Father doesn’t know best. what was right for your parents, might not be right for you now

Looking for your first home? Then do your homework before hitting the open houses.
“A first-time homebuyer can save a lot of time by knowing in advance how much they would qualify for and what they can afford,” says Marcia Moffat, RBC’s VP, Home Equity Financing, Canadian Banking.
RBC recently surveyed 1,050 Canadians, half who bought their first home in the past two years and half who intend to do so within the next two years. While two-thirds of future buyers said they hoped to purchase a single detached home, those who had already bought ended up in a townhouse or a condominium. The difference, suggests Ms. Moffat, comes down to dollars and sense.
“Affordability isn’t just the house price — it’s thinking about maintenance of the home, taxes, legal feels on top of it and, if it’s a young family, factoring in childcare costs,” she says. “Sometimes when someone is in the market of intending to buy, they haven’t thought through all those elements. Then, when they actually come down to buying, it’s part of the whole approval process. Yet if they get pre-approval, it strengthens their credibility with the realtor and means they’re not spending all of their time looking at homes that they can’t reasonably afford.”
Suzanne Wintrob, National Post · Friday, Nov. 19, 2010

Many Canadians may have missed out on the opportunity to lock-in their rates at their lowest point

This week’s Canadian mortgage related news has been dominated by TD’s and RBC’s move to increase their posted and discounted fixed mortgage rates. While the move took some people by surprise, for those of us who keep a close eye on bond yields it was something that was expected.

When investors are hesitant about things that are happening in the world (take Ireland’s banking system for example or the US’ quantitative easing program) they tend to direct money out of the stock and bond markets and into places they see as safer places to put their money. Examples of these safer harbours is the currency market or commodities such as gold and oil.

Unfortunately, less demand for bonds will directly drive down the price of bonds and the price and yield of bonds are inversely related. Therefore, as money flocks out of the bond market, bond yields will increase.

The bad news for the consumer is that banks borrow in the bond market to get the money that they use to lend to you and me in the form of mortgages. As bond yields increase it becomes more expensive for banks to borrow this money and, at a certain point, they’ll decide to pass that cost over to you.

People who don’t pay attention to bond yields won’t see these increases coming so many who had been planning on locking in their variable mortgage rates didn’t know to do so before rates rose.

Meanwhile, mortgage brokers around the country were busy calling their clients to discuss their best options while banks around the country followed TD’s and RBC’s lead and raised their interest rates.

When will the Bank of Canada resume interest rate hikes?

One date that has many Canadian mortgage holders on their toes is the date the Bank of Canada (BOC) is going to resume raising its overnight interest rate.

After three consecutive increases in June, July, and September, the BOC decided to pause any further interest rate hikes citing slower than anticipated growth and recovery. This was welcome news to Canadians with variable interest rates on their mortgage as they’d just seen their rates increase by 0.75% over the past 4 months.

The Bank of Canada gave many reasons for this pause: lower than expected growth rates, later than anticipated return to full capacity, a sluggish economy in the US, etc…

Whatever the reason behind the decision, many Canadians were grateful for this reprieve but are now wondering about when rates will start their climb again.

In fact, it wasn’t until shortly after the third interest increase in the beginning of September that speculation began that there would be a pause come October’s announcement until the beginning of 2011. When the pause in October became a reality the forecast was pushed out to the end of the first quarter of 2011 before rates would rise again.

Now, with the US attempting more fiscal stimulus, this estimate has been pushed out again until the second quarter 0f 2011.

Therefore, it’s now expected that the BOC will begin increasing the overnight rate again around the Spring of 2011.

This should be very good news for Canadians currently with variable rate mortgages and figure prominently in new home buyers trying to decide between a fixed or variable interest rate right now.