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Thursday, December 30, 2010

Canadian Mortgage Broker News - Harper hints at tighter mortgage rules in 2011

Canadian Mortgage Broker News - Harper hints at tighter mortgage rules in 2011

Harper hints at tighter mortgage rules in 2011

| Wednesday, 29 December 2010

Prime Minister Stephen Harper hinted the government may adjust mortgage rules in 2011 to help Canadians avoid going deeper into debt.
“We’ve tightened mortgage rules before,” Harper told CTV during a year-end interview that aired on Christmas Day. “If we have to do that again, we will.”

Harper also committed to eliminating the federal deficit but will not use “slash and burn” cuts, particularly in the critical areas of health and education.

Wednesday, December 22, 2010

Cards to Bulgaria

Cards to Bulgaria

Thursday, December 16, 2010

MLS Reporting Record Sales In Montreal for November

Records were broken on the Island of Montréal l in November, according to new MLS sales figures just released.

November 2010 MLS® sales on the Island of Montréal were a reported 1,370 sales, which is an increase of 1 %, reaching just beyond the previous record set in November 2009, according to the Greater Montréal Real Estate Board's (GMREB) MLS® statistics. Sales in the Montréal Metropolitan Area fell by 5 % in November 2010, while year-over-year sales rose by 2 %.

"November was a strong month for the Montréal area real estate market," said Diane Ménard, Vice-President of the GMREB Board of Directors. "It's true that MLS® sales decreased for a seventh consecutive month, but the decrease was much smaller than those registered in recent months. Furthermore, some areas really stood out, such as Laval, which posted a 3 % increase in sales, and the Island of Montréal which set a new November sales record," she added.

Condominium sales were of particular interest, as they were the only property to have an increase in sales in the Montréal area. There were 983 condominium sales reported, which set a new November record, overtaking the peak of November 2009 peak by 3 %. Most areas in the Montréal region saw increases in condominium sales, with the exception of the South Shore- which saw a decline of -9 %. On the Island of Montréal, in Laval and on the North Shore, the number of condominiums sold in November 2010 rose by 4, 23 and 15 %, respectively, in comparison to November 2009.

Despite the increase in condominium sales, the decrease in sales of single family homes was more significant, and they did not balance each other out. Sales for single family home were down by 7 % and plexes were down by 13% in the Montréal area. Regionally, the North Shore was down 10 % and the South Shore was down 14%, which resulted in an overall decrease in residential sales for the Montréal area. Sales in the Vaudreuil-Soulanges area decreased a little bit- by 3 %.
When examining price, all of the three property categories reported a 7 % increase in median price in November 2010 compared last November. In the Montréal area, the median price of single-family homes went up to $260,750; condominiums reached $218,000; plexes reached $385,000

"These price increases are good news for sellers, as it shows that real estate continues to be a solid investment. Furthermore, selling times continued to decrease in November, which is also encouraging for sellers. There was good news for buyers as well, as they had more choice compared to November 2009 as active listings increased by 7 %," said Diane Ménard.

2010 Tax Changes You Need to Know

2010 Tax Changes You Need to Know

by Tim Begany
Tuesday, December 14, 2010
provided by
Despite the availability of professional tax preparation services, an estimated 40% of Americans do their own taxes. The typical do-it-yourself filer needs about 24 hours to complete the task, according to the IRS.
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Commercially available software undoubtedly makes the job a lot easier, but no brand is guaranteed to be infallible. Thus, it's important for do-it-yourself filers to keep up as best they can with relevant changes to the tax code as a safeguard against errors in their tax prep software. Here are four of the most important changes to know about as you prepare your 2010 return.
1. Smaller Deductions for Business and Medical Mileage
You can't write off the cost of a daily commute by car, but you can deduct other work-related mileage you're not reimbursed for. This year, for example, you'd get 50 cents a mile for driving from, say, Boston to New York City and back for a trade show. That's five cents less per mile than you'd have gotten for the same trip in 2009.
At 16.5 cents a mile, the deduction for operating your car for medical reasons is 7.5 cents less than last year. However, driving for charitable purposes is still deductible at 14 cents per mile, just like last year.
[See States That Tax Retirees the Most]
2. Better Limits on Deductions for Property Damage or Loss Due to Theft
For damaged or stolen property to be deductible, the loss amount must now only exceed $100, compared with $500 in 2009. The "10% of AGI" rule still generally applies though.
Remember, AGI is the sum of all your income - such as wages, interest and alimony received - minus certain adjustments, such as IRA contributions, student loan interest you've paid and moving expenses.
3. Deduction for Taxes and Fees on New Motor Vehicle Purchases
Did you buy a new car, light truck, motor home or motorcycle between February 17 and December 31 of 2009? If so, in 2010 you can deduct state, local, and excise taxes related to the purchase. If your state has no sales tax, you can instead deduct other taxes or fees the purchase generated. A neat feature of this deduction is you can use it to increase your standard deduction or take it as a regular itemized deduction, whichever works out best for you.
[See Make the Most of Your Charitable Donations ]
There are a couple limitations to know about. First, the deduction is only good on up to $49,500 of the purchase price. Second, it's phased out at certain levels of modified adjusted gross income (MAGI) - between $250,000 and $260,000 for joint filers and from $125,000 to $135,000 for other taxpayers. MAGI is your AGI plus certain deductions such as those for student loans, IRA contributions and higher education costs.
4. Bigger Deductions for Long-Term Care (LTC) Insurance Premiums
IRS rules allow LTC insurance policy owners to deduct more of their premiums in 2010 than in 2009. For example, those ages 51 to 60 can claim up to $1,230 in LTC insurance premiums this year, compared with $1,190 last year - about a 3% increase. Similar increases have been approved for other age groups as well: 40 and under, 41-50, 61-70 and 71 or over. At $330, the deduction is smallest for the 40-and-under age group. It rises progressively to a maximum of $4,110 for those ages 71 or over.
Other Tax Law Changes
As you can probably imagine, the government has tinkered with the tax rules quite a bit more than this article describes. To see what other potentially beneficial changes have been made, check out a list called "Tax Changes for Individuals" at the IRS website. Who knows what other sorts of breaks you might unearth?
[See Penalty-Proof Your Tax Return]

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Wednesday, December 15, 2010

FN Mortgage rates as of 15/12/2010


1 year fixed:   2.80 %
3 years fixed: 3.60 %
5 years fixed: 4.04 %

5 years 5% Cash back fixed: 5.19 %

First National Prime Rate: 3.00 %

Posted by DataTracker Powered by CoolRent

Sunday, December 12, 2010

Tax and Estate Planning: Should you pay yourself salary or dividends?

Tax and Estate Planning

Should you pay yourself salary or dividends?

By Jamie Golombek
You need to do the math before making a decision

If you’re an incorporated small-business owner, chances are you’ve probably been advised at one point to pay yourself at least enough salary from your corporation to allow you to contribute the maximum to an RRSP. That’s because the ability to contribute to an RRSP is based on 18% of the prior year’s “earned income,” which includes salary but does not include dividends. For 2010, you would have to pay yourself a salary of at least $124,722 to be able to contribute the 2011 RRSP maximum of $22,450.

The problem with this general rule, at least for corporations with a taxable income (pre-salary or bonus) below $500,000 (the federal small-business limit), is twofold and has its origins in the theory of integration. Integration tries to ensure that individuals pay the same amount of tax regardless of whether income is earned personally or through a corporation. If your corporation earns $125,000 of corporate net income and pays it all out to you via a salary or bonus, that remuneration is tax deductible to the corporation and taxable to you based on your personal tax rates. The corporation pays no corporate tax since its taxable income after deducting your compensation is zero.

Alternatively, if the corporation chose not to pay you a tax-deductible salary, its corporate net income would be $125,000 which would be taxed inside the corporation at the small-business rate. The after-tax amount would then be paid to you as a dividend and taxed in your hands personally at the dividend rate. In every province other than Quebec, the tax you pay on salary you withdraw is actually higher than the combined corporate small-business tax paid by the corporation and the personal tax you pay on the dividends. The tax savings by paying dividends instead of salary runs from a negligible 0.3% in P.E.I. to a high of 3.6% in Nova Scotia.

But that’s only half the story because by choosing to have corporate income taxed and reinvested inside the company, a tax deferral ranging from a low of 25% in Alberta to a high of over 35% in P.E.I. can be enjoyed.

 Jamie Golombek is Managing Director of Tax and Estate Planning, CIBC Private Wealth Management. You can read the complete version of his report here.

Economic Outlook: Making Money When Others Aren’t

Economic Outlook

Making Money When Others Aren’t

By Avery Shenfeld

Only dividends are yielding above the long-term average
These may not be the toughest economic times we’ve seen, but a lot of us are still having a tough time making money. That’s not only true for some in the labour market, where Canada’s stubborn unemployment rate looks good only because America’s is so much worse. But it’s also true for investors, particularly for pension funds that have traditionally used safe, fixed income assets as the core of their portfolios.
At the short end of the curve, fixed income returns will be abysmal for the next year at least. We see no end in sight to zero short rates in the U.S. Before the Federal Reserve even thinks about raising rates, it will have not only delivered another dose of quantitative easing, but started the process of mopping up the extra money by sending bonds back to the market, and perhaps raising the rate on excess reserves. With so many steps to come first, we’ve pushed back the move off of a zero funds rate beyond 2012.
That softens the outlook for the Bank of Canada, which has to be concerned about the impact of much wider spreads on the Canadian dollar, and the resulting drag on exports. The pause at 1% could last until the second half of 2011, and another long pause at 2% in 2012 could be in the cards. Closing the output gap by the end of 2012 does not, as some assume, imply that rates go back to some fixed “neutral” level over the same period. Rates could stay low to the benefit of the economy, but to the detriment of T-bill investors, if needed to offset a weak external environment.
Longer bonds benefited from the capital gains associated with the recent rally, but that party may be over soon. You don’t want to buy what the Fed is buying, or its close substitutes (Canadian sovereign debt), since prices are being pushed to artificial highs by the Bernanke bid for bonds, and will snap back when quantitative easing is unwound down the road. The stretch for yield in bonds may also have sapped the juice out of high-yield corporate debt.
That leaves equities as the refuge from the low growth, low return environment. Typically, stocks are flying when the economy is too, but reliable dividend-paying equities stand out in a non-recessionary, but slow growth world. Cashing dividend cheques, as opposed to pay cheques or bond coupons, may be the best way to make some money when others aren’t.
Only Dividends Still Above Long-Run Average (as at Sept. 30, 2010)
Avery Shenfeld is chief economist at CIBC

Thursday, December 9, 2010

The Financial System Review - December 2010 issue

The Financial System Review - December 2010 issue

Why taking a Salary May Not Make Sense

Why taking a Salary May Not Make Sense
by Jamie Golombek1    CA, CPA, CFP, CLU, TEP

Tuesday, December 7, 2010

Canadian Mortgage Broker News - Housing sales to remain static for 2011: Re/Max

Housing sales to remain static for 2011: Re/Max

| Tuesday, 7 December 2010

Despite an improved economy, residential real estate sales are expected to remain static in most major centres next year, according to a Re/Max report released Tues. Dec. 7.
The Re/Max Housing Market Outlook 2011 saw this year’s home-buying activity fall short of 2009 levels. By year-end, approximately 441,000 homes will have been sold nationally, a five per cent decline from the 465,251 sales reported in 2009. Housing values still continued to rise in all 26 areas surveyed, and was up an estimated seven per cent to $340,000 compared with $320,333 a year earlier.
Though some see this resale housing activity as a “new normal,” it is actually a return to the traditional real estate cycle, said Michael Polzler, executive vice president and regional director of Re/Max Ontario-Atlantic Canada.
“The past decade was truly unprecedented—never before have we experienced a run-up that was as strong or lasted as long,” added Polzler. “As we have digressed from the typical pattern, people have forgotten what the usual healthy cycle looks like, but all the hallmarks are there: Ample inventory levels, steady demand, and moderate growth, both in terms of sales and prices, will characterize the market in 2011.”
Greater market stability is expected to take place in 2011, with Canadian housing sales predicted to mirror 2010 levels at 441,000 next year, while the average price is forecasted to rise by three per cent to $350,000 by year-end 2011.

Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA, Ontario, December 07, 2010 — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.
The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.
Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.
Information note:
The next scheduled date for announcing the overnight rate target is 18 January 2011. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 19 January 2011.

Monday, December 6, 2010

Canadian Mortgage Broker News - National housing activity rises: CREA

National housing activity rises: CREA

National housing activity rose for the third straight month, elevating the number of sales above the lows of July by nearly 15 per cent, according to the Canadian Real Estate Association (CREA).

Seasonally adjusted home sales activity climbed 4.6 per cent in October, building on similar gains made in August and September.

According to CREA, three quarters of local markets registered monthly increases in sales, led by Toronto and Vancouver.

“The continuation of low interest rates is supporting sales activity, which has been improving over the past few months in a number of major markets including Vancouver,” CREA’s President Georges Pahud said in a news release published on Nov. 15. “National housing market trends are improving, but local market trends can differ significantly.”

The number of new residential listings on Multiple Listing Service edged up in October, increasing by 1.3 per cent on a seasonally adjusted basis. Still, new listings remain 14 per cent below the recent peak reached in April 2010.

The national average residential price also edged in October to $343,747, just 1 per cent higher compared to one year ago. October marks the fourth consecutive month during which the average price roughly reflected levels experienced a year ago.

Canadian Mortgage Broker News - Housing starts expected to decline for 2011

Housing starts expected to decline for 2011

Housing starts are expected to continue to moderate in the last quarter of 2010 and into 2011, according to the Canada Mortgage and Housing Corporation (CMHC).

CMHC estimates total housing starts for 2010 will be in the range of 176,700 to 194,700 units, with a point forecast of 186,200 units, while starts in 2011 will be in the range of 148,000 to 202,300 units, with a point forecast of 174,800 units.

“High employment levels and low mortgage rates will continue to support demand for new homes in 2011. Nevertheless, housing starts will decrease to levels more in line with long-term demographic fundamentals next year,” CMHC Chief Economist Bob Dugan said in a news release published Nov. 15.

Dugan also expects that the resale home market will remain balanced over the next two years as existing homes sales continue to ease and inventory levels rise.

Existing home sales are expected to be in the range of 423,800 to 455,900 units in 2010, with a point forecast of 440,300 units sales. Sales in 2011 should be in the range of 390,600 to 483,700 units with a point forecast of 438,400 units.

As supply and demand move into balance during 2011, the average existing home price is expected to increase only modestly in 2011.

Currency Market Analysis by

US Dollar Gains On Bernanke Comments

Markets kicked off the week on a cautiously optimistic tone as traders bid up the US dollar after Friday’s losses, while the euro fell sharply as policymakers debated the issuance of common euro-zone bonds to bail out weaker members of the currency union.
The buck recovered slightly over the weekend after CBS News aired a rare interview with a sitting Federal Reserve Chairman. Ben Bernanke said that it was “certainly possible” that the Fed would expand or pare its announced quantitative easing programme, saying “It depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks”. He articulated his belief that the recovery was on track, calling a return to recession “unlikely”, but highlighted unemployment as the primary risk to growth, and said that he expects jobless rolls to slowly fall toward 5% over the next five years. 
Bernanke also expressed “100% confidence” that the central bank would be successful in preventing dangerous levels of inflation, pointing out that “We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time”.
Judging by the market’s reaction since the QE2 set sail, Bernanke does seem to be gaining converts. Bond market expectations have stabilized, with yields suggesting that traders are assuming a return to a relatively stable inflationary path, which is the Federal Reserve’s stated goal. The dollar has reversed its losses earlier in the year, and is up 1.5% on a trade weighted basis for 2010.

Euro Falls On Policymaker Discord:

The euro dropped as the financial press reported that finance ministers across the common currency zone were brawling over future rescue efforts. A broad division has emerged between those countries supporting an increase in the European rescue fund, and those such as Germany, who would prefer to enforce sanctions against countries which fail to maintain fiscal discipline.
The European Central Bank stepped up its purchases of sovereign bonds late last week, stabilizing debt markets and the euro briefly, but made it clear that these purchases were meant to be temporary measures. As a longer term solution, several countries have suggested that the European Union raise rescue funds by issuing bonds backed by the common currency zone. While Luxembourg and Italy have voiced their approval for such a plan, Germany is expected to continue pouring cold water on the idea until fiscal restraint can be enforced on member nations.
In an interview with the Financial Times, German Finance Minister Wolfgang Schauble said “The international markets do not really understand the very specific construction of the euro. We have a common monetary union, but we don’t have a common fiscal policy. We need to convince the international public and international markets that this is a new form, very specific to meeting the demands of the 21st century”.
Few expect the negotiations to be easy, and fewer still expect the markets to quickly gain faith in the common currency project. The euro has dropped almost ten percent this year on a trade weighted basis, and is expected to fall further as the sovereign debt crisis weighs on economic growth into next year.

Canadian Dollar Flirts With Par:

The Canadian dollar is holding onto last week’s gains, trading near par against the greenback after the commodity complex had its best week since October last year. The question now is whether the Canadian dollar will breach par and rally higher. The loonie’s high correlation with oil prices would suggest that this is likely, but it is worth noting that in mid-2008, its momentum eventually faded (in percentage terms) even as crude kept skyrocketing. Par has been a psychologically forbidding barrier for many months, but a sharp move higher in the commodity markets would certainly provide the motivation for decisive (and likely very short term) move above it.   
There is significant anticipation building around tomorrow's statement from the Bank of Canada. While virtually no one expects the Bank to raise rates at this meeting, the bond markets are expecting a hike as early as March next year. This view seems to be at odds with evidence of deteriorating economic activity, but the Bank will also be taking recent strength in the United States into account when considering the economy's future path. Canadian inflation rates are slightly above the Bank's two percent target, but within a comfortable margin of error - particularly as much of the recent gain has been attributable to higher gasoline prices.
Uncertainty in Europe, tightening in China and the fragile nature of the global recovery all represent risks to the Bank's outlook, making it likely that Carney and Company will err on the side of caution, dampening bond market speculation slightly while leaving interest rate hikes on the menu for the first half of 2011.

Commodities Continue Rally:

Crude oil hit a 26 month high over the weekend, touching $89.75 a barrel and sitting just above $89 this morning, on optimism that the global economy will suck in greater quantities next year as the emerging countries scale up their consumption. Several of the large investment banks have thrown their support behind the rally, forecasting a move up to $100 and beyond. Of course, this means that they likely placed their positions at $70, but the odds of a momentum move to the magic $100 mark are growing by the day.
Copper continued its meteoric rise, surging to $8,750 a metric ton as stockpiles fall. The price has moved up more than 30% since early July in spite of relatively stagnant global demand. The London Metal Exchange reported last week that a single trader has amassed somewhere between 50% and 80% of the inventories held by exchange-listed warehouses around the world (more than 177,875 metric tons, equivalent to 1% of the total that will be consumed this year). Clearly, there's a strong possibility that this position is exerting an upward influence on the spot price.
The trader's identity and motives are unclear, but speculators have been bidding up the price since June, when several investment groups disclosed their intentions to launch copper-backed exchange traded funds (ETFs). Buying an investment before an ETF is forced to buy it (known as front running) has become a favourite game of many large traders, and has created odd dynamics in many markets wherein spot prices are substantially higher than future-dated contracts.
Copper was once considered an excellent barometer for global macroeconomic conditions, because of its widespread industrial use - and experienced market operators have long used the price as a fundamental indicator. In an era defined by massive financial investment in the commodity markets, this perception clearly lags reality. 
The impact of a lot of speculative money on a small commodity market can be very significant, and this influence is often transmitted into the Canadian dollar’s value. The road ahead will be paved with the good intentions of commodity market investors, which is to say – it will be very bumpy!

Have an excellent week!
By Karl Schamotta, Market Strategist
Best Rates Guaranteed with XE Trade. Get a Free Account

Friday, December 3, 2010

Canadian Mortgage Broker News - Brokers agree BofC rate hikes unlikely until late 2011

Brokers agree BofC rate hikes unlikely until late 2011

| Friday, 3 December 2010

A poll released by Reuters reveals that primary dealers and global forecasters unanimously agree the Bank of Canada will hold interest rates at its next policy announcement, but the timing of the next hike in 2011 is up for some debate.
The Reuters poll, released on Dec. 2 showed 93% median probability that the Bank of Canada will keep its key rate at 1% at its policy announcement on Dec. 7, with all 44 forecasters polled predicting no move.
Among the 42 that forecast the central bank’s next hike, the majority saw it happening in the first half. The median forecast for the May 31 policy date has the rate rising to 1.25%.
But among the 12 Canadian primary dealers — the institutions that deal directly with the central bank to help it carry out monetary policy — the majority forecast rate hikes in the second half with a median prediction of a first hike in July.
When compared with a similar poll taken in October, the more recent survey showed rate hike forecasts had been moved deeper into 2011.
Thirty of the 44 forecasters surveyed say the central bank will still be at 1 percent after March 1, a more pessimistic view than the last poll.
Martin Marshall, Ontario Sales Manager with Homeguard Funding Ltd. (Verico) is firmly on side with the Canadian forecasters and thinks continued low rates could be a boon for brokers.
The economy has still not fully recovered from the recession, both here in North America and in Europe,” he says. “To raise rates at this time would be premature and therefore I do not see rates rising until the second half of 2011,” he said.

“This is great news for prospective home buyers and even existing home owners. Rates are at historic lows and we may never see them this low again.”
Morgan Vaughan, a mortgage broker with The Mortgage Group Ontario sees a steady stream of business for brokers in 2011.
“With recent numbers coming out, I don’t see any reason to raise interest rates and I believe it means brokers will continue to be busy next year, especially with refinancing.
“The spring real estate market will be strong and even if there’s a one per cent increase in interest rates I don’t see it affecting too many people because of the recent changes that require buyers qualify for the five-year posted rate.”
“Given that the Bank of Canada had indicated that they didn’t want to see that great a divergence with U.S. rates and the Fed was actually doing quantitative easing, it made sense to push out the Canadian rate hike as well as opposed to adamantly defending a Q1 move,” David Watt, senior fixed income and currency strategist at RBC Capital Markets told Reuters.
“We’ve had a lot of recovery and we’re seeing some fade at the present time, so you get that caution that maybe the domestic side of the economy is not strong enough to offset the still sizable trade hit and currency strength.”
A report earlier this week from Statistics Canada showed the economy disappointed in the third quarter with the weakest growth rate in a year, while the economy shrank outright in September, adding pressure on policy makers to safeguard the patchy recovery.
Bank of Canada Governor Mark Carney in October gave a blunt assessment of the global and Canadian economic recoveries, saying the central bank would plot its next move with extreme caution.
According to CIBC World Markets senior economist Benjamin Tal at the recent CAAMP Forum, massive new monetary stimulus by the U.S. Federal Reserve to support a sagging U.S. economy also prolongs low rates south of the border, and Canada is seen not wanting to race too far ahead of its largest trading partner.
– John Tenpenny, Editor, CMP

Wednesday, December 1, 2010

Owner-Manager Year-End Tips, Part 2

Owner-managers should address the following considerations before the 2010 year-end; some items have continuing relevance and should also be reviewed in 2011. (For tips on establishing an owner-manager's optimal salary-dividend mix, see "Owner-Manager Year-End Tips, Part 1," Canadian Tax Highlights, October 2010.)

Corporate Income

•Decreases in small business rates--in Newfoundland and Labrador and Nova Scotia (for 2011), Manitoba (on December 1, 2010), Ontario (on July 1, 2010), and Prince Edward Island (on April 1, 2010)--may benefit an affected corporation that defers income until after 2010 by maximizing 2010 discretionary deductions such as CCA. After 2010, the small business threshold in Yukon increases from $400,000 to $500,000.

•A corporation subject to the general corporate income tax rate may wish to defer income by maximizing discretionary deductions in 2010 to benefit from staggered reductions in the federal rate: that rate falls from 18 percent in 2010 to 16.5 percent in 2011 and to 15 percent in 2012. After 2010, general rates also decline in British Columbia, New Brunswick, and Ontario. However, New Brunswick's new government may revise the scheduled corporate tax decreases.

•For a corporation to claim CCA, depreciable assets must be purchased by, and be available for use at, the corporation's year-end. The annual CCA deduction is enhanced (1) for computers and systems software, from 55 percent declining balance to 100 percent (no half-year rule) for purchases made before February 2011; and (2) for M & P equipment, from 30 percent declining balance to 50 percent straightline on purchases made before 2012.

•Reserves for doubtful accounts receivable or inventory obsolescence should be identified and claimed at year-end.

•If goods were sold in 2010 and the proceeds are receivable after year-end, the income may be deferred by claiming a reserve over a maximum of three years.

•Ensure that intercompany charges are reasonable in light of changes in the economy, and consider adjustments to the charges to reduce overall taxes paid by the related group. For example, a reasonable markup may be charged for services provided by related corporations.

Filing Requirements

•A corporation with annual gross revenues exceeding $1 million must generally e-file its corporate income tax return to avoid penalties, commencing with the 2011 taxation year. Likewise, a corporation that submits more than 50 information returns annually (down from 500) must e-file its information returns starting in 2011.

•A GST/HST registrant that meets certain criteria (such as making, on an associated basis, annual taxable supplies exceeding $1.5 million) must file its GST/HST returns electronically for reporting periods ending after June 30, 2010.

•For partnerships with fiscal periods ending after December 31, 2010, the CRA has changed its administrative policy on the filing criteria for partnership returns. The current requirement to file a partnership information return based on the number of partners is being replaced with a requirement to file that is related to financial thresholds and partner structure.

•Be aware that under federal draft legislation, an "avoidance transaction" that meets certain conditions is a "reportable transaction" that must be reported to the CRA. The new rule applies generally for transactions entered into after 2010 and to transactions that are part of a series of transactions completed after 2010. Quebec draft legislation also requires the disclosure of certain aggressive tax-planning transactions, which applies to such transactions that are generally carried out after October 14, 2009.

Tax Incentives

•Claim M & P tax credits, which are available in Manitoba, Nova Scotia, Prince Edward Island, Quebec, and Saskatchewan. Nova Scotia introduced a 10 percent credit for eligible M & P property that was acquired after 2009 and cost more than $50,000; the maximum annual credit is $1 million.

•Take advantage of media tax incentives, which are available in most federal, provincial, and territorial jurisdictions. Media incentives were enhanced or extended in British Columbia, Manitoba, New Brunswick, Ontario, and Quebec.

•Claim SR & ED tax credits, which are available in all provinces and territories (except Prince Edward Island and Yukon). Manitoba's 20 percent credit became fully refundable for eligible expenditures incurred in Manitoba after 2009 under a contract with a qualifying research institute for new technologies and biotechnologies, and partially refundable (25 percent refundable in 2011 and 50 percent refundable after 2011) for in-house R & D expenditures after 2010. Enhancements to the Quebec R & D wage tax credit affect clinical trial work and arm's-length contracting.

•Take advantage of other federal and provincial tax incentives and changes to those incentives. For example, Manitoba's co-op education and apprenticeship tax credits will be enhanced starting in 2011, and Quebec's e-business and book-publishing tax credits were enhanced in 2010.

Donald E. Carson and Ruby Lim

PricewaterhouseCoopers LLP, Toronto

Canadian Tax Highlights

Volume 18, Number 11, November 2010

©2010, Canadian Tax Foundation

Monday, November 29, 2010

CIBC Economic's "The Week Ahead"

The American economic Thanksgiving table isn’t yet graced with a horn of plenty. But the bounty that is there seems enough to dispel any real worries about double-dip recessions. US Q3 growth was revised up to 2.5%, and several indicators hint that the fourth quarter won’t be any worse than that.

Key Numbers to watch this week:

Canada – Real GDP - Q3 (Tues – 8:30AM) – Canada is set to post its second quarterly deceleration in growth since the recovery. We expect Q3's GDP had a modest ascent of 1.6%. September’s muted performance means a modest handoff to Q4, and with the external picture remaining soft, another quarter of sub-2% growth is in the cards.

US – Non-Farm Payrolls - November - (Fri - 8:30AM) – With census-related layoffs in the rear-view mirror, US payroll gains are now back in triple-digit territory. After the prior month’s consensus-topping 150K net job additions, we’re anticipating a repeat performance in November, as suggested by the apparent downward trend in the weekly initial jobless claims.

Equity Insights:

Driven entirely by gains on the domestic side, US corporate profits rose by 2.8% in sequential terms or by some 28% from year-earlier levels to set a new record in Q3.

While capital spending is likely to slow from the torrid pace seen earlier in the year, a glance at another useful indicator suggests a collapse is unlikely. Much of the equipment used in America’s factories these days is made abroad and capital goods imports have continued to rise strongly in recent months.

Recent gains in Canadian earnings have been driven by the non-financial sector, the opposite of the pattern seen stateside. On a seasonally adjusted basis, non-financial earnings were up by 0.8% from the preceding quarter in Q3, vs. a 3.7% decline for financial entities.

Currency Currents:

In line with an appreciating Canadian dollar, Canada's net inbound travel showed a rare improvement in Q3, coinciding with the loonie's first losing quarter in over a year.

Many have taken the rise in Spanish yields and CDS rates following the Irish debacle to be an indication of “contagion” in European financial markets. However, the run-up in Spanish borrowing costs is not a sign that Spain has “caught” Ireland’s bug, but that it is nursing its own illness.

With infl ation trending above target for the second straight month, the Banco Central do Brazil is under pressure to raise rates. But the central bank has been holding off, expecting earlier tightening and moderated global activity to eventually weigh on growth.

Saturday, November 20, 2010

Housing Predictions For Next Year Are Varied, According to Experts

Housing Predictions For Next Year Are Varied, According to Experts

Economists were polishing their crystal balls this week and trying to peer into the future to see what next year’s real estate market will be like, with predictions varying widely.
Most market observers are still talking about a recent report in one influential international publication that suggested Canada’s residential real estate market is overvalued by almost 24 per cent and should be watched very cautiously in the coming year.

The Economist magazine recently released its annual report on global housing prices, comparing twenty countries selected from around the world. Canada had one of the highest appreciation rates, but still seemed modest compared with Australia at 63.2 per cent and Spain at 47.6 per cent.

But one of the big five major Canadian banks almost immediately fired back a response to The Economist article this week, disputing the methodology and suggesting the number closer to 11 per cent. Predictions from other economists have also been appearing faster than Christmas decorations going up in stores the day after Halloween.

“All things considered, the Canadian housing market does not appear to be in a bubble, and is unlikely to suffer a U.S.-style collapse,” BMO economists Earl Sweet and Sal Guatieri said in a report.
“The media and some analysts remain glued to the idea that the Canadian housing market is a bubble ready to implode a la the U.S., Ireland, Britain and Spain, where prices have dropped 22 per cent on average,” the economists explained. “A comparison of the ratio of prices to incomes with the long-term trend suggests Canadian house prices were overvalued by as much as 18 per cent in late 2009. However, a 3 per cent decline in seasonally-adjusted prices so far this year, coupled with continued moderate income growth, has reduced overvaluation to a less worrisome 11 per cent in the third quarter of 2010.”

Martin Nel, BMO Bank of Montreal’s vice president of lending and deposit products, pointed to mortgage rates currently at “record lows”, making Canadian housing still affordable for the average consumer.
“Even with the notable rise in house prices during the past few years, the costs to service an average priced home, including principle and interest, are running close to long-term norms.”
Nel added that with this in mind, Canadians still need to do their homework before making any big decisions.

“Regardless of the market conditions, we advise prospective home buyers to stress test their financial budget using a mortgage payment based on a higher interest rate than what is currently available,” said Nel.

The report does take note of regional differences, with B.C.’s housing market shown to be more overvalued than Ontario’s or Alberta’s. “Unlike these two other provinces, B.C. house prices have continued to trend higher in 2010, reaching new peaks in September,” the report said. “Consequently, it likely faces a greater downside risk than other provinces. Valuations in Alberta and Ontario are closer to the current national estimate.”

The Economist also used price to rent rations to calculate their numbers, compared with the price to net income formula used by most economists in North America.
In Toronto earlier this week, at least some real estate analysts and economists were still scratching their heads at the magazine article’s findings.
“I’m still not sure why they would look at price to rent. It’s not an accurate way of doing this,” Jason Mercer, senior market analyst with the Toronto Real Estate Board, told
“There is no common industry method of calculating projections and what the market will do at any given time. That’s been quite evident over the past few months with people changing their opinions,” he said.
“For example, one of the things I look at is price compared with the broad affordability index. What are housing costs as a percentage of income?”

Mercer said in calculating housing costs, all the different expenses need to be added together, like mortgage principal, interest, property taxes and utilities. Every household is different on what percentage of their income is dedicated to housing, he explained, but most lenders try to look for no higher than one third, or 33 per cent.

Canada’s largest real estate board reported 3,076 properties were sold through its multiple listing service during the first two weeks of this month. That represents a 16 per cent decrease over the 3,666 units sold during the same time period last year.
So far this year, 78,526 properties have been sold in the Greater Toronto Area, up slightly from the same time period last year.
So what will the market be like in the coming year?

“There hasn’t been a lot of upward movement in terms of borrowing costs so I’m predicting you will see a moderate price increase in the Toronto market of about three per cent. Housing prices still remain affordable and borrowing costs are stable so everything should be somewhat balanced,” Mercer said.

Meanwhile, officials at the Canadian Real Estate Association changed their annual forecast for the coming year, announcing record low interest rates have combined with low inventory to spark increasing demand for Canadian real estate.
CREA said this week that despite prices being flat in October and sales were down more than 20 per cent compared with a year earlier, the market posted its third straight month of increased sales.

They reported October sales were halfway between the lows of December, 2008, and the record high of December, 2009, which could be interpreted as a sign the market is stabilizing.
“It seems to me the Canadian housing market has been either feast or famine,” said BMO Nesbitt Burns economist Douglas Porter told the Globe and Mail. “But now buyers are facing low rates on one hand, and daily volleys about how bad the market is on the other. That should keep things from getting overly hot, and gives me reason to believe we could have a balanced market in the year ahead.”

After slowing in the recession of 2008, sales activity reached a fevered peak in December, 2009, as buyers rushed back into the market.
Average resale prices were at an all-time high $346,881 last May, causing concern that cheap money was driving prices to unsustainable levels. The average resale price in October was $337,842.
But the market came to an abrupt halt last July, with major regions such as Vancouver and Calgary posting sales drops of nearly 45 per cent and prices pulling back from May’s high. Several factors were cited for the decline: The federal government introduced rules that made it more difficult to qualify for a mortgage, and Ontario and Quebec introduced harmonized sales taxes that made the services associated with buying a home more expensive.

Would-be buyers also faced a barrage of warnings from organizations such as the Bank of Canada, the OECD and International Monetary Fund, all of which have cautioned that as interest rates rise, many Canadians might not be able to make their mortgage payments.
One of the first economists to predict the U.S. mortgage crisis also warned this week that Canada’s housing sector could be headed for a sharp correction, CBC News reports.

Dean Baker of the Washington-based Centre for Economic and Policy Research said he sees no reason why average home prices in Canada should be about 50 per cent higher than in the U.S.
Baker said if interest rates rise by two per cent, Canadians could see house prices collapse by 25 to 30 per cent.

Given the potential damage, Baker said the federal government should consider regulations to further tighten mortgage lending and the Bank of Canada should consider raising rates.
Ottawa moved last February to tighten lending requirements and late last month, the Bank of Canada left its key interest rate unchanged at one per cent after three consecutive quarter-percentage-point increases, saying that the Canadian outlook had changed and that it expected full recovery to take a year longer than it had earlier predicted.

Baker was recently given the Revere Award along with two others for being the first to sound the alarm on the U.S. housing bubble five years before it burst.
But domestic mortgage rates have actually dropped in the past three months and now sit at all-time lows. A recent survey done by the Canadian Association of Mortgage Professionals released showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.

And that still didn’t stop two major banks – TD Canada Trust and Royal Bank of Canada, from announcing this week that they were increasing some of their fixed term mortgage rates by as much as one quarter of a percentage point.
Popular five year mortgages rose by 0.25 of a percentage point to 5.44 per cent. Rates on three and four year mortgages also increased by a quarter of a percentage point and one and two year rates went up by 0.15 of a point.
Rates for mortgages that have six, seven and ten year terms were unchanged.

Five year mortgage rates in particular are closely tied to yields, or rates of return in the bond market, which have recently rebounded following three straight months of declines. That means Canadian banks were paying a higher borrowing rate in the bond market in order to lend to prospective homeowners.

CREA now predicts national sales activity is expected to reach 442,200 units by the end of this year, representing an annual decline of 4.9 per cent. While monthly levels for sales activity are stabilizing, year-over-year comparisons are likely to remain stretched well into 2011 due to the record-level activity reported in late 2009 and early 2010.

Lackluster economic and job growth, muted consumer confidence, all predicted by CREA officials during 2011, means national home sales activity is forecast to decline by nine per cent to 402,500 units in the coming year.
"Interest rates are expected to resume their return to more normal levels next year, but will still be at levels that are friendly to the housing market," said CREA president Georges Pahud. "For the tenth year in a row, more than 400,000 homes are expected to change hands over the MLS systems of Canadian real estate boards and associations next year."

Levels for sales activity and new listings have swung widely across the country until recent months, according to a CREA press release. It added despite their volatility, movements in sales activity and new listings have remained in synch and have kept the resale housing market balanced since early 2010. The overall supply of homes for sale has also been trending lower in recent months. The resale housing market has remained balanced on a national basis and in most provinces, resulting in stable average price trends.

CREA officials predict the national average home price is forecast to rise 3.1 per cent in 2010 to $330,200, with increases in all provinces. The small revision to CREA's average price forecast reflects changes to the forecast for provincial sales activity and corresponding provincial contributions to the national average price calculation. The balance between supply and demand is forecast to remain stable, resulting in stable price trends.

Modest average price gains are also forecast in 2011 in all provinces except British Columbia, Alberta, and Ontario. Lower sales activity in British Columbia and Ontario are expected to result in a 1.3 per cent decline in the national average price to $326,000.
"Housing demand and supply is stabilizing," said Gregory Klump, CREA's chief economist. "That's good news for home buyers, who will feel less hurried to make an offer than they did when transitory factors ignited housing demand in early 2010. It's also good news for home sellers, who will feel more confident about price stability now that the housing market has become balanced."

"Interest rates are widely expected to remain low for some time due to recent downward revisions by the Bank of Canada to its outlooks for economic growth and inflation. Consumer sentiment will likely remain under pressure until economic prospects improve meaningfully," said Klump.

"In the meantime, many households will be focused on paying down their debts before the Bank of Canada resumes hiking interest rates next year," Klump added. "Economic uncertainty is likely to keep potential homebuyers in a cautious mood, so the continuation of low and stable interest rates is unlikely to cause housing demand or prices to swell."

Back in Toronto, economists were still looking trying to look at the numbers and predict what next year will be like. With the number of houses listed for sale sharply lower than in July, prices are expected to stay firm as buyers compete the few homes available. The months of inventory – the amount of time it would take to sell everything that is for sale, at the current rate of sales – sat at 6.2 months in October, down a full month compared with the July figure.

That doesn’t mean prices are likely to catch fire again in the spring, when activity traditionally accelerates, but it should help keep prices from dropping as buyers and sellers hit the market in what should be equal numbers.
“All the talk of a U.S. style housing bubble is completely unrealistic,” Ted Tsiakopoulos, Ontario regional economist for the Canada Mortgage and Housing Corporation, said in an interview.

“Next year you should have continued strong mortgage rates and other factors, but you will still see a slight decrease. We’re predicting that will be almost half a point in the Toronto market, or .4 per cent,” he said.
In Ottawa, CMHC released their annual fourth quarter housing market outlook that showed housing starts should “stabilize at levels consistent with demographic fundamentals in 2011”.

The federal agency predicted housing starts would be in the range of 176,700 to 194,700 units in 2010, with a point forecast of 186,200 units. In 2011, housing starts will be in the range of 148,000 to 202,300 units, with a point forecast of 174,800 units.

“High employment levels and low mortgage rates will continue to support demand for new homes in 2011. Nevertheless, housing starts will decrease to levels which are more in-line with long term demographic fundamentals next year,” said Bob Dugan, chief economist for CMHC.
Dugan also noted in a press release that the existing home market conditions will remain balanced over the next two years as MLS sales ease and inventory levels remain elevated. Existing home sales will be in the range of 423,800 to 455,900 units in 2010, with a point forecast of 440,300 units. In 2011, MLS sales will move lower and are expected to be in the range of 390,600 to 483,700 units, with a point forecast of 438,400 units.

With an improved balance between demand and supply, the average MLS price across Canada is expected to edge only modestly higher in 2011, according to CMHC.

Friday, November 19, 2010

Maximize your 2010 US federal refund

The holiday season is nearly here, which means it's year-end tax planning time. You only have until the end of December to act on certain money-saving credits and deductions. Read on for tips on how to maximize your 2010 federal refund by doing a little year-end planning now!

TaxACT 2010 Preview Version—available now—will cover these and all the other new tax law changes, so you won't have to keep track of them on your own.

Winterize Your Home Now to Save Energy & Money on Your 2010 Taxes
According to the Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2010 tax bill as well. Read More...

IRS Explains 2011 Changes to Flexible Spending
The IRS issued guidance reflecting changes regarding the use of certain tax-favored arrangements, such as flexible spending arrangements (FSAs), to pay for over-the-counter medicines & drugs. Read More...

Tips for Taxpayers Making Charitable Donations
Are the holidays putting you in a giving spirit? If so, you may be able to take a deduction for it on your 2010 tax return. Here are the top 10 things the IRS wants you to know before deducting charitable donations. Read More...

Your Guide to Tax Law Changes
TaxACT will guide you step-by-step through all the tax law changes for 2010 to help minimize your tax liability. Preview editions of TaxACT 2010 are available now so you can import data from last year's return and start your 2010 tax planning immediately. Read More...

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The holiday season is nearly here, which means it's year-end tax planning time. You only have until the end of December to act on certain money-saving credits and deductions. Read on for tips on how to maximize your 2010 federal refund by doing a little year-end planning now!

TaxACT 2010 Preview Version—available now—will cover these and all the other new tax law changes, so you won't have to keep track of them on your own.

Winterize Your Home Now to Save Energy & Money on Your 2010 Taxes

According to the Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2010 tax bill as well.   Read More...

IRS Explains 2011 Changes to Flexible Spending

The IRS issued guidance reflecting changes regarding the use of certain tax-favored arrangements, such as flexible spending arrangements (FSAs), to pay for over-the-counter medicines & drugs.  Read More...

Tips for Taxpayers Making Charitable Donations

Are the holidays putting you in a giving spirit? If so, you may be able to take a deduction for it on your 2010 tax return. Here are the top 10 things the IRS wants you to know before deducting charitable donations.  Read More...

Your Guide to Tax Law Changes

TaxACT will guide you step-by-step through all the tax law changes for 2010 to help minimize your tax liability. Preview editions of TaxACT 2010 are available now so you can import data from last year's return and start your 2010 tax planning immediately. Read More...

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Wednesday, November 17, 2010

Canadian Mortgage Broker News - CMT updates its mortgage term review for November

Canadian Mortgage Broker News - CMT updates its mortgage term review for November
Monday, 15 November 2010

Mortgage term can have a bigger impact on interest cost than the upfront interest rate because the term dictates how long the consumer is locked into that rate. updated its Mortgage Term Review for November 2010, and wrote that the term “affects how long you’ll overpay or underpay, relative to the other available options. The wrong term can get mighty expensive if interest rates deviate from your assumptions, or if you need to break your mortgage early.”

The site noted the following key developments since its August Mortgage Term Review:
Economic growth concerns have peaked for the year and slightly subsided
The 5-year bond yield, which leads fixed mortgage rates, fell to an 18-month low then strongly rebounded
The prime rate rose 25 basis points to three per cent
Fixed mortgage rates hit another all-time low
The current deep-discount market rates for a five-year fixed range from 3.39 to 3.49 per cent, while the variable rate sits at prime minus 0.75 per cent
Visit for its complete breakdown of the most common mortgage terms.

Mortgage Term Review - November 2010

Mortgage Term Review - November 2010

Mortgage Term Review - November 2010, by
Updated: November 15, 2010

Key developments since the August update:

•Economic growth concerns reached a peak for the year but have since subsided (slightly)
•The 5-year bond yield (which leads fixed mortgage rates) fell to 18-month lows before rebounding strongly
•Prime rate rose 25 basis points to 3.00%
•Fixed mortgage rates hit all-time lows...again
•Current deep-discounted market rates: 5-year fixed: 3.39%-3.49%; Variable: Prime minus 0.75%
Why is the "Term" important?

As the saying goes, "The lowest rate will save you hundreds, but the wrong term can cost you thousands."

Put another way, your mortgage term can have a far greater impact on interest cost than the up-front interest rate. That’s because your term determines the length of time you're locked into a rate. That, in turn, affects how long you'll overpay or underpay, relative to the other available options.

The wrong term can get mighty expensive if interest rates deviate from your assumptions, or if you need to break your mortgage early. It therefore pays to make the right choice from the get-go.

Almost anyone can find a low rate by browsing the Internet. Picking the right term isn't so easy. Take some time, get good advice, and nail the right term the first time. Below you'll find bite-sized term reviews to give you a running start.


Popular Fixed Terms…

Here's a breakdown of the most common mortgage terms:

•1-year Fixed: If rates rise as economists expect (see: mortgage rate forecast), then a deeply discounted 1-year fixed is mathematically a good alternative to a variable. At the end of the term, you can move into another 1-year or consider a variable rate—possibly at a better discount than today.
•2-year Fixed: Rates on two-year terms are now low enough to make them slightly more attractive than variable and 1-year fixed rates. That's assuming prime rate increases 1.75% in the next two years. If your rate expectations are lower than that, then a 1-year fixed performs better "on paper."
•3-year Fixed: This is unquestionably the sweet spot thanks to 3-year rates under 3%. The three-year beats all other terms in our internal rate simulations. If we were forced to pick one strategy for the next five years, a three-year fixed followed by two one-year terms would be it. As always, the trade-off with a 3-year term is more risk in years 4 and 5.
•4-year Fixed: At today's rates, 4-year mortgages are still a waste of time unless you plan to break your mortgage in four years. (Remember, however, that people do refinance every 3.5 years on average.)
•5-year Fixed: This is the most popular term in Canada, and government restrictions on variable-rate qualification have made it more so. Fortunately, 5-year fixed rates have never been lower—literally. At under 3.50%, the conservative 5-year term has become attractive even to long-time variable-rate devotees.

Longer Fixed Terms…

•7-year Fixed: The spread between 5- and 7-year terms is over 120 basis points, which makes seven year terms mathematically pointless. If you’re that concerned about risk, take a 10-year term for 30 basis points more, and get three more years of rate protection.
•10-year Fixed: The decade mortgage is now available just under 5%. Some consider that a pittance for 10 years of knowing your payments. What’s more, 10-year terms let you out after 5 years without paying a dreaded IRD penalty. History has shown, however, that 9 out of 10 times, 10-year fixed terms cost more than consecutive 5-year fixed terms. For a 10-year to prevail, 5-year fixed rates would have to soar over 3.75 percentage points by the time one's 5-year term matured. Reputable analysts are calling on long-term rates to rise just 2.25 percentage points in the next 60 months.
Variable Terms…

•5-year Closed Variable: Prime – 0.75% has become the standard once again for 5-year variable rates. Most people choosing variables today don't believe prime rate will increase significantly. They tend to feel that history will repeat itself. (That "history" refers to the 77% of the time that variable rates have prevailed over 5-year fixed rates. See: Fixed vs Variable.)

Nonetheless, every major economist expects prime rate to continue climbing next year. If prime rate ascends 150 basis points in the next two years, our amortization simulations give the edge to 5-year fixed rates.

Are variables worth the gamble? Not for our money. 1, 2, 3 and 5-year Fixed rates are just too good to pass up. However, ask this question in two years and our answer could be very different.
•3-year Variable: 3-year terms let you renegotiate sooner—which is good if you might need to break your mortgage in 3 years, or if you think variable discounts will improve in 36 months. In the 3-year market, you can find slightly better variable rates on no-frills mortgages.
•1-year Variable: With 1-year fixed rates below 1-year variable rates, don't bother with 1-year variables.
•5-year Capped Variable: No benefit. Ignore.
•5-year Open Variable: Open mortgages are temporary solutions, and you'll pay a premium for their flexibility. Remember, closed variables are portable, and they only have a 3-month interest penalty. Even if you break a closed variable in 180 days and pay the penalty, it's still cheaper than taking an today's rates anyhow.
Other Terms and Features…

•5-year Cash Back Down Payment: Most people considering these mortgages are pretty desperate to buy, so banks stick them with posted 5-year fixed rates. Here's a novel thought: If you can’t put down 5%, rent and build up a down payment.
•5-year No-Frills: No-frills mortgages will save you 20 basis points, but you'll usually give up standard pre-payment privileges and the ability to switch or refinance elsewhere mid-term. In addition, you'll sometimes:
◦pay "reinvestment" fees if you break early
◦Be without online account access (if that's important to you).
Giving up all this will save you roughly $26 a month on a $250,000 mortgage.
pay higher penalties
•Readvanceables: They remain the “must have” mortgage if you’ve got 20%+ equity. Readvanceables make you liquid, and you can’t put a price on liquidity. Just remember, choosing a readvanceable means you can't switch lenders without paying legal fees. More…
•Open HELOC: HELOCs are priced at least 125 basis points above closed variable mortgages. So don't put money into a HELOC unless you plan to pay it off quickly, need interest-only payments, or want to utilize interest offsetting. If you're planning to borrow a large amount and pay off less than 25% of your mortgage each year, save money and take a readvanceable closed variable or 1-year fixed instead. If you do choose a HELOC, avoid the uncompetitive lenders who are still at prime + 1.00%.
•Hybrids: A hybrid mortgage is part fixed and part variable (and/or part long term and part short term). Hybrids give you rate diversification, which makes some degree of sense since no one knows how high rates will be in five years. It's best to choose hybrids that contain the same terms (e.g. a 5-year variable and a 5-year fixed). If you instead get part short-term and part long-term, the lender may be less motivated to give you a great rate when the short-term portion matures (because the lender knows you're locked in with them on the longer-term portion). If you're considering a hyrbid, also look at a medium term like a 3-year fixed.


The Disclaimer: There are a million and one exceptions to everything above and market conditions change almost daily. Therefore, be wise and get a mortgage professional to compare all the options based on current rates and your personal circumstances.

Above all, remember that these opinions are just that. They are not recommendations or advice. Qualifying is always contingent upon approved credit. All information is based on present market conditions, current economist forecasts (we do not predict rates ourselves), and today's rates and expectations—each of which may change drastically without notice. These opinions are intended for mortgages on owner-occupied properties only.

Innovative New Tools Launched In The Real Estate Industry This Week

Innovative New Tools Launched In The Real Estate Industry This Week

Toronto Sales Are Performing As Expected

Doom & Gloom Predictions In The U.S. As Report Compares Property Market Conditions To The Great Depression Era

Residential Property Prices Set To Fall In 2011, According To CREA

Housing Starts Will Return To Stable Ground In 2011, According To Report By CMHC

Survey Reveals Ways In Which UK Property Industry Copes With Real Estate Downturn

Tuesday, November 16, 2010

FN Mortgage rates as of 16/11/2010


1 year fixed:   2.65 %
3 years fixed: 3.49 %
5 years fixed: 3.79 %

5 years 5% Cash back fixed: 5.44 %

First National Prime Rate: 3.00 %

Posted by DataTracker Powered by CoolRent

Thursday, November 11, 2010

Canadian Mortgage Broker News - BCREA forecasts moderate rise in home sales

Canadian Mortgage Broker News - BCREA forecasts moderate rise in home sales
Wednesday, 10 November 2010

The British Columbia Real Estate Association (BCREA) released its Fall Housing Forecast 2010, forecasting BC Multiple Listing Service (MLS) residential sales to decline 12 per cent from 85,028 units in 2009 to 74,950 units this year, before increasing six per cent to 79,700 units in 2011.

“Consumers are responding to a double-dip in mortgage interest rates,” said Cameron Muir, BCREA Chief Economist. “While housing demand waned in the province through the spring and summer, the added purchasing power from low borrowing costs combined with gradual improvement in the BC economy has trended home sales higher in recent months.”

“A moderate increase in BC home sales is expected next year coinciding with employment and population growth,” added Muir. “However, the 79,700 unit sales that are forecast for 2011 are well below the ten-year average of 85,500 units.” A record 106,300 MLS residential sales were recorded in 2005.

The average MLS residential price is forecast to climb seven per cent to $498,500 this year and remain relatively unchanged in 2011, albeit declining by one per cent to $495,600.

Canadian Mortgage Broker News - More homeowners opting for long amortization

Canadian Mortgage Broker News - More homeowners opting for long amortization

Wednesday, 10 November 2010
Canadians are taking longer to pay off their mortgages but don’t expect it to affect their retirement plans.

A new study from the Canadian Association of Accredited Mortgage Professionals (CAAMP) showed 42 per cent of new mortgages in the last year went for an amortization period of more than 25 years. Five years ago, you couldn’t even qualify for an insured mortgage backed by the government that was amortized for more than 25 years.

In the same survey, CAAMP found those with extended amortization plan to retire on average at 61.9 years, while those with less than 25 years amortization plan to retire on average at 61.5 years.

“This data on expectations does not prove that actual retirement will be unaffected by recent trends in housing and mortgage markets,” the CAAMP report noted. “But it does suggest that consumers’ evaluations of their life-cycle options have not been materially altered.”

Homeowners opt for longer amortization periods because the monthly payment is lower when spread over 35 years instead of 25.

Wednesday, November 10, 2010

Canada Independent Mortgage Brokers to Remain Strong in 2011 Despite the Decline of U.S. Brokerage Market, says Report

Canada Independent Mortgage Brokers to Remain Strong in 2011 Despite the Decline of U.S. Brokerage Market, says Report

Tuesday, 09 November 2010 21:21 Written by David Hatton, Editorial Team

Mortgage brokers were popping Champagne corks this week after news was released Monday that the residential market inched past the $1 trillion dollar mark in late August.
Canadians had $1,008,000,000,000 in mortgages outstanding at the end of August, a gain of 7.6 per cent in one year, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). Over the past 15 years, the volume of outstanding mortgages has increased a even more whopping 194 per cent.
As the residential housing market emerged from the recession earlier this year, consumers rushed into buying properties before the market recovered, raising average prices to an all-time high of $346,881 in May. The market has since recovered slightly with prices around $331,000.
Canadians also borrowed heavily against their home equity during the economic crisis. The CAAMP report noted about 18 per cent of consumers took equity out of their homes – an average of $46,000 – with half stating it was for “debt consolidation or repayment”. Based on an estimated 5.65 million mortgage holders in Canada, that represents about $41-billion in borrowing.
“It is estimated that 30 per cent of the takeout was for debt reconsolidation and repayment,” the report stated. “Therefore, while the amount of outstanding mortgage debt would have increased by this amount, totals for other types of debt would be correspondingly reduced. About $15-billion was taken out for renovations, $6-billion for education and other spending, $7.5-billion for investments and $4-billion for other purposes.”
But the report also noted a larger proportion of mortgage holders increased their payments in the past year. CAAMP reported about thirty-five per cent of consumers surveyed paid more than they had to, with another 12 per cent making lump sum payments, 16 per cent increasing their monthly payments and another 7 per cent doing both.
That announcement came hot on the heels of a Deloitte Consulting report that the Canadian private mortgage broker channel will remain “strong, stable and established” as it continues to fight with the big six banks across the country for market share in the years ahead.The report, titled “Winning Strategies in the Brokered Mortgage Marketplace”, suggested mortgages issued by non-bank providers will likely provide for one-third of all mortgages in Canada for the foreseeable future.
"The Canadian mortgage industry is undergoing another significant paradigm shift," says Todd Roberts, consulting partner and leader of Deloitte’s Corporate Strategy Practice. "In the face of significant industry developments such as the recent credit crisis, industry consolidation and price competition, many banks and non-bank lenders are starting to seriously evaluate the economics involved in pursuing the mortgage brokerage channel. As more and more of these lenders enter this business, Canadian mortgage consumers will ultimately benefit in the form of increased choice of products, value-added advice, and more convenient services."
Independent mortgage brokers represent 38% of total mortgage originations in 2009, up from 26% in 2003, according to Canada Mortgage and Housing Corp (CMHC) data. And roughly the other half of their 2009 mortgage volume was from three of the big six banks – Scotiabank, FirstLine (CIBC) and TD - active n the mortgage broker channel.
The industry website noted that CAAMP said brokers had 25% of 2009 total market share, according to their calculations. That could be due to two things: banks putting more reps on the street and banks realizing that low rates and market share are correlated.
It added the 2800 bank mobile mortgage reps will increase, putting more pressure on brokers. Brokers represent objectivity and choice, however, because brokers typically know and sell multiple lenders’ products. Hopefully lenders do not get carried away with “preferred broker” lists and destroy this edge, however.
“Lenders who use top 100 lists and the like are so excited by the “efficiencies” they create that they’re completely blinded to the effects these policies could have on the industry long term,” the website noted, adding unless things change, “volume pooling and submission desks could become essential for brokers who want to compete with bank reps for larger clients”.
That becomes a sharp contrast when compared with their U.S. counterparts, who have seen their share of mortgage broker collapses, the Deloitte report noted. Major banks such as JP Morgan Chase & Co. and Bank of America Corp, no longer sell mortgages through independent mortgage brokers after the subprime market imploded due to mortgages with unrealistic rate increases, inaccurate readings from credit rating agencies and lack of proper regulation.
In the U.S., the number of mortgage brokerage firms has contracted to 20,000 in 2010 from 54,000 in 2007, the report said. According to the U.S.-based National Association of Mortgage Brokers (NAMB), in 2006, mortgage brokers originated 65% of U.S. mortgages. They now originate a "previously inconceivable" 15%, the report says.
In Canada, however, the broker model has evolved from "a fragmented lender of last resort" to a legitimate option, the report says.
The Canadian lender distribution model in particular has undergone several changes over the last two decades, and while the landscape of lenders continues to shift, the mortgage broker channel remains a viable alternative to the major banks' branch and mobile mortgage sales forces (MMSF). According to the report, while mortgage market share trends for bank branches have steadily decreased (trends which are expected to continue), by contrast, they have modestly increased for mortgage brokers (they are expected to be flat into the future), and steadily increased for bank mobile sales forces (they are expected to continue).
“Canada could not be more different,” says Rob Galaski, Toronto-based senior manager of Deloitte’s corporate strategy practice. “In Canada, most of our lenders, particularly the major banks, have exhibited considerable restraint during the credit crisis and were much more conservative.”
“Over the last decade, there’s been a lot of speculation as to whether the brokerage channel is here to stay,” he says. “We’re finding that the broker channel in Canada is extremely stable and definitely a viable channel for all types of lenders, including the major banks. And, that’s a large contrast to what you find in the United States.”
Canada was largely shielded from the global credit crisis because of stricter mortgage lending rules and more conservative underwriting standards, according to the report. Meanwhile, the big six banks and monoline lenders like Home Capital Group Inc. continue to tap the mortgage broker channel to expand their business.
The future for the mortgage broker in Canada "remains positive" although the scenario anticipated five years ago that brokers will represent the majority of origination volume is “unlikely”, the report says. "The channel will continue to stabilize, settling at approximately one-third of mortgage origination dollar volume," it says.
"Over the last decade, an increasing number of viable options for borrowers have surfaced," Deloitte’s Galaski explained. "In addition to the traditional options available at bank branches, Canadians seeking a mortgage can now consult the banks' mobile mortgage specialists, independent mortgage brokers, and online sources. In this changing and more customer-friendly environment, the mortgage broker channel has emerged as a legitimate competitor that is helping provide greater choice and convenience to Canadians."
"There are many groups of Canadians who are benefitting from access to the specialized lending services that mortgage brokers can provide. In particular, individuals who would have previously been faced with very few options due to their financial circumstances—such as new immigrants, the self-employed, and individuals with credit challenges—now have options that were not previously available to them even a few years ago," says Galaski.
Mortgage brokers are "so important because they are the primary access point for people who have credit challenges," says Galaski. "The major banks have strong programs now for new Canadians, for example, but the mortgage-broker channel provides for people with credit challenges, people with a short credit history, and people with income challenges access to lenders who exist outside the mainstream."
"Having a strong and established broker channel is an excellent thing because it facilitates consumer choice," he says.
The Deloitte report added imminent changes in legislation may remove penalties and barriers for switching lenders.
In response to consumer group concerns that mortgage prepayment penalties are complicated and lack disclosure, the federal government has stated its intention to standardize their calculation and disclosure. The typical repayment penalty is either three months' interest or the difference between the existing rate and the rate the lender could charge in the current environment — known as the interest rate differential (IRD). In a rapidly falling rate environment, the IRD method provides the lender with greater compensation for the foregone interest revenue—but it is typically more expensive for borrowers who plan to discharge their mortgages.
"If new government regulations remove the IRD penalty as a barrier to switching, more consumers will likely switch mortgages in periods of declining interest rates," explains Roberts. "In the absence of stiff payment penalties, lenders will therefore seek to minimize lost customers by building strong relationships through active cross-selling and retention strategies for at-risk groups."
According to Deloitte, emerging trends that are expected to shape the Canadian mortgage industry and ultimately impact Canadian mortgage holders include:1. The balance of power will shift from financial institutions to mortgage-seeking Canadians: As the mortgage lending landscape continues to shift, Canadians will have access to a wider range of options when selecting a mortgage. This has increased competition among lenders (bank branches, mobile mortgage specialists, independent mortgage brokers, and online sources) which in turn will result in more customer-friendly service, increased product offerings and convenience for Canadians seeking a mortgage.
2. Online and telephone banking will continue emerging as viable channels: Remote self-service options such as online and telephone banking are emerging as popular alternative channels for obtaining mortgages. Given the new level of sophistication telephone banking has recently achieved, Canadians no longer need to leave home to obtain a mortgage as some lenders are allowing borrowers to complete their mortgage applications using a voice signature. In addition, online features such as calculators, planning tools, and live chat options with lenders are giving Canadians access to more information than ever. Although these channels are not new, they are in the early stages of adoption and signify an important trend for Canadians interested in the self-service option.
3. Mortgage brokers will evolve from "rate shoppers"' to "advisors" in order to survive: Given Canadians now have increased access to mortgage rate information, mortgage brokers as "rate shoppers" are quickly becoming irrelevant. As such, the "mortgage broker as advisor" value proposition will be the most successful approach for this channel. To succeed in today's hypercompetitive marketplace, mortgage brokers will start to offer value-added advice to Canadian mortgage holders similar to the way investment brokers have evolved from transactional to advice-based roles.
4. Major banks will continue to compete for broker business: Major banks will continue to invest heavily in proprietary distribution to compete directly with the mortgage broker channel, and to a growing extent, each other. In particular, the emergence of bank mobile mortgage sales forces (MMSF) is challenging the perception of brokers as the low-rate/better customer service alternative (particularly among non-branch/ monoline lenders). As a result, bank MMSF are making major inroads due to convenience and customer service. Armed with differentiated products, more than 2,800 mobile mortgage sales agents are operating in Canada today. The evolution of MMSF and the role major banks choose to play in the broker channel will have significant implications for the future of broker originated lending in Canada. If banks choose to stay in the broker channel, Canadians will have more choice and competitive pricing. Brokers will also need to raise their game and increase their level of client service sophistication. However, if banks withdraw from the channel, it will dramatically restrict the supply of mortgages in the broker channel.
5. Investments in technology will benefit consumers in terms of speed and convenience in obtaining a mortgage: As more lenders make technological advances, quick turnaround and visibility on deal status will improve, ultimately benefiting consumers. Improvements to workflow management tools streamline back-office operations, facilitate accurate and timely front-end communication with consumers, and allow lenders to proactively handle exceptions and reduce turnaround times. For example, if a borrower wants to know whether they can increase their mortgage to win a bidding war, the lender can now evaluate the risk and provide them with an answer within four to six hours―compared to the several days it used to take using a manual process.
6. The super-broker networks will continue to consolidate: In recent years, increased competition, heightened compliance requirements and rising technology costs have pushed the broker market to consolidate, with smaller shops merging into super-broker networks. In 2005, almost 70 per cent of Canadian brokers were employed by one of five broker houses. Today, this figure tops 85 per cent as new mid-tier networks have emerged. As a result, the quality of the remaining firms is much higher (for example, more consistent training for brokers, better technological enablement, greater negotiating power with large lenders on behalf of consumers for better products and rates).
7. Niche lenders with specialized product offerings will emerge via the broker channel: As the participation of new lending institutions in the mortgage broker channel continues to evolve, niche lenders with specialized products will emerge via the broker channel. In doing so, they will provide new options to groups of Canadians who previously had few mortgage options available to them due to their financial circumstances (for example, new immigrants, the self-employed, and individuals with credit challenges).