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Mark Carney repeats that the Bank of Canada may have to raise rates
2012-05-03 | 18:36:00
Mark Carney repeats that the Bank of Canada may have to raise rates
OTTAWA — Bank of Canada Governor Mark Carney has said again that the bank may have to raise interest rates to keep inflation in check as Canada’s economic recovery advances.
“Given the smaller output gap, given the slightly firmer underlying inflation, the possibility of withdrawal of some degree of the considerable monetary stimulus that is currently in place may become necessary, consistent with achieving the (Bank of Canada’s) 2% inflation target,” Carney said in an interview on Friday with Market News. The interview was published on Monday.
“As the expansion progresses, the possibility of some withdrawal becomes more likely, but number one, that’s always going to be guided by achieving the inflation target, and number two, this is happening in an environment of considerable global economic risk, and so it depends importantly on the evolution not just of domestic but global economic developments. So we will certainly weigh any such decision carefully.”
He said it was not necessary to be more explicit about the timing of a possible move but said that Canada was “well into an expansion”.
“The bank’s most recent estimate of the output gap is about half a percent. That puts us in very unusual company,” Carney said. “The economy in our view is growing above trend and will do so over the balance of this year. So the Canadian economy is – relative to the major advanced economies – performing well by any measure.”
The governor said he was well aware of the global risks, and added: “There are also risks domestically, and they’re two-sided.”
He said Canadian inflation expectations were “extremely well anchored”.
The bank left its key overnight interest rate unchanged at a very low 1% on Tuesday but signalled it may have to raise rates at some point.
© Thomson Reuters 2012
Goodbye to three irritating bank practices
2012-03-16 | 10:06:30
Three annoying things that banks do to customers are about to become history.
Following up on commitments made in the past two budgets, the federal government has announced measures that will stop banks from mailing unsolicited credit card convenience cheques to customers, and that will reduce the holding period on newly deposited cheques. The banks will also have to stop being so secretive about the penalties clients must pay when they want to get out of a mortgage early.
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- Rob Carrick's Reader: The nine biggest rip-offs ever
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These measures represent some good work by a government that has been under pressure lately as a result of the robo-call affair. Strangely, the measures were announced on a Sunday and thus didn’t get the initial attention they deserve.
The sharp decline we’ve seen in mortgage rates over the past few years has prompted many people to think about breaking their mortgages in order to lock in lower borrowing costs. A mortgage penalty must generally be paid in this situation, but it’s exceedingly difficult to find out how much it is and how it’s calculated.
The government said in its 2010 budget that it would standardize the calculation and disclosure of mortgage penalties. The measures just announced don’t address the fact that mortgage lenders use different methods to calculate penalties, some of which hit borrowers harder than others. But they do require banks to:
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Annually show customers how they can pay off their mortgages faster without incurring prepayment charges.
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Provide online mortgage penalty calculators.
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Offer a toll-free phone line that customers can call to talk to bank staff about mortgage prepayment penalties and find out the actual charge that would apply.
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Disclose the details of how actual mortgage prepayment penalties are calculated (example: whether three months’ interest is being used, or a calculation called the interest rate differential that looks at how much interest a bank is losing out on if you break your mortgage).
These rules will be introduced over the next six to 12 months or so, and they apply specifically to new mortgages. The Department of Finance says the measures will be applied to existing mortgages “where it is feasible to do so.” Business mortgages are not covered.
Improved disclosure of penalties will make life easier for borrowers who want to get out of a mortgage before the renewal date. “I can’t tell you how many borrowers call us to say, ‘How can I figure out my penalty?’” said Vancouver mortgage broker Robert McLister. “We generally have to tell them to call their lender, and then they have to endure a sales pitch from the lender – why are you leaving and things like that.”
The new mortgage regulations will require banks to show how they arrive at a mortgage prepayment penalty. However, they don’t standardize the calculation method. As it stands now, some lenders are more punitive than others with their penalties. For example, mortgage broker Jim Tourloukis said some lenders will calculate a penalty of three month’s interest based on the actual interest rate a client has, while others will use the higher posted rate that almost nobody pays.
“Without a doubt, the calculations should be standardized,” Mr. Tourloukis said. “It’s a dog’s breakfast right now.”
The government’s ban on the distribution of unsolicited credit card convenience cheques will come in proposed regulations to be published for consultation in the weeks ahead. Let’s hope there’s no slippage on this file because credit card convenience cheques exist to prey on people who can’t handle credit (here’s a column I wrote last fall on these cheques.)
Some key negatives: These cheques allow you to draw on your credit card balance for things that you can’t usually pay for with plastic, like rent or utility bills, and using them is like taking a cash advance on your card. That means you forgo the usual interest-free grace period credit cards offer.
The new rules for cheques take effect Aug. 1. They’ll limit banks to a four-day hold on newly deposited cheques of less than $1,500, which is down from five to seven days right now in many cases. Also, banks will have to provide immediate access to the first $100 deposited in a branch; for cheques deposited by bank machine, access to the first $100 would come the next business day.
That’s three annoying bank practices addressed by Ottawa. Suggestions for future government investigation: Aggressive marketing of bank mortgage life insurance, high dormant-account fees and branch staff who are called financial planners but only flog mutual funds.
What's in a title?
2012-02-22 | 10:26:10
What's in a title?
Title insurance protects against much more than fraud and knowing what it covers can also help brokers and their clients before a sale closes
A back deck or a shed usually aren’t deal breakers when it comes to buying a house, but if the purchaser doesn’t have title insurance, that beautiful backyard oasis could turn into a money pit. If it’s discovered that the deck was built without a required permit or the land survey shows the shed is actually on the neighbour’s property, the homeowner may have to pay to have the deck rebuilt or have the shed removed – not something the homeowner probably budgeted for when they purchased the property.
"Those are the kinds of things that can cost a significant amount of money,” says Karen Decker, vice-president, underwriting and legal at Stewart Title Guaranty Company. “It’s unexpected to a homeowner and without title insurance to provide coverage for their losses, it can really be a burden for a homeowner.”
It’s something the insurance providers are seeing more of says Ray Leclair, vice-president, public affairs with TitlePlus. “What we’re seeing more of now is building compliance issues.
“Sometimes it can be remedied if a building permit is obtained and the work passes, but we are seeing situations where the work is not in compliance with building codes and fixing it can be costly.
We’ve had to rebuild whole additions.”
Leclair calls it the “lottery effect.” There may be little risk that it will happen, but if it does, title insurance can provide protection.
Having title insurance also gives buyers choices during the purchase, says Leclair.
“Don’t rely solely on the title insurance and forgo doing title searches. The information may be important, more important than having a right to claim, because no one wants to file an insurance claim. The buyer should discuss it with the lawyer and decide if they want to rely on title insurance or another remedy.”
In the case of a non-compliant deck, for example, it can simply be removed as one solution, but if that deck is really important to them, the buyer maybe wants the vendor to fix it before closing or adjust the price.
“You can also leave the deck as is, knowing the likelihood of it being found to be not compliant is very small,” says Leclair. “Perhaps you’re willing to take that risk, but the lender isn’t. So title insurance can again provide a solution, because it will insure over the problem for the lender and then both the buyer and the lender are happy to proceed.”
While title fraud gets the most media coverage when it comes to title insurance, Decker say it’s important to keep in mind the coverage the product offers is very broad. “Many items are not readily discoverable at the time of purchase, but exist and surface at some date in the future.” In addition to certain building department compliance issues, this can include liens and tax arrears.
“It’s important to consider that a purchase of a home by an individual is probably the biggest investment in their life, so to have the peace of mind that title insurance policy provides, at a low one-time premium, makes sense for the homeowner and also from the lender’s perspective, as they want additional protection for their security that they’re getting for their loan,” says Decker.
Before title insurance was introduced in the 90s, traditionally what was done, was the buyer obtained a professional opinion from a lawyer that they had a good marketable title or a good charge as the lender. “The title insurance policy doesn’t replace the role of the lawyer,” says Leclair. “What it does is replace that opinion. The insurance policy stands instead of the opinion. The advantage of that is that it creates a direct link between the client and the insurer.
Previously, if there were a problem, you would need to prove the negligence of the lawyer to be able to claim any relief. With a title insurance policy, it’s basically like any other insurance claim: You call the insurer, they send an adjustor and there is a direct negotiation between the insurer and the client. You’re not restricted to matters of negligence as under the opinion, but anything that’s under the policy.
“The policy is a very specific contract; it’s not all risk. It’s an enumerated risk situation. Most policies have the same coverage. They cover title matters, but that’s actually a misnomer; title insurance covers a lot more than title matters and much more than the opinion used to cover.”
According to Leclair, a TitlePlus policy offers coverage for legal services. “Anything the lawyer did or should have done, but didn’t do properly even if not related to title, such as advising on taxes, or the agreement of purchase of sale. No need to sue your lawyer separately outside of the title insurance policy.”
Stewart also offers an enhancement to its policies covering lawyer negligence, which is obtained through an endorsement called a “closing protection letter.”
With virtually every residential transaction in Ontario title insured and the across the country the acceptance level is growing, particularly in B.C. and Atlantic Canada, according to Decker.
“If you’re not aware of title insurance you’re really behind in the knowledge level of how real estate is practiced.” She says the interest in title insurance has grown, both within the broker community and consumers in general, which helps both parties.
“Knowledge of title insurance helps guide the client,” says Decker. “If they discover a problem and they come back to the mortgage broker and it looks like the deal might not go through, it’s always wise to at least investigate with your title insurer whether or not it’s something we can provide coverage over to allow the deal to close.”
Decker says her company frequently gets calls from buyers who have a pending transaction and have discovered a title defect and we will look at the issue and if we can determine that it’s within our comfort level in terms of risk, we can add specific coverage into the policy to provide a level of protection for that particular known item, which gives the purchaser or lender the comfort to allow the transaction to proceed.
“The fact that we’re able to facilitate deals closing, benefits everyone involved in the transaction, including brokers.”
Title insurance gives the client protection after closing as well, says Leclair.
“The lawyer can tell you on the day of closing, at the time of registering your mortgage that you are the owner. But tomorrow, he can’t tell you what will happen, because a fraudster may come in and discharge your mortgage or transfer your property illegally. The lawyer is not negligent in that case, but title insurance has an obligation to defend the title and the insurer will step in at that point and attempt to reverse the damage done by the fraudster and paying for any legal costs to get that done.”
Title insurance can also save time and money at closing. “If you have a short closing and you need to do an off title search, but the municipality will take six to eight weeks to get back to you, you either have to take the risk that there won’t be anything wrong or they can get title insurance, which could cover the risk,” says Leclair.
Title insurance is a type of protection that is affordable, being a one-time cost, which is different than other kinds of insurance. Homeowners pay for it when they acquire it and it remains in place as long as they have an interest in that property.
Both Decker and Leclair agree that growth in the title insurance market is coming from the commercial sector, in addition to markets outside of Ontario and that growing the use of the product is really an educational process.
“The value of the policy is starting to show,” says Decker. “Certainly people have had experience with it, they’ve seen how claims are handled and have a comfort level with the industry. Growth is also occurring in Western Canada where not long ago there were some cases of mortgage fraud that showed lenders that if they really want to protect their interests they need a title insurance policy underlying their security.”
While premiums have risen in accordance with growing home values, Leclair says a corresponding increase in claims isn’t something the industry is concerned about.
“There have been some spikes in claims on different issues from time to time, but I think that’s just like any insurance you have,” he says. “Increasing claims are due to the maturity of the product. Title insurance has only really been around since the 90s and problems don’t necessarily show up unless you transfer the property, so there’s a good reason why those claims haven’t been brought forward until now.
“More people are turning to title insurance, where in the past they may not have been aware that it covered certain types of issues.”
Consumer Alerts
2012-02-22 | 10:24:11
Consumer Alerts
Debt reduction companies: Beware of “too good to be true” offers
The Financial Consumer Agency of Canada (FCAC) is warning Canadians to be very cautious about companies that claim they can negotiate a deal to cut the amount of debt you must repay to your creditors. This process is often called "debt reduction," "debt settlement," "debt relief" or "debt negotiation."
"Unfortunately, people do not always see the benefits that debt reduction companies lead them to expect—and some people wind up even deeper in debt than they were before," says FCAC Commissioner Ursula Menke. "If an offer to reduce your debts seems too good to be true, it probably is."
You may see advertisements or get a telemarketing call offering you a quick and easy path out of debt. The debt reduction company usually says it can work out a deal with your creditors that will allow you to pay back just a fraction of the money you owe. If you are having trouble keeping up with payments on your credit card and other debts, offers like these can be very tempting.
Four things you should watch out for with debt reduction
High-pressure sales tactics Some debt reduction companies use aggressive, high-pressure tactics on the phone. If you get a telemarketing call, don't agree to anything right away.
Unrealistic claims about slashing your debt Many companies will claim they can work with your creditors to reduce your debts by a large percentage—maybe 60 percent or even more.
However, there is no guarantee that your creditors will agree to reduce your debts. In fact, they may not even agree to participate in debt negotiations. You could end up paying fees for nothing.
Misleading information about protecting your credit rating Another claim is that there won't be any negative effect on your credit rating or score if you work with a debt reduction company.
Some companies delay making payments to creditors for a few months in the hope of getting better results from negotiations to reduce your debts. If this happens, your creditors will usually report your missed payments and your credit rating will be damaged. You may also face late payment and interest charges.
False claims about government involvement or approval Some debt reduction companies may try to give the impression that they are approved by the Canadian government or that their services are part of a government program. This is not true.
While a company usually needs to register with or be licensed by its provincial or territorial government to operate as a business, licensing or registration does not mean that the government has approved or endorsed the company.
Four steps you can take to protect yourself
Do a background check Before you agree to anything, first do some research to see whether the company is trustworthy and reputable. Check with the government office that handles consumer affairs in your province or territory, as well as the Better Business Bureau.
Watch out for upfront fees Many debt reduction companies will require you to pay a large fee in advance before you see any reduction in your debt. These upfront fees can cost you hundreds of dollars or even more than a thousand. Don't count on a refund if debt negotiations are unsuccessful.
Be very cautious about paying any fees before you have written confirmation that the company has worked out a deal with your creditors to reduce your debt.
There may also be other fees, such as ongoing monthly fees and fees for cheques sent to creditors.
Make sure you know what's happening with your creditors A company may encourage you to stop all direct contact with your creditors. Instead, the company will offer to handle all communications for you, including sending your payments to the creditors. Sometimes the company may ask you to sign a document giving it power of attorney.
Be aware that letting the company act without your involvement could mean that you know nothing if problems arise. For example, the company could be making late payments to your creditors. Even worse, it might be making no payments at all.
Consider your other options There are other ways to deal with your debts besides debt reduction. Another approach may work better for you.
As a first step, try contacting your creditors on your own. You may be able to get interest rate reductions or work out other arrangements to help you pay your bills.
Other possibilities include:
- applying for a debt consolidation loan through a financial institution;
- enrolling in a debt management program with a credit counselling agency; or
- working with a trustee in bankruptcy to file for a consumer proposal or bankruptcy (although bankruptcy should only be considered as a last resort).
Some provinces and territories have debt assistance programs or can direct you to organizations in your community that can help. Check with your local consumer affairs office to see what's available in your area.
FCAC information of interest
Tip sheets and online information
- Before You Sign Any Contract: 10 Things You Need to Know
- Dealing with Debt
- How to Beat that Debt
- Making a Budget and Sticking to It
- Managing Debt: Getting Help from a Credit Counselling Agency
- Tips for Dealing with a Debt Collector
Publications
So long, historically low mortgage rates
2012-02-13 | 10:00:43
So long, historically low mortgage rates
Toronto-Dominion Bank and Royal Bank of Canada have raised their mortgage rates ahead of schedule, putting an early end to record-low rates.
The banks offered five-year mortgages at 2.99 per cent, specials that were a boon to home buyers and revealed increasing competitiveness among Canada’s big banks.
They debuted at a time when the housing market is poised to slow down and the Bank of Canada has been warning heavily indebted consumers to do the same.
TD raised its special four-year closed fixed rate mortgage by 40 basis points to 3.39 per cent, effective Wednesday.
Related: Lines of credit rates rising
At the same time, it is introducing a special five-year closed fixed rate mortgage at 4.04 per cent.
The bank’s five-year closed mortgage now stands 10 basis points higher at 5.24 per cent.
TD had said it would offer the special rates until Feb. 29.
“Rates can go up and down depending on market conditions,” said TD spokesperson Tamar Nersesian. “While we’ve kept this offer available as long as we could, the new rate reflects rising bond yields and the subsequent increase in the cost of funds.”
Royal Bank of Canada made similar changes to its rates on Monday. The new rates also took effect Wednesday.
“Our long term funding costs have gone up considerably due to global economic concerns and while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate,” said Royal Bank spokesperson Matt Gierasimczuk.
Related: How to ensure you don't buy the wrong house
RBC cut its rate to 2.99 per cent in January in response to a similar cut from the Bank of Montreal, whose offer has since expired.
Moneyville calculators are easy to understand and use. They’ll help you make the best choices when it comes to saving and spending.
Take it from Einstein, it’s all about compounding
2012-01-31 | 11:38:40
Albert Einstein knew a thing or two about investing
If you are reading this book on RRSPs, then I think it would be safe to assume that you have an interest in retiring from the daily grind one day down the road (or helping others to do so). I think it might also be safe to assume that at some point in time, you’ve come across one of those examples of how saving $100/month for x number of years will get you $1-million. If you were like me, it piqued your interest and you started playing around with a calculator trying to figure out how much you would have with numbers that more closely reflected your own situation. And that’s how “it” starts for many. Your journey to be more involved in your personal finances is usually sparked by one story, example, article or book that you came across. In the interests of “paying it forward,” here follows an example that you can add to your arsenal, or perhaps share with someone who might then “get the bug” and start their own journey to greater financial security.
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The title of this section is “Albert Einstein Knew a Thing or Two About Investing” – I’ll explain below why I said this, but in the meantime, I want you to answer the following question as fast as you can based on your gut instinct:
You have been offered a job contract for exactly 30 days and 30 days only. You have to choose between two ways of being paid:
1) $100,000 a day
or,
2) You start at one penny for your first day, but every day your pay doubles. (i.e. your pay on day 2 is two pennies, and day 3 is four pennies, etc.)
Which pay structure would you choose? Make your decision right now.
If you were like me, you would have a feeling in the back of your mind that it probably would make more sense to choose the doubling pay since the power of compounding growth is explosive, given time. But then you would do the quick math and consider that $100,000 a day for 30 days is a cool $3,000,000! So, if you were like me, you would have chosen the $100,000 per day.
Let me give you some more information – and see if you would change your mind. I will tell you that for the “doubling pay” scenario:
On Day 10 you would have earned $5.12 for that day.
On Day 20, you would have earned $5,242.88 for that day.
Perhaps the $100,000 a day is starting to sound like it was indeed the right choice? Well if you did pick the $100,000 per day like I did – then I’m glad I wasn’t the only person who got it wrong! I’ll spare the explanation and just show you the chart:
Day 1 $0.01
Day 2 $0.02
Day 3 $0.04
Day 4 $0.08
Day 5 $0.16
Day 6 $0.32
Day 7 $0.64
Day 8 $1.28
Day 9 $2.56
Day 10 $5.12
Day 11 $10.24
Day 12 $20.48
Day 13 $40.96
Day 14 $81.92
Day 15 $163.84
Day 16 $327.68
Day 17 $655.36
Day 18 $1,310.72
Day 19 $2,621.44
Day 20 $5,242.88
Day 21 $10,485.76
Day 22 $20,971.52
Day 23 $41,943.04
Day 24 $83,886.08
Day 25 $167,772.16
Day 26 $335,544.32
Day 27 $671,088.64
Day 28 $1,342,177.28
Day 29 $2,684,354.56
Day 30 $5,368,709.12
Okay, so without adding up the running total, you can just look at the last day and see that $5,368,709.12 for that one day is more than the $3,000,000 you would have earned with the $100,000-a- day scenario.
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