Tuesday, April 22, 2014

Writing an offer without a financing condition is playing Russian roulette; here`s why

In this crazy spring market I have started to hear rumblings of home buyers writing offers on homes without a financing condition because they have been `pre-approved`. I would NEVER recommend writing an offer on a home assuming the financing will be fine. This article does a great job of explaining why. 

Pre-approvals have limitations. As a mortgage broker I do my very best to give my opinion on whether or not I believe your file will be ultimately approved once you`ve written an offer on a home but it is sometimes difficult to predict the outcome. I also ask for documentation at the time of your pre-approval to try to mitigate any issues ahead of time. All that being said, if you are putting less than 20% down on a home, the final decision is always up to the insurance company (CMHC, Genworth or Canada Guaranty) and they don`t review your file until there is an offer on the table. It is definitely an imperfect system but I believe that if you are working with an honest mortgage broker they will explain to you the pros and cons of your file and the varied possible outcomes before you go shopping for a home. 

I would never recommend shopping for a home until you have spoken with a reputable mortgage broker and completed a pre-approval and, again, unless you have the money to buy the home, in full, with cash, you NEED a financing condition on your offer to purchase.

Thursday, April 17, 2014

Bank of Canada: no change on key lending rate

As per the rate announcement yesterday, the Bank of Canada decided to leave its key interest rate unchanged. The Bank announced it would maintain its target for the overnight rate at 1%--a decision that spells good news for variable rate holders.

The primary reason for the decisions was low inflation—something that is expected to continue for the remainder of 2014. While consumer energy prices and a low Canadian dollar are predicted to put upward pressure on inflation in coming quarters, it likely won’t exceed the 2% target.

On the global front, unusual weather caused slower-than-expected US growth, but the Bank expects the overall recovery to remain on track. Europe’s recovery, while progressing, is still subject to low inflation—and the Russia-Ukraine situation could cause issues down the road. Emerging economies, including China, are growing at a solid rate, but financial vulnerabilities could potentially pose a problem as well.

Overall, the Bank expects global growth to increase to 3.3% in 2014, while Canada’s real GDP growth is expected to average about 2.5%. The Bank is also predicting a soft landing for the housing market as debt-to-income ratios stabilize. Household imbalances are still quite high, though, and wouldn’t be able to weather a deterioration in economic conditions. So hopefully that means interest rates remain low for some time.

The next policy announcement is scheduled for June 4, 2014. In the meantime, if you have any questions regarding your variable rate mortgage—or any mortgage question—please don’t hesitate to call.