After weathering the recession better than many other countries, and leading the G7 economies through much of the recovery, Canada’s economy suddenly looks at risk, prompting an unexpected rate cut on Wednesday. Citing threats to Canada’s financial stability from the oil price shock, Bank of Canada Governor Stephen Poloz cut its key rate by 25 basis points to 0.75 per cent. Here are some of the winners and losers from the surprise move.

Winners

Homeowners

 

The most commonly cited catalyst for a correction in Canadian home values has been the possibility of rising interest rates, and the pressure that would put on the finances of marginal borrowers. Higher borrowing rates can reduce housing demand and put downward pressure on prices. The rate cut, which supports the continuation of ultra-low mortgage rates, at least pushes the likelihood of a large group of overextended borrowers running into trouble further out into the future.

 

Exporters/manufacturers


In an unlikely reversal of fortunes, the deterioration of the oil patch has translated into a sudden rise in the prospects of Canada’s manufacturing base. Lower energy prices help reduce production costs, while a falling loonie makes the country’s products more competitive on the global market. The Bank of Canada’s policy announcement further weakens the Canadian dollar, giving Canada’s exporters and manufacturers greater opportunities to sell into a resurgent U.S. economy.

 

 

 

Canadian stocks

  

Accommodative rate policy, or an extended period of low rates, has proven a boon for Canadian stocks and a windfall for many of those exposed to equities. The reduction in policy rates will further encourage risk-taking by Canadian investors, while low bond yields will keep investors searching for income in the stock market’s dividend payers. With valuations over the last six months being squeezed by the oil bust, the rate cut will provide a needed lift to Canadian stock investors. By the close of trading on Wednesday, The S&P/TSX composite index gained 1.8 per cent..

 

Canadian banks


The post-recession era has seen Canada’s biggest banks benefit from the willingness of Canadians to take on debt, primarily to buy property. Some analysts warned of risks to the banks if rates were to rise and usher in a phase of household deleveraging. The rate cut earns the banks some breathing room on that front, and lowers the risk of Canadian borrowers defaulting on their mortgages.

 

 


Losers

 

 Loonie

 

The rate cut automatically weakened the dollar further, and added another negative influence to the loonie’s slide. Canada’s high level of exposure to resources, combined with promising economic indicators out of the U.S., had already pushed the Canadian currency to a five-year low against the U.S. dollar. The loonie plunged more than 2 cents to a low of 80.70 cents (U.S.) on the news, and economists now see the dollar falling to as low as 77 cents.

 

 

Importers

 

The flipside of a weak loonie is that it makes goods purchased from other countries more expensive. Higher costs could also ultimately prompt Canadian retailers to raise prices in order to protect profit margins.

 

Canadian travellers

 

With each loonie capable of buying fewer U.S. dollars, the cost of travelling outside of Canada’s borders is getting more expensive. Similarly, cross-border Canadian shoppers will find their money doesn’t go quite as far south of the border.

 

Fixed-rate mortgage borrowers

  

A rate cut represents a signal to borrow and spend, and is for the most part friendly to debtors, except for those who chose to lock into fixed-rate mortgages. . Depending on the length of the term remaining on their mortgage contracts, they could miss out on the savings to debt-servicing costs if Canadian lenders decide to lower their mortgage rates.

 

Canadian banks


While lower rates could boost household borrowing, the margin, or profit, on each loan will fall. Even though the Bank of Canada cut its overnight rate by 25 basis points, allowing banks to borrow for 25 basis points cheaper, longer-term bond yields have plummeted by much more than that in the past year – and these yields determine the rates that banks charge their clients. Five-year mortgages, for instance, are priced off the 5-year Government of Canada bond, and its yield has fallen 86 basis points since September.

 

 

Source: The Globe and Mail, Tim Shufelt

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In order to prepare for winter, there are a number of beneficial tasks that you can carry out to ensure that you have a safe and comfortable winter.

 

Furnace/boiler tune-up, replace filters: Before you experience an issue with the furnace or boiler, it is best t to call in a heating contractor to service the equipment. They will clean it out, test it for safety and replace all filters as needed. While you are at it, have the water heater inspected as well.

 

Clean gutters: If you live in a location with heavy vegetation, it is a good idea to have your gutters and drains cleaned often, while checking for leaks. Overflowing and or leaking gutters can cause moisture damage to the home, so be sure to have them properly maintained.

 

Shut off exterior hose bibs: Find out where all of your exterior hose bibs are located, turn them off and drain all the water before it gets too cold. Exposed, pressurized water can freeze and cause leaks.

 

Test your smoke detectors and replace all expired ones: I recommend checking your smoke detectors at last every six months. If they are six years or older, they are 50 per cent less effective, so replace then if you need to. Also, all smoke detectors should be interconnected and hard-wired so they can be heard on all levels of the home. An electrician can help with this if you are not comfortable with your electrical system.

 

Have the roof inspected: Although it is much safer in the summer, a good winter roof inspection by a licensed roofing contractor or inspector should be considered, especially if it has not been done recently.

 

Have the attic inspected and add weather stripping to the hatch: In my opinion, the winter is the ideal time to check the attic, especially when it is raining. You can look for leaks, evidence of pests, insulation levels and ventilation. To reduce your heating costs have a proper weather strip applied on the attic hatch.

 

Caulk windows and doors, add weather stripping: Although summer is the ideal time to do this task, you’ll be able to check for drafts much easier in the winter. Take a trip to the hardware store to purchase the right type of caulking for your needs. Any damaged weather stripping can be applied to exterior doors.

 

Remove all items and vegetation from the home: All plants growing or storage items against the home should be removed to prevent moisture issues. This is an easy way to maintain the exterior, while preventing damage. In addition, remove snow from the foundation wall and clean all exterior vents.

 

Repair minor interior items: Why not take the time to repair those miscellaneous items that have been in the back of your mind all year? Loose door handles, trim, handrails, cupboards, bathroom and kitchen caulking, etc, can all be done in the winter.

 

Of course, many of these tasks can be done before winter, yet it is better late than never.

 

Source: REW.ca, Sean Moss - registered home inspector

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Calendar calculator new job

 

As we prepare to usher in 2015, many people start thinking about changing jobs. If you’re planning to apply for a mortgage in the coming year, then you may want to consider how mortgage lenders view your employment history as part of the underwriting process.

 

In an application for a new mortgage, transfer, or a refinance, lenders look at three years of employment history. Most of the time they are just looking to see how stable your position and the consistency of your income. Here’s how your employment history applies to different scenarios:

  • Self-employed: If you’ve recently left a job to be self-employed, it could be more difficult for you to qualify for a mortgage because lenders generally want to see two years of income and tax returns for a . Some banks offer “stated income” loans that don’t require income verification but you’d generally need a down payment of 35 per cent or more. You would still need two years of being self-employed for a stated income loan. However, if you are putting down 35 per cent and your current field is consistent with what your experience is in, they may give you an exception. Otherwise, the lender would need to see when the company was registered.
  • Salaried job: If you just started a new job, lenders usually want you to pass a three-month probationary period and be a full-time permanent employee. If you are working in the same field and get another salaried job, then you would only need to pass the three-month mark at your job to show that the job has some staying power.
  • Job with hourly pay or bonus: If your pay relies on a bonus, or if you are hourly and work more than the normal hours indicated on your employment letter, then lenders will want to see a two year average of your income. I had a client who is a truck driver and because he was in his last job for over 10 years, I was able to use a two-year average, which of course included many hours of overtime. But he decided to go to another job and although he was actually working more overtime and getting a better pay, I could not use any of the extra income because there wasn’t enough history. Some exceptions can be made if the year to date is very strong.

If you plan to apply for a mortgage with a spouse who has stable employment and high enough income to qualify for the mortgage, then these scenarios become less of an issue.But a lot of clients in Vancouver need both incomes to qualify for the mortgage because home prices are so high.


When in doubt, consult a mortgage broker to see how changes to your employment or financial situation might impact your mortgage eligibility before you make the leap.

 

Source: REW.ca (Atrina Kouroshnia)

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