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Home Owner Dreams Dead.... or not?
Are you thinking about purchasing a home this year or know someone else that might be? One of the top banks is advocating to increase the minimum down payment from 5% to 7% and decreasing the amortization from 30 years to 25. So what does that mean for you? Some people might not qualify under the new rules if they are implemented. If you are looking at purchasing a place at $200,000.00 under the current rules, you would need $10,000 as a minimum down payment (or 5% of $200,000). At 7% you would have to come up with an additional $4,000.00 for a total of $14,000.00 as your down payment. As well, by reducing your amortization your monthly payments would increase as well. You would be looking at an additional $104.00 per month which for some could make a significant difference for their budget. Below is an article by Vernon Clement Jones that explains the changes they are considering. If you are sitting on the fence about whether to get into the housing marketing or thinking of refinancing, you may want to take that leap sooner than later and take advantage of our super low rate specials that won’t last long. Give us a call at VERICO ZANDERS Associates Mortgage Brokers Inc. to discuss strategies to ensure your dream of homeownership can become a reality. We can get the BEST mortgage for you! TD economist to Govt: Raise minimum down payment By Vernon Clement Jones | 18/03/2012 5:00:00 PM |15 comments Brokers are guaranteed to bristle at the suggestion, but a top bank economist is among the first to advocate for an increase in the minimum down payment to 7 per cent instead of 5 – an option with significant implications for first-time and cash-back clients. We need to acknowledge that a significant imbalance has developed and it poses a clear and present danger to Canada's medium-term economic outlook,” Craig Alexander, chief economist with TD Bank, said in a report late last week. “It also suggests that further actions to constrain lending growth may be prudent. If the overvaluation was fully unwound rapidly, it would be three times the correction in the early 1990s. While other economists have called for further tightening of the country’s mortgage rules, Alexander is among the first to call for an increase in the minimum down payment to 7 per cent from 5 per cent. He has also broached the idea of instituting a minimum interest-rate floor for income tests, focused on ensuring borrowers can handle a higher rate environment. Another, more commonly debated option, is shortening the maximum amortization to 25 years from 30. Brokers, and their associations, have roundly rejected the need for more stringent mortgage rules, despite near-record high levels of household debt relative to income. That situation became even less sustainable after the Central Bank decided to hold its overnight rate steady last month, further raising concerns that consumers would move to raise their debt levels instead of cutting them. Alexander is now pegging the overvaluation of Canadian home prices at between 10 and 15 per cent. He argues that the real culprit in spiking debt levels has been growing home purchases in the current low interest-rate environment. The outlook is for mild employment and income growth in the coming year, implying that households will gradually become more lever-aged over time, he said.
Canadian Income Survey, 2016
Canadian families and unattached individuals had a median after-tax income of $57,000 in 2016. Median after-tax income increased from 2011 to 2014, but held steady in 2015 and 2016. The slower growth in 2015 and 2016 was associated with the resource price slowdown, which began in the second half of 2014.
After-tax income is comprised of income from market sources and government transfers. Market income includes employment income, retirement income and income from investments, while government transfers include benefits to seniors, child benefits,
Employment Insurance benefits, social assistance and other benefits. While growth in overall median after-tax income slowed in 2015 and 2016, there was also a significant increase in government transfer income. Median income from government transfers rose from $5,800 in 2014 to $7,400 in 2016. About half of this rise was due to increased child benefits, which became a larger source of income for families with children.
In 2014, the median child benefit received by couple families with children were $2,500. This rose to $3,400 in 2015, and to $4,000 in 2016. For a lone-parent family, the median benefits rose from $5,100 in 2014 to $5,800 in 2015, and then to $6,400 in 2016.
Bank of Canada maintains overnight rate target at 1 1/4 per cent
The Bank of Canada today maintained its target for the overnight rate at 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent. Global growth remains solid and broad-based. In the United States, new government spending and previously-announced tax cuts are anticipated to boost growth in 2018 and 2019. However, trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks.
In Canada, the national accounts data show that the economy grew by 3 per cent in 2017, bringing the level of real GDP in line with the projection in the Banks January MonetaryPolicy Report (MPR). In the fourth quarter, GDP growth was slower than expected, largely due to higher imports, while exports made only a partial recovery from their third-quarter decline. The gain in imports mainly reflected stronger business investment, which adds to the economys capacity.
Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand ahead of new mortgage guidelines and other policy measures. It will take some time to fully assess the impact of these, as well as recently announced provincial measures, on housing demand and prices. More broadly, the Bank continues to monitor the economys sensitivity to higher interest rates. Notably, household credit growth has decelerated for three consecutive months. The implications of the recent federal budget for the outlook for growth and inflation will be incorporated in the Banks April projection.
Inflation is running close to the 2 per cent target and the Banks core measures of inflation have edged up, consistent with an economy operating near capacity. Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack. Inflation is fluctuating because of temporary factors related to gasoline, electricity, and minimum wages.
In this context, Governing Council maintained the target for the overnight rate at 1 1/4 per cent. While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target. Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economys sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.