Monthly Review of Interest Rate Forecasts from the Major Banks

The last interest rate drop is expected on March 3, 2009.  As least, that’s what the Big 5 Canadian Banks are forecasting (for now).  With the exception of BMO, the banks are expecting a 1/2% drop in the Bank of Canada overnight rate when the rate is reviewed on March 3, 2009.

Here is a summary of what the banks are saying:

• TD Economics – TD expects a rate cut of 1/2% in March 2009 - TD Economics Weekly Bottom Line dated February 27, 2009
• BMO favors a 1/4 percent rate cut – BMO Focus dated February 27, 2009
• RBC forecasts 1/2 percent drop – RBC Economics Financial Markets Monthly dated February 6, 2009
• CIBC Wood Gundy expects a 1/2% rate reduction – CIBC World Markets The Week Ahead (Market Call) dated March 2-3, 2009
• Scotia is forecasing a 1/2% drop in the BoC rate for 2009 – Scotia’s Global Forecast Update dated February 2, 2009.

Stay up-to-date on interest rates and home buying trends by signing up for my e-newsletter at www.bcmortgage.ca/opt_in.htm .

When Is a Condo Not a Condo?

If you’re looking for a home you may have your eye on a particular condominium building in your city.  You should be aware, though, that different buildings may have very different ownership arrangements.  Here is a rundown of the three major types of apartment and townhome ownership interests:

Freehold Units
The overwhelming majority of condos are freehold strata units, where typically you have fee simple ownership of your unit.  The land as well as common areas such as underground parking, recreation facilities, and hallways are owned collectively by all the owners.  With most freehold condos, you pay monthly strata fees for upkeep of the building’s exterior.  With this type of ownership interest, make sure you know exactly what you are buying: in some cases you own your parking space, storage facilities, or perhaps your backyard if the unit is a townhome.

Leasehold Units
With a leasehold unit, you do not have fee simple ownership, but rather a lease from a landlord for the right to use the unit for a specific number of years.  Many leasehold arrangements are created with a period of 99 years, but no matter what the length of the original term, you may only purchase your unit for the portion of the lease that remains.  Needless to say, the fewer years left on the term of the lease, the less buyers will be willing to pay for the leasehold interest.

Landowners who lease their land are often municipal governments, First Nations groups, or private investors who normally lease to a developer who in turn arranges leases with individual users.

Co-op Units
Not to be confused with rental housing, with this arrangement you purchase shares in a co-operative association which owns the land and building including individual units and common areas, and you have a leasehold interest in your unit.  You usually pay monthly dues to the co-op board to cover the building’s taxes, maintenance and other common expenses.  Co-ops can impose strict guidelines for new buyers such as minimum income or a background check – a factor when you buy into the co-op or if you are selling your unit

Looking for a down payment on a home? Check your RRSPs

If you’re a first-time homebuyer, with the federal Home Buyer’s Plan you may be eligible to withdraw funds from your registered retirement savings plan (RRSP) for a down payment when buying or building a qualifying home.  Under the program you can now withdraw up to $25,000 without tax penalties, according to measures announced recently in the 2009 Federal Budget.   Couples can withdraw up to $50,000 from their RRSPs.

Here is a basic overview of some of the rules:

• You must be considered a first time homebuyer, i.e. you cannot have owned an owner occupied home in the previous five years.
• You must be a Canadian resident.
• The property purchased must be for a principal residence.
• The RRSP must be repaid within 15 years, with minimum annual payments of 1/15th of the withdrawn amount.
• Funds must have remained in your RRSPs for a minimum of 90 days before they can be withdrawn under the Home Buyers Plan.
• You will have to complete Form T1036, “Home Buyers Plan (HBP) – Request to Withdraw Funds from an RRSP” available at the Canada Revenue Agency website www.cra-arc.gc.ca in the RRSP section.

How to Get Approved for the Highest Mortgage Amount

With the credit crunch, many lenders have tightened up their lending guidelines.  Many borrowers are finding out that they no longer qualify for the same amount they did last year even with lower interest rates.  Here are a few tips on increasing the amount you get pre-qualified to purchase:

1. Choose the right lender – there are conservative lenders and there are aggressive lenders.  All lenders have consistent standard debt service ratio policies – That is, you are allowed to spend up to a certain percentage of your gross income on mortgage payments.  Some lenders allow you to spend only 32% of your gross income on housing payments while others allow you to spend up to 44% of your gross income.  This can result in a significant difference.  For example, a couple with a combined income of $60,000 and no debt can qualify for $265,000 with one lender and $390,000 at another lender.
2. Ensure your credit is in great shape – Your lending limits will depend on your credit.  With a credit score of 680, some lenders will allow you spend up to 44% of your gross income on housing payments.
3. Pay off all other debts (or reduce payments payments) – Every dollar you are required to pay towards other debts (e.g., car loans, credit cards payment, personal loans) reduces the amount you can use towards your mortgage.
4. Find a property with a mortgage helper – Rental income from a basement suite can significantly boost the amount of money you qualify for.  This will also depend on how your lender treats income from rental properties.
5. Use a mortgage broker – You can spend your time going from one lender to another checking your qualification limits or you could go to a person who can tell who which lender will be inclined to provide you with the right product for you.  The only one that can do this is a professional mortgage broker – Your bank cannot offer the wide variety of products and options that  a mortgage broker can provide.