billions of dollars worth of oil- and gas-related 

capital expenditure in the US is going to dry up next year. While US oil and gas capex only represents 

about 1% of GDP, it still amounts to 10% of total US capex.

We're not lost quite yet. Producers can hang on for a while, since there has been a lot of forward 

hedging at higher prices. But eventually hedges run out-and if the price of oil stays down sufficiently 

long, then the US is facing a massive amount of capital destruction in the energy industry.

There will be spillover into the financial arena, as well. Energy junk bonds may only account for 15% of 

the US junk bond market, or $200 billion, but the banks are also exposed to $300 billion in leveraged 

loans to the energy sector. Some of these lenders are local and regional banks, like Oklahoma-based 

BOK Financial, which has to be nervously eyeing the 19% of its portfolio that's made up of energy loans.

If oil prices stay at $55 a barrel, a third of companies rated B or CCC may be unable to meet their 

obligations, according to Deutsche Bank. But that looks like a conservative estimate, considering that 

many North American shale oil fields don't make money below $55. And fully 50% are uneconomic at 

$50.

So if oil falls to $40 a barrel, a cascading 2008-style financial collapse, at least in the junk bond market, is 

in the cards. No wonder the too-big-to-fail banks slipped a measure into the recently passed budget bill 

that put the US taxpayer back on the hook to insure any ill-advised derivatives trades!

We know what happened the last time a bubble in financial assets popped in the US. There was a 

banking crisis, a serious recession, and a big spike in unemployment. It's hard to see why it should be 

different this time.

It's a crying shame. The US has come so close to becoming energy independent. But it's going to 

have to get its head around the idea that it could become a big oil importer again. In the end, the US 

energy boom may add up to nothing more than an illusion dependent upon the artificially cheap debt 

environment created by the Federal Reserve's easy money policy.

If you ever have any questions about the mortgage industry or about your mortgage, refinance, etc. please

get in touch with me.

John Dunford

jdunford@dominionlending.ca

514-949-5434

Finance Minister Joe Oliver, who is currently in meetings with his provincial finance minister counterparts, has said the government may take steps to rein in an overvalued housing market.

“In terms of household debt and the real-estate market, this is a subject, of course, we’re monitoring very carefully,” Oliver said, according to the Canadian Press. “So, we’re not going to take any dramatic steps in that regard, but we may take some moderate steps.”

Oliver, who took over for the late Jim Flaherty in March of this year, has said from the outset that monitoring the housing market will be a priority.

“Our government has taken action in the past to reduce consumer indebtedness and the government’s exposure to the housing market,” Oliver told CTV News on in late March. “I will continue to monitor the market closely.”

The Finance Minister remains mum about what measures would be considered.

“Our longer-term objective is to reduce the government’s exposure to the mortgage market and we keep that objective in mind going forward,” .

The Bank of Canada recently took a stance on the state of housing prices, saying it believes the Canadian housing market is 10-30 per cent overvalued. However, the Governor of the Bank of Canada, Stephen Poloz, has also said he does not fear a housing crash.

“The risk comes when some catalyst sets off the vulnerability,” Poloz said on Thursday. “In this case it would be, let’s say, a rise in unemployment, a significant one, where it makes people have difficulty paying for their mortgage, or a rapid rise in mortgage rates, neither of which we’re expecting.

If you ever have any questions about what’s happening in the world of mortgages or about your specific financing needs, get in touch with me at 1-514-949-5434 or by email at jdunford@dominionlending.ca

The Bank of Canada may have been largely positive about the economy but Stephen Poloz’ statement yesterday in which he announced that the interest rate will stay at 1 per cent also raised concern about the level of household debt. New figures from Equifax show a $1.5 trillion debt burden for Canada’s households, with the debt load rising 7.4 per cent in the three months to the end of September compared with a year before. That works out at an average debt of $20,891 per person excluding mortgages. However, unlike the BoC, the credit agency says that it is not concerned about the levels as consumers are controlling their debt well. Of the $1.5 trillion owed two thirds is mortgage debt, totalling $985.1 billion.

Selling your current home and moving into a new one can be stressful enough, let alone worrying about your current mortgage and whether you’re able to carry it over to your new home.

Porting enables you to move to another property without having to lose your existing interest rate, mortgage balance and term. And, better yet, the ability to port also saves you money by avoiding early discharge penalties.

It’s important to note, however, that not all mortgages are portable. When it comes to fixed-rate mortgage products, you usually have a portability option. Lenders often use a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current interest rate.

With variable-rate mortgages, on the other hand, porting is usually not available. As such, upon breaking your existing mortgage, a three-month interest penalty will be charged. This charge may or may not be reimbursed with your new mortgage.

Porting conditions

While porting typically ensures no penalty will be charged when you sell your existing property and buy a new one, some conditions that may apply include:

•  Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day. Other lenders offer a week to do this, some a month, and others up to three months.

•  Some lenders don’t allow a changed term or force you into a longer term as part of agreeing to port your mortgage.

•  Some lenders will, in fact, reimburse your entire penalty whether you’re a fixed or variable borrower if you simply get a new mortgage with the same lender – replacing the one being discharged. Additionally, some lenders will even allow you to move into a brand new term of your choice and start fresh.

•  There are instances where it’s better to pay a penalty at the time of selling and get into a new term at a brand new rate that could save back your penalty over the course of the new term.

As always, if you have any questions about mortgage portability or your mortgage in general, I’m here to help! You can reach me at 1-514-949-5434 or by email at JDunford@DominionLending.ca anytime!

Lenders are advertising the option of skipping a mortgage payment more often these days – with one major bank even creating a TV ad!

But unless this is your only option, it’s not recommended that you skip a payment because, like most ads that sounds too good to be true, this option is as well.

The banks want you to think they’re advertising the option to skip a payment to do you a favour. But it’s important to realize that lenders are in the business of making money. They’re not going to create an ad that doesn’t benefit them in the long run.

And it’s not like you can simply choose to skip any payment at will when you need it most. You actually have to prepay your mortgage in order to take advantage of this mortgage vacation option.

You can miss a regular mortgage payment as long as you have already prepaid that amount by doubling up any mortgage payment, increasing your mortgage payments or making lump sum payments. It’s important to know how much you can prepay each year before making extra payments – this varies from lender to lender.

And if you’re going through the trouble of prepaying your mortgage, you want to make the savings work to your advantage by actually paying your mortgage off quicker – not diminishing those savings by taking a mortgage vacation.

The number of eligible payments covered by your payment vacation will be based on a combination of your prepaid amount and your current regular monthly mortgage payment. There is also typically a maximum payment vacation permitted per mortgage term, regardless of how much you have prepaid your mortgage.

Other considerations to think about when looking at the mortgage vacation option include:

•Interest is capitalized (ie, interest is added to your outstanding principal balance)

•Borrowers lose the benefit and interest cost savings of prepaying their mortgage once they use the mortgage vacation option

If you happen to already be in arrears on your mortgage, you can’t take advantage of this option.

It’s always important to read the fine print and ask questions when using a tool advertised by your lender. Better yet, speak to your mortgage professional – we know the ins and outs of all the bank offerings and can help advise you on your best options.

As independent, unbiased mortgage professionals, it’s our job to show transparency to ensure you have the right security, product, term and rate for your mortgage needs at the lowest overall cost, and with the most control in homeownership for the security you deserve.

As always, if you have any questions about the information above or your mortgage in general, I’m here to help!