Mortgage news provided by Jim Kwon and Lisa Yun at the Mortgage Centre.  The big news this week involves the unexpected rate cuts from the central bank to record lows.  Referred to as a ‘shock’ mechanism these forms of economic influence are geared towards spurring investment and growth vis a vis an unexpected rate cut from policy makers.  We will see how it turns out!

OTTAWA – The Bank of Canada has taken its influential target interest rate to the lowest practical level in an effort to combat what it says is deeper and more widespread global recession.

The central bank sliced the overnight rate in half to 0.25 per cent – the lowest it says is practical – and signaled strongly it will have to keep it there until at least mid-2010.

In addition, the bank has extended the term of its purchase and resale agreements it uses to inject liquidity into money markets from one-and-three months to six-and-12 months, while setting minimum and maximum bids that correspond to the historically low target rate.

The bank said it will target a daily level of settlement balance in the financial system at $3 billion, a move it says will help drive the overnight rate to the bottom of the trading band.

The Bank of Montreal (TSX:BMO) was the first of Canada’s major banks to announce that it would lower its own prime rate in step with the central bank, dropping the benchmark around which it calculates variable mortgages and other loans to 2.25 per cent.

Shortly after, Royal Bank (TSX:RY) said it too would lower its prime rate to 2.25 per cent, signaling that the other chartered banks would likely follow suit.

The dramatic actions – and more are expected Thursday when bank governor Mark Carney unveils options for increasing the money supply – signal a new and darker view of the global and domestic recession than the Bank of Canada has previously admitted to.

“In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since (January),” Carney wrote in an unusually lengthy note accompanying the interest rate decision.

“Deteriorating credit conditions have spread quickly through trade, financial and confidence channels. While more aggressive monetary and fiscal policy actions are underway across the G20 (countries), measures to stabilize the global financial system have taken longer than expected to enact.”

As a result, Carney has basically thrown out the playbook for the Canadian economy that he outlined in January.

Then, the recession was supposed to be over by the summer and accompanying growth was to built in the third quarter on the way to a robust recovery in 2010, with output growth of 3.8 per cent. Total economy shrinkage this year would be limited to 1.2 per cent.

Now Carney says the economy won’t stop falling until at least the fourth quarter and in total will contract three per cent this year. That is in line with the Organization for Economic Co-operation and Development projection and that of a growing number of private sector economists.

Carney remains a relative optimist on how strong the rebound will be, however, predicting a bounce-back of 2.5 per cent next year and 4.7 per cent in 2011. While lower than his previous prediction of 3.8 per cent growth in 2010, it is still far ahead of the OECD’s 0.3 per cent flatline forecast for next year.

“Given significant restructuring in a number of sectors, potential growth has been revised down,” he says.

“The recovery will be importantly supported by the bank’s accommodative monetary stance.”

The new pessimism, or realism as some economists would call it, has increased the odds that Carney will do more than outline options for so-called quantitative easing later this week – a technical way of saying printing more money to get credit markets functioning better – but that he will soon move into the uncharted territory.

The central bank sees no immediate danger of inflation for all the stimulus it is injecting into the dormant economy.

In fact, Carney said he expects inflation to be minus 0.8 per cent in the third quarter and not to return to the central bank’s desired two-per-cent target until the third quarter of 2011.

Rate Update

Due to declining mortgage rates please note the low monthly payments based on a 35 year amortization:

For every $100,000 the mortgage payment will be:

• $464.03 on a 5 year fixed
• $429.10 on a variable

***Please note I did not factor in any cmhc premium so the payment will be slightly higher (minimal)

On a $300,000 mortgage this would equal $1392.10 on the fixed rate and $1287.30 on the variable

Federal Budget Announcement

Good morning everyone,

The federal budget released Tuesday contains a few items of interest to those in the residential construction industry. In summary, they are as follows:

Home renovation tax credit:
Homeowners can claim a non-refundable 15% tax credit on eligible home renovation costs incurred and paid after January 27, 2009, and before February 1, 2010, under agreements entered into after January 27, 2009.

The tax credit is available on expenses exceeding $1,000, but a maximum of $10,000 of expenses qualify per family unit, so that the maximum credit will be $1,350 (i.e., $9,000 x 15%).

Home Buyers’ Plan:
Commencing January 28, 2009, first-time home buyers can withdraw $25,000 from a Registered Retirement Savings Plan (RRSP) to purchase or build a home, without incurring tax. Previously, the limit was $20,000.

First-time home buyers’ tax credit:
First-time home buyers that acquire a qualifying home after January 27, 2009, can claim a 15% non-refundable tax credit on up to $5,000, for a maximum credit of $750. If a home is purchased jointly, the total credit that may be claimed by all purchasers is $750. The unused portion of the credit can be transferred to a spouse or common-law partner.

As further details come up I will let you know.

If you need money for those renovations and you would like to take advantage of the lower rates today, please give me a call to see if you will qualify for a new mortgage!

Have a great day.

Lisa Yun, AMP
Jim Kwon, AMP
Mortgage Consultants
MORTGAGE CENTRE – Elder Mortgage Corp.
Tel:  604-808-1884 (Lisa)
Tel:  604-808-1050 (Jim)